Why Plan Sponsors Are Considering Alternative Prescription Drug Plans

In 2004, the nation's spending on prescription drugs was more than $200 billion. While this represents one of the largest segments of health care spending today, the good news is that pharmacy costs are moderating; growth in 2003 was 12.4 percent versus 19.7 percent in 1999. However, despite moderation, pharmacy costs continue to represent a significant portion of an employer's benefits expenditures.

Pharmaceutical manufacturers are often blamed for the high cost of prescription benefits. In reality, there is a complex array of factors influencing pricing that must be examined to find effective and meaningful solutions for employers and payers. Factors currently influencing price include:

• Federal and state legislation;
• Consumer trends within the marketplace;
• Increasing utilization caused by an aging population; and
• Growing demand as a result of society's fixation on prescription drugs as a cure for all ills.

To manage costs more effectively, payers are looking for solutions, and are often willing to try any option that appears to promise lower costs. Many of the newer drug benefit design options share a common theme; they place more responsibility and financial burden on the employee as a primary strategy to reduce costs to the employer.

However, employers cannot continue to shift costs to members as the sole tactic to reduce health benefit expenses. The industry must find ways to encourage employers to move beyond the latest benefit design trend to focus on strategies with the proven ability to manage costs and improve quality. These approaches will ensure that employers' pharmacy benefit management (PBM) programs are "customized" to better meet the demands of plan members and plan sponsors.

Plan Administration | Dental Plan

The last item to be addressed is claims administration. The nature of dentistry and dental plan design suggests that claims administration is very important. While several years may lapse before an insured has occasion to file a medical claim, rarely does the year pass during which a family will not visit the dentist at least once. Therefore, claims administration capability is an extremely important consideration in selecting a plan carrier—and might very well be the most important consideration.

One key element of claims administration is "predetermination of benefits." This common plan feature requires the dentist to prepare a treatment plan that shows the work and cost before any services begin. This treatment plan generally is required only for nonemergency services and only if the cost is expected to exceed some specified level, such as $300. The carrier processes this information to determine exactly how much the dental plan will pay. Also, selected claims are referred to the carrier's dental consultants to assess the appropriateness of the recommended treatment. If there are any questions, the dental consultant discusses the treatment plan with the dentist prior to performing the services.

Predetermination is very important both in promoting better quality care and in reducing costs. These benefits are accomplished by spotting unnecessary expenses, treatments that cannot be expected to last, instances of coverage duplication, and charges higher than usual and customary before extensive and expensive work begins. Predetermination of benefits can be effective in reducing claim costs by as much as 5 percent. Predetermination also advises the covered individual of the exact amount of reimbursement under the plan prior to commencement of treatment.

Also important are alternate treatment provisions. These provisions enable the plan administrator either to approve the least costly, equally effective treatment option or to cover more expensive procedures only at the level of the less expensive alternative. Alternate treatment provisions, adopted by most plan sponsors, can reduce plan costs up to 5 percent.