Reversing the curve

This year the total medical cost for a typical American family of four is 7.8% more than last year, and that rate of increase is actually pretty good compared to some other years in the last decade. The increase—$1,303 this year alone—can be disheartening. But there are some very promising examples of effective cost control that can allow for more affordable care while also preserving quality.

Milliman's New York health and welfare practice has recently seen a prime example of this in a longtime client's efforts to control prescription drug costs. Many of the ideas underlying this effort to control costs are not particularly new—the logic behind controlling utilization to control costs has been around for years—but what really stands out here is the result: In an environment marked by such stark year-to-year healthcare cost increases, this client has actually reversed its pharmaceutical cost trend.

The 1199SEIU Benefit Funds are selfinsured, self-administered Taft-Hartley funds in the New York region that provide benefits to employees, retirees, and dependents at hospitals, nursing homes, and home health organizations. The 420,000-member funds have been a Milliman client for more than 30 years. Since 2004, the benefit administrators and trustees at the funds have actively worked with Milliman experts about controlling healthcare costs.

"For years we've been having work groups and cost-containment meetings and we've shared ideas on cost savings and how to go about implementing them," says Milliman principal and benefits consultant John Bauer. "We've introduced various experts from Milliman into the discussion and have had an ongoing, open dialogue around the topic of controlling costs while maintaining quality benefits. During collective bargaining periods we've offered financial impact projections of the different decisions they could make in their benefit composition. They came to us with a new approach to their pharmacy benefit. It was entirely a plan of their own invention. We projected what kind of results they might expect—they looked quite promising—and the program has since been implemented and has actually received an award."

The 1199 concept is built on a novel yet simple premise: Members that work with the plan design spend nothing on medications, while those that work against the plan design incur costs. Rather than capping or restricting the utilization of pharmacy benefits, the 1199 design encourages the most efficient utilization by rewarding the most cost-efficient delivery of the right prescriptions and requiring cost sharing for members that opt for less advantageous usage.

For example, mail order is mandatory for long-term medications and the prescriptions are filled for 90 days instead of 30 days. Anyone who chooses to buy 30-day prescriptions via their local pharmacy has to pay out of pocket. For members who really want to visit a pharmacy, the 90-day prescriptions can also be filled at the Rite Aid pharmacy chain. Generic drugs are strongly encouraged where they are available, with no participant cost sharing on these prescriptions. Members pay the cost difference between the brand-name drug and the generic drug when the generic choice is available. Members also pay the difference in cost between non-preferred and preferred brand drugs based on a carefully researched preferred drug list, with no participant cost sharing on preferred brand drugs.

The result? The 1199 Funds have saved more than $200 million since 2005. The prescription cost trend has not only decelerated but was negative in 2008 and 2009, in an environment where seemingly every other cost component has gone up (we mentioned the 7.8% average cost increase this year in total medical spending; the pharmacy trend built into that number is 6.1%).

In recognition of these impressive results, the 1199 pharmacy benefit design was recognized this year for its cost-containment efforts by the Pharmacy Benefit Management Institute. The Funds are one of four 2010 honorees.

"This has been an ideal example of client initiative," says Bauer. "Milliman provided support and financial guidance, but the people designing the 1199 benefit became experts in their own health costs and developed this sophisticated approach that is very impressive. The results speak for themselves."