Human Capital & Careers

Health Care: Spend More, Save More

Companies that eliminate co-payments report better medication adherence – and lower health-care costs.
Kimberly BlantonNovember 18, 2010

To control health-care costs, more companies are resorting to a strategy that doesn’t seem to make sense: They are spending more.

Employers are rejecting unpopular benefit cuts and instead eliminating co-payments on prescription drugs to encourage employees with severe health problems to take their medications and stay healthy. The theory is that the financial incentive will stave off emergency-room visits, hospital stays, and disability claims over the longer term.

Companies tracking their costs are convinced this works, despite an absence of rigorous research to back them up. Employers that waived or reduced co-pays for maintenance drugs for chronic conditions increased from 11% in 2007 to 18% in 2009, according to a survey by consulting firm Mercer of companies with more than 20,000 employees. Employers that did so for various other therapies increased from 6% to 11% during that time.

“There’s been an explosion of interest in this area in the past few years, and it’s motivated by very clear concerns about rising health-care costs,” says Dr. Kevin Volpp, director of the University of Pennsylvania’s Center for Health Incentives.

The employers are usually self-insured and typically eliminate co-pays for four pervasive — and costly — conditions: asthma, diabetes, high cholesterol, and high blood pressure. These account for nearly a quarter of total medical spending.

In the vanguard is Pitney Bowes, which has documented six years of declining medical costs after co-pays were reduced or ended entirely. Florida Power & Light, NextEra Energy Resources, Marriott, a major Midwestern employer consortium, the University of Michigan, and others have adopted versions of this approach. The practice is also gaining a following among smaller companies, according to Eric Grossman, a Mercer senior partner.

Some employers are poised to expand beyond just prescription-drug incentives, says Grossman. Consider diabetes patients, for whom poor circulation and deteriorating eyesight can be warning signs of a rapidly deteriorating condition. “We’re going to see companies saying not only will we waive your co-pay or cut it in half for your diabetes [medication], but we’ll also do the same thing when you’re having your foot exam and your retinal exam,” says Grossman.

Academic research has confirmed that adherence to prescriptions improves when co-pays are eliminated. For example, a study in the November issue of Health Affairs found that when Pitney Bowes eliminated co-pays for Lipitor and other cholesterol-lowering drugs, as well as for Plavix-like drugs that prevent blood clots and blocked arteries, employees’ adherence to their prescriptions increased, on average, between 2 percentage points and 4 percentage points per employee per month. Nevertheless, says UPenn’s Volpp, there is no rigorous academic research yet to confirm that improved health can save money over the long term.

But Midwest Business Group on Health has found otherwise. The Chicago consortium, which purchases health benefits and services for 100 large employers, offers a program that eliminates co-pays for diabetics. Participants save up to $3,000 per diabetes patient annually, says Larry S. Boress, the consortium’s chief executive. They do so by heading off everything from minor medical crises to extended hospital stays, which can cost up to $90,000 for high-symptom patients. The group will soon expand the program to cardiovascular care, he says.

Boress says ending co-pays was not enough, however, noting that in the early 1990s, before co-pays were widely instituted, drug compliance was “lousy.” So Midwest Business Group matches diabetics with a pharmacist “coach” to help them manage their disease and, equally important, communicates that their confidential medical information will not be shared with employers.

Along with the carrot of no co-pays, there is a stick: Employees who stop seeing their coach must resume making co-pays, which can cost $200 a month for diabetics on multiple drugs.

At Pitney Bowes, more than 14,000 of 22,000 U.S. employees are enrolled in medical plans with zero or reduced drug co-pays. The self-insured company layered the plan design changes, beginning January 1, 2002, when it reduced co-pays for asthma, diabetes, and hypertension medications. Five years later, it reduced co-pays for anti-clotting, smoking cessation, and anti-seizure drugs but eliminated them entirely for patients who have had heart attacks and take Lipitor, Plavix and similar drugs.

From 2001 through 2007, Pitney Bowes slashed medical payouts on asthma treatments by 17%, diabetes by 14%, and hypertension by 20%, according to Andrew Gold, executive director of global benefits planning. “Our biggest challenge is getting employees to participate,” he says.

But Pitney Bowes employee Mike Hardy is already sold. Manager of e-commerce for the global online group, Hardy says his free Plavix and Lipitor prescriptions are just one piece of a comprehensive health plan that probably saved his life.

Nearly two years ago, he suffered a severe heart attack — his first — at the company’s Stamford, Connecticut, headquarters. He descended to the clinic one floor below his office, where a nurse practitioner immediately called an ambulance and a cardiologist, who was waiting at the hospital.

The minutes saved were critical, he would later learn, because his artery was completely blocked. One hour after his arrival, doctors had inserted a stent.

“The minute it was in,” says Hardy, “I felt better.”