Health Insurance Pharmaceuticals

How do CDHPs affect Pharmaceutical Spending and Utilization

Recently, health insurers have been more likely to offer a tiered copayment structure to enrollees. Patients face low co-payments for generic drugs, higher copayments for “preferred” name-brand drugs, and the highest for name-brand drugs on a “nonpreferred” list.

Consumer driven health plans (CDHPs) however offer a simpler payment system. The consumer generally places funds into an account which can be used to pay for medical spending of any kind (including pharmaceuticals). After the funds in the account are exhausted, the individual must pay for medical treatment out of pocket until the deductible is met.

A paper by Parente, Feldman and Chen (2008) takes data from a large, self-insured employer that had a CDHP and a POS with a 3-tier copayment structure and analyzes how CDHP affect pharmaceutical spending and utilization. The authors use a standard two part model:

  • P(Rx>0)=α0 + α1X + α2C + α3T + α4TC
  • Ln(covered expenditure|expenditure >0)=β0 + β1X + β2C + β3T + β4TC

Here, X are enrollee covariates, C is the choice of insurance, T is equal to unity after the CDHP is introduced, and TC is the interaction term. Thus, we have a difference-in-difference estimation strategy using a two part model.

The results of the study are as follows:

“CDHP cost sharing does not favor generic drugs to the extent found in three-tier benefits, which provide a substantial price reduction for generic drugs. However, we note differences among the three-tier designs where the PPO cohort used more brand name drugs and fewer generic drugs than the POS cohort”

The authors also hypothesized CDHP enrollees would utilize more mail order drugs to save on costs.

“Our third hypothesis that CDHP enrollees would use more mail-order prescriptions than other cohorts was supported in all 3 years, but the results were not statistically different from the POS cohort.”