Dozens of federal health plans require high payments for specialty drugs

More than 87,000 federal employees have health insurance that requires them to pay higher prices for certain specialized drugs than they would under standard co-payment systems, Government Executive has learned. And more insurers may turn to such pricing plans.

"This is going to be an ongoing problem," said Lorraine Dettman, assistant director for insurance services programs at the Office of Personnel Management, which oversees the Federal Employees Health Benefits Program. "The cost of these specialty drugs can be enormous. The question becomes what is the industry going to do about those costs? It's very expensive for individuals to bear [them], but it's also very expensive for group programs, even as a shared cost."

Government Executive's research was prompted by an April 14 New York Times report on insurance companies that now require customers to pay a percentage of the full price of some drugs that treat diseases -- including anemia, hepatitis C, multiple sclerosis, rheumatoid arthritis and certain kinds of cancers -- rather than charging set co-payments that are unrelated to the drug's actual cost. The insurance companies determine which drugs fall into different pricing tiers.

Until recently, one of those companies was Kaiser Permanente. The company announced on April 11 that it was suspending such a pricing system that it had introduced this year in its Kaiser Foundation Health Plan of the Mid-Atlantic States, which covers more than 63,000 federal employees in Washington, Maryland and Virginia. That system required members to pay 25 percent of the cost of drugs that fell into Kaiser's highest pricing tier -- up to a maximum of $325 per prescription at pharmacies run by the company -- and 30 percent of the price up to $375 per prescription at pharmacies affiliated with the company.

Kaiser's plan was not the only one to employ a percentage pricing system for these drugs. A review by Government Executive of all the plans offered through FEHBP found that in 2008, 49 plans covering employees in 20 states, Puerto Rico and the Foreign Service, require enrollees to pay a percentage of the price of so-called Tier 4 or Tier 5 drugs. Last year, 87,242 federal employees and their families were enrolled in those plans. (Click here for a full list of the plans.)

Some of those plans cap the total cost of a single refill, while others set ceilings for total out-of-pocket expenses on prescriptions. Kaiser's cap per refill was higher than the ceiling set by other plans.

The Foreign Service Benefit Plan, which in 2007 covered 14,788 employees and their families from the State and Defense departments, the U.S. Agency for International Development, the Foreign Commercial Service and the Foreign Agricultural Service, requires members to pay 25 percent of the cost of drugs in its most expensive tier. For some of those drugs, enrollees may be required to use a mail-order service to obtain the prescriptions after their first refill, or they must pay the entire cost of the drugs.

Humana, which covered 28,741 federal employees and their families through its offerings in 11 states and Puerto Rico in 2007, mandates that its enrollees pay 25 percent of the cost of drugs that fall into its Tier 4 pricing, but limits out-of-pocket spending on drugs in that level to $2,500 per member per year.

Triple-S, which covered 19,101 federal employees in Puerto Rico and the U.S. Virgin Islands in 2007, requires plan members to pay 20 percent of the cost of the specialty and biologic drugs that fall into its Tier 5, up to a limit of $100 per refill.

Representatives of several federal employee groups said they would call for congressional investigations into percentage-based pricing for certain drugs and pressure OPM to reject plans that included different pricing systems for specialty drugs.

"I think we would want them to reject this practice," said Dan Adcock, assistant legislative director of the National Active and Retired Federal Employees Association.

National Treasury Employees Union President Colleen Kelley sent a letter to OPM Director Linda Springer on Wednesday calling on her to release more information about OPM's role in approving plans that included the specialty drug pricing systems. "Rather than transfer burdensome and, in many cases completely unrealistic costs to federal employees, I would hope that OPM's efforts would be directed toward using the considerable marketing clout inherent in the FEHBP to keep costs reasonable for all participants," Kelley wrote.

Sen. Barack Obama, D-Ill., also sent Springer a letter on Wednesday, asking her to release more details about federal employees' insurance options and the impact that tiered payment structures had on premium prices by April 30.

"What, if any, additional federal regulation is needed to ensure that FEHBP enrollees are able to access critical, life-saving or disease modifying drugs?" Obama asked.

OPM's Dettman said she was not sure whether other health insurance plans would want to introduce new pricing systems after the negative attention Kaiser's pricing plan received. "We will see if there are other plans that [want] to move to this kind of a fee structure," she said. "Other plans also read The New York Times, so it may give them pause in terms of wanting to go to something like this."

NARFE's Adcock said he hoped congressional committees would investigate drug pricing issues. Officials at the organization said they would move quickly to educate their members about the various pricing structures.

"We'll certainly be looking at more of the bigger HMOs to see what changes they have scheduled for the next calendar year," said David Snell, director of NARFE's retirement benefits service department.

Dettman said all federal employees should be prepared for similar changes to their health care plans.

"I think it's very important that people read the materials that they're sent and review each year," she said. "With the increasing medical costs that we're seeing across the country, these plans have to do something to remain competitive."