TORONTO, May 19, 2011 — Despite the ever-escalating cost of prescription drugs, Canadian organizations that sponsor benefit plans are slow to adopt more innovative solutions to manage this expense, according to a survey conducted by Aon Hewitt, the global human resources consulting and outsourcing business of Aon Corporation (NYSE: AON). As a result, drug costs continue to eat up 60 per cent to 80 per cent of medical benefit plan budgets, leaving organizations with concerns about whether or not they can continue to provide this coverage for their employees.
According to Aon Hewitt data, prescription drug costs have risen by at least eight per cent per annum over the last few years and average $566 per claimant and $1,013 per employee (including dependant claims) per year. However, several of the more commonly prescribed drugs will soon lose patent protection, likely resulting in the availability of less expensive generic versions. In addition, a number of provinces have passed legislation that regulates the price of generic drugs, eventually decreasing their cost to 25 per cent of their brand name equivalents.
“These factors have led some plan sponsors to conclude that their drug plan expenses will decrease even if they do nothing,” said Shawn O’Brien, a senior health and benefits consultant with Aon Hewitt in Toronto. “Some organizations are being more proactive: 47 per cent of the respondents to an Aon Hewitt Rapid Response survey indicated that they are ensuring reductions by requiring mandatory generic substitution. We expected this number would be higher, but another 30 per cent stated they are considering taking this action.” The survey, conducted in January, gathered feedback from 166 Canadian organizations regarding their current and emerging drug plan cost control strategies.
However, the prescription drug landscape is changing and plan sponsors may want to think long term when it comes to developing a cost management strategy, according to Tim Clarke, Aon Hewitt Canada’s health and benefits innovation leader. “The number of biologic drugs in the pipeline is increasing—which is great news for those suffering from chronic conditions such as rheumatoid arthritis, multiple sclerosis, Crohn's disease and lupus,” stated Clarke. “The challenge for organizations is that these drugs cost $20,000 to $50,000 per year per prescription, and as much as $100,000 for some rare diseases. Organizations need affordable solutions that help employees and family members suffering from these conditions.”
There are a number of solutions that all prescription drug plan sponsors should implement now to control costs. Other measures may be appropriate depending on drug plan usage. Certain additional strategies are not widespread in Canada, but are worth considering for the future.
Monitoring Drug Plan Usage
Before implementing any cost containment solutions, plan sponsors should review their drug plan usage—and most do so. Eighty-four per cent of organizations assess their drug data at least annually and use it to make decisions about health and wellness initiatives, medical plan design, and/or medical plan pricing and budgeting decisions.
Through analysis of employee prescription drug usage and trend spotting, organizations can pinpoint areas of concern. More sophisticated benchmarking and cost projection modeling provide additional insight. Armed with this information, plan sponsors can determine which modifications would have the greatest impact on current and future drug plan costs.
From Best Practices to Next-Generation Strategies
“Some solutions to manage drug plan costs have been available for some time,” said O’Brien. “In addition to mandatory generic drug substitution, 80 per cent of plan sponsors are already using pay direct drug cards and 12 per cent are thinking about introducing them; 46 per cent encourage a 90-day supply for refills, with another 36 per cent considering doing so; and 32 per cent require pre-authorization for certain high-cost drugs, while another 34 per cent may do likewise. These are examples of best practice strategies that all organizations should consider implementing.”
Though fewer plan sponsors have introduced more leading-edge approaches to contain costs, such as managed drug formularies, optimized provincial plan coordination, and educating employees with targeted messaging for specific drug classes, these are emerging opportunities that ay least 30 per cent are willing to consider.
“Other strategies are not readily available and in very limited use, but represent tactics that plan sponsors should keep an eye on for the future,” said Clarke. “For example, fewer than ten per cent of survey respondents currently have preferred provider pharmacy arrangements, encourage mail order delivery for maintenance drugs, negotiate discounts, or provide case management for high-cost claimants. These strategies may provide significant savings in the next few years.”
Aon Hewitt is exploring prescription drug cost containment strategies in more detail in an upcoming series of complimentary seminars across the country. For more information and to register online, please visit www.aon.ca/events/hb/
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About Aon Hewitt
Aon Hewitt is the global leader in human resource consulting and outsourcing solutions. The company partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit www.aonhewitt.com.
Aon Corporation (NYSE: AON) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human resources solutions and outsourcing. Through its more than 59,000 colleagues worldwide, Aon unites to deliver distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally in over 120 countries. Named the world's best broker by Euromoney magazine's 2008, 2009 and 2010 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on revenues in 2007, 2008 and 2009, and Aon was voted best insurance intermediary 2007-2010, best reinsurance intermediary 2006-2010, best captives manager 2009-2010, and best employee benefits consulting firm 2007-2009 by the readers of Business Insurance. Visit http://www.aon.com for more information on Aon and http://www.aon.com/manchesterunited to learn about Aon's global partnership and shirt sponsorship with Manchester United.
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