Tier 4

Most health plans offer their members three tiers of prescription drug benefits — generic, preferred brand, and non-preferred brand. The co-payments/co-insurance increase as you move from generic to non-preferred brand. The New York Times reported that health plans are beginning to add a fourth tier for specialty drugs.

Specialty drugs are high cost, typically injectable drugs used to treat complex conditions. AIS Health posts a library of articles on specialty drugs here. Specialty drugs are expensive because, among other reasons, there is no legal “pathway” at present for creating generic versions of biological drugs. The New York Times article is noteworthy because it describes the impact of a fourth tier for specialty drugs on a FEHB plan participant. The Times article illustrates the importance of finetuning benefit communications.

In Tuesday’s paper, the Times weighs in with an editorial on the issue:

There is little doubt that the so-called tiered formularies, in which co-payments rise along with the cost of the drugs, are a sensible approach for encouraging consumers to use the cheapest drug suitable for their condition. But the system seems to break down when it moves to Tier 4 drugs where co-payments can be huge and suitable alternatives don’t exist. The insurers say that forcing patients to pay more for unusually high-priced drugs allows them to keep down the premiums charged to everyone else. That turns the ordinary notion of insurance on its head. Instead of spreading the risks and costs across a wide pool of people to protect a smaller number of very sick patients from financial ruin, insurers are gouging the sickest patients to keep premiums down for healthier people.

The Times editorial oversimplifies the issue. Heavy utilizers of healthcare typically pay more than those who don’t through co-insurance. A person who undergoes heart surgery will pay more out of pocket than a person who only receives routine care. The more refined issue is whether the plan places a stop loss on the aggregate co-insurance for the specialty drugs as it would with co-insurance on surgical treatment and if so at what dollar amount is the stop loss threshold set.