The post has implications for both business owners and consumers, especially those on Medicare.
The dilemma is the same for both: do you keep drug coverage within your overall medical insurance or separate it? The argument for separation is to reduce costs. Larger companies in particular can try to cut costs by negotiating prices directly with pharmacy benefit managers (PBMs), the organizations that also define insurance formularies and copays for medications. [The formulary is the list of drugs an insurer covers and the tier to which that drug is assigned. The tier defines the cost to the consumer.]
Separating drug coverage from medical coverage is now called a “carve out.”
Does this strategy actually save money for companies? New research indicates that the carve out results in higher medical costs in the second and third year, especially among employees with chronic medical conditions.(1) The argument is that integrated, holistic patient care management leads both to better results and lower costs. Companies trying to save money with the carve-out strategy simply shift costs from pharmacy to doctors and in the end pay more.
Senior consumers have a more difficult situation. If they are in Original Medicare or have a Medicare Supplement (the A-N lettered policies), they are required to pay for a separate drug plan. That has been true from the beginning of Medicare. Conversely, if they opt for a Medicare Advantage Plan, most of those include drug coverage integrated into the policy. In fact, with a Medicare Advantage plan, consumers aren’t allowed to purchase separate drug coverage.
The Advantage plans tend to be less expensive than Supplements (some have $0 premiums) and offer the potential for integrated care management. Those Advantage plans targeted to people on Medicaid, or who have chronic conditions or reside in nursing homes are expressly designed to provide coordinated and integrated care management. The goals are to optimize the care the patient receives and prevent duplication of services. By and large, this approach seems to work for most consumers.
When doesn’t integrated drug coverage work for the consumer? The problems come when the PBM the insurer uses exclude a key medication or assigns it to Tier 4 (non-preferred brand) or 5 (custom), making the drug absurdly expensive. The Centers for Medicare and Medicaid Services (CMS) requires that insurers cover two drugs in every diagnostic category, but that doesn’t work for some consumers, including myself. Some people need a specific product, and have tried substitutes with poor results. While you can appeal the insurer’s decision not to cover a drug, and that sometimes works, it’s easier to shop for a drug plan that will cover what you need.
If the retiree is a snowbird or otherwise live on the road, there’s no choice. Advantage plans are largely HMO and geographically restricted. If you need to see doctors in different states (who accept Medicare, of course), you have to go for a Supplement and separate drug plan.