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Health Care Costs and Financing

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Researchers examine the impact of prescription medicine coverage and copayments on medication use

The cost of prescription drugs is growing faster than any other segment of health care. In response, many health insurance plans require members to pay a higher copayment when they choose brand name over generic drugs. However, consumers still demand greater choice in this matter, which has led some plans to implement multi-tiered prescription copayments or other similar cost-sharing arrangements. Anecdotal reports show that many elderly patients on limited incomes respond to high prescription costs by cutting their medication dosage or simply not taking prescribed drugs. Findings from recent studies, however, are mixed. This situation has led to increased interest in a prescription drug benefit for Medicare.

Two recent studies that were supported in part by the Agency for Healthcare Research and Quality examined these issues. The first study (AHRQ grant HS10066) found that three-tiered prescription copayments controlled drug costs without increasing use of health care services. The second study (AHRQ grant K02 HS00006) demonstrated that elderly people who are poor, minorities, and suffer from chronic health problems are most likely to restrict their use of medications when they have no prescription drug coverage. Both studies are summarized here.

Motheral, B., and Fairman, K.A. (2001). "Effect of a three-tier prescription copay on pharmaceutical and other medical utilization." Medical Care 39(12), pp. 1293-1304.

By the spring of 2000, 80 percent of health plans with prescription benefits were offering three-tier copay options, compared with only 36 percent 2 years earlier. With this approach, generic medications have the lowest copay, formulary brand medications (list of medications provided by the insurer) a somewhat higher copay, and non-formulary brand medications the highest copay. This study found that 6,881 members of a commercial preferred provider organization (PPO), whose employer moved them to the three-tier copayment system (intervention group), had lower medication costs and use than the 13,279 PPO members whose employers kept them in the two-tier plan (control group). What's more, there were no significant differences between the two groups in visits to the doctor's office, hospitalizations, or emergency room use.

This suggests that the three-tier drug prescription copayments controlled drug costs without resulting in patients needing more health care services, conclude the researchers. They used medical and pharmacy claims to evaluate the outcomes of PPO members with two- and three-tier copayments. Before implementation of the three-tier structure, both groups had a copayment of $7 for generic and $12 for brand medications filled through network pharmacies, and $10 for generic and brand drug prescriptions filled via mail order. With the three-tier plan, copayments for prescriptions obtained through network pharmacies were $15 for formulary brand products, $25 for nonformulary brand products, and $8 for generic medications.

No difference in generic fill rate was seen across groups for the affected tiers of medications. However, the control (two-tier) group had significantly greater increases than the intervention (three-tier) group in total prescription claims, tier-two claims, and tier-three claims. The higher copayments required of the three-tier group may have restrained their spending, considerably reducing net costs for the insurer when combined with the higher copays in the three-tier plan. For example, members' copayment outlays increased by 50 percent and 16 percent and insurers' net costs by 3 and 24 percent, in the intervention and control groups, respectively.

Steinman, M.A., Sands, L.P., and Covinsky, K.E. (2001). "Self-restriction of medications due to cost in seniors without prescription coverage." Journal of General Internal Medicine 16, pp. 793-799.

Elderly patients who are poor, members of a minority race, and suffer from chronic medical problems are most likely to restrict their use of medications when they have no prescription coverage, according to these researchers. They examined medication use based on prescription coverage using data from the 1995-1996 wave of the Survey of Asset and Health Dynamics Among the Oldest Old, a population-based survey of Americans aged 70 and older.

The survey asked seniors whether they had taken less medicine than prescribed for them because of medication cost over the prior 2 years. Of the 4,896 seniors who regularly used prescription medications, 8 percent with no prescription coverage said they restricted their use of medications because of cost, as did 3 percent with partial coverage, and 2 percent with full coverage.

Overall, 39 percent reported no prescription coverage, 44 percent had partial coverage, and 17 percent had full coverage. Out-of-pocket prescription drug costs were substantially higher for those without coverage (median and 75th percentile costs of $60 and $119 per month for those with no coverage compared with $24 and $50 per month for those with partial coverage). Among elderly people with no prescription drug coverage, the strongest independent predictors of medication restriction were minority race compared with white race, annual income under $10,000 compared with income of at least $20,000, and out-of-pocket prescription drug costs of more than $100 per month compared with $20 per month. The prevalence of medication restriction in members of these three risk groups was 21 percent for minorities, 16 percent for those with low income, and 13 percent with high monthly out-of-pocket costs (indicative of chronic health problems). Almost half (43 percent) of those with all three risk factors and no prescription coverage reported restricting their use of medications.

After adjusting for other factors affecting use of medications, these high-risk elderly people with no coverage had 3 to 15 times higher odds of medication restrictions than elderly people with partial or full coverage. The researchers caution that cost savings of drug policies that do not cover prescription drugs may be offset by increased use of other health services by elderly patients who cannot afford to use essential medications.

Editor's Note: See the next issue (May 2002) of Research Activities for more information on this topic. Findings from three additional studies on drug pricing and copayments will be summarized in May.

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