Covered California completed its second successful open enrollment season, with nearly 500,000 additional people signing up for coverage; it also added a special enrollment period through April 30 for Californians facing unexpected tax penalties for going without health insurance. Covered California is now turning its attention to some of the complicated, critical issues around benefit design.
One of these issues is the high cost burden that enrollees may face for specialty drugs, such as medicines used to treat HIV/AIDs, rheumatoid arthritis, and Crohn's disease. The issue illustrates some of the challenges of ensuring that health coverage translates into affordable access for enrollees. It also highlights the importance, as well as the difficulty, of moving toward a more rational market where plans compete on value and consumer preferences, including overall cost to the consumer and quality of services and providers in their networks.
As more high-cost specialty drugs have come to market and prices continue to rise, insurers nationwide have been modifying benefit structures to keep premiums from ballooning. One approach is to have consumers share more of these costs. Many plans have added a new category to their drug formularies: the specialty tier. For medicines on the specialty tier, consumers pay a percentage of the drug cost (co-insurance) instead of a flat copay amount. In a California Health Care Foundation-funded analysis of the plans offered through Covered California in 2014, Avalere Health found that 82% of the formularies included a specialty tier. The Covered California standard benefit design allows a specialty drug tier with 10% to 40% co-insurance, and state law provides no guidance on which drugs can be included in this tier.
Because these drugs tend to be very expensive, consumers can be hit with high out-of-pocket costs. A consumer with rheumatoid arthritis who buys an unsubsidized silver plan through Covered California could pay close to an additional $3,000 annually if her medication was placed on the specialty tier rather than the preferred brand tier. (CHCF will soon publish a report on the out-of-pocket costs faced by individual market enrollees with chronic conditions.)
In addition, under a co-insurance structure, it is difficult for consumers to decipher what their costs will be. Many of us already struggle to understand copays, premiums, and deductibles, let alone co-insurance and the arcane formulas of drug pricing.
The Avalere analysis also found substantial differences among plans regarding which drugs were placed on specialty tiers. For example, while most health plans offered in Covered California in 2014 had few or no HIV medications on the specialty tier, one plan placed all HIV medications there, a practice CMS has said may be discriminatory (PDF). A recent New England Journal of Medicine article examining this practice in other states coined the term "adverse tiering," explaining how it can lead over time to an imbalance between healthy and sick enrollees, known as adverse selection, and thereby destabilize the insurance pool.
Covered California is already working with health plans and stakeholders to fix the problem for 2016. Their principles for action on the issue make a lot of sense, as described in this March 5, 2015, Covered California board meeting presentation on policy items (PDF), starting on slide 20. On that date, the Covered California board took important first steps by strengthening formulary transparency requirements and requiring plans to offer prospective enrollees more assistance in determining drug coverage. Board members adopted standardized formulary tiers — a wise move in keeping with California's progressive approach — moving toward a market where consumers can choose based on value and needs. They added requirements designed to improve access to medications for those with chronic conditions requiring high-cost drugs. They are now considering at which level to cap consumer costs for the most expensive drugs. In 2014, almost 50% of Covered California enrollees earned less than 200% of the federal poverty level. This makes formulary tiers a critical issue.
One of the great victories of the Affordable Care Act is deterring the insurance market from discriminating based on health status. Covered California is moving to ensure prescription drug tiers do not become a backdoor form of underwriting that discriminates against people with serious health conditions. Protecting consumers with chronic conditions from paying high costs without driving up premiums for everyone is challenging and calls for thoughtful benefit design. In the long run it also will require addressing a larger issue: How can we better control costs for life-saving medicines?