On April 14, 2008, The New York Times reported that there is a new tier of drug coverage in the marketplace—Tier 4. This new tier includes coverage for expensive, specialized drugs that can include factor products. Although this may sound appealing, plans that group Tier 4 drugs into a separate category can leave policyholders with large out-of-pocket costs. While the number of insurance plans with a Tier 4 is currently small, it is likely to increase during the next several years.
Insurers created Tier 4 to keep premiums down by spreading more of its costs to the drugs’ users. While this policy may help control premium costs, it places a new financial burden on users of Tier 4 drugs. Concerned about cost to consumers, state senators in New York, led by Sen. John L. Sampson (D-Brooklyn), have introduced legislation that would prevent health insurers from implementing Tier 4 coverage. This legislation (S. 7794) will regulate tier drug plans based on the cost of the drug covered and the disease it treats.
Factor product is covered by insurance plans in one of two ways. It is more commonly covered as a health benefit, but there is a strong trend toward covering it as a drug benefit. This could result in an increase in Tier 4 coverage.
It’s important to note that when someone is required to get his/her factor products through Tier 4, the individual already had coverage for factor products as a medical or drug benefit. It’s not the list of what is covered that changes; it’s the way the drugs are covered.
Drug Coverage
Tier 4 includes coverage of most biotech drugs, expensive high-tech medications that are commonly injected or infused. Factor products are considered biotech drugs. As a category, biotech drugs are referred to as specialty pharmacy drugs.
The New York Times article went on to state that Medicare Part D prescription plans are leading the way, with 86% of Medicare Part D plans including Tier 4 drug coverage. Because factor products are covered under Medicare Part B, not Medicare Part D, they are not subject to Tier 4 coverage.
Employer plans and individual plans are another story. The New York Times article emphasized that there has been significant growth of Tier 4 coverage through employer plans. Virtually no plans included Tier 4 coverage five years ago, but today 10% of employer plans include it. More growth is projected in the future. Individual plans are also including Tier 4 coverage, and more growth is projected for them as well.
Tier Primer
- Tier 1: Generic Drugs
Substitute drugs for brand drugs that have gone off patent and have the lowest co-pay option of all tiers - Tier 2: Preferred Brand Drugs
Brand drugs that are listed on a plan’s formulary, i.e., listing of approved drugs - Tier 3: Non-Preferred Brand Drugs
Drugs not included on a plan’s formulary - Tier 4: Biotech Drugs
Expensive drugs to treat chronic conditions, a number of which are infused or injected, i.e. factor products
Examples of Tier 4 Out-of-Pocket Costs
Here are some examples of Tier 4 out-of-pocket costs. Note that dollar figures, percentages and limits in the examples are arbitrary; they will vary from plan to plan.
- A specific dollar co-payment per prescription
For each prescription order, a patient must pay a $150 co-pay. - Co-insurance up to a specific dollar co-payment per prescription
For each prescription order, a patient has to pay 30% of the cost of a drug up to a maximum amount of $325. - Co-insurance, after a deductible, up to an out-of-pocket annual limit
For Tier 4 prescription orders, there is a $200 deductible, then 20% patient liability until it reaches $1,000. Total out-of-pocket per year is $1,200. - Co-insurance (with no deductible) up to an out-of-pocket annual limit
For Tier 4 prescription orders, there is 20% patient liability until the total out-of-pocket cost reaches $1,000. - Co-insurance with no out-of-pocket annual limit
For each Tier 4 prescription order, a patient might be liable, for example, for 5% of the total cost. This is true for Medicare Part D patients who have $4,050 in out-of-pocket costs (including a combination of a deductible, initial co-insurance and100% liability up to a specified dollar limit). After the $4,050, patients would be liable for 5% of all Tier 4 costs with no out-of-pocket limit. (Note: Medicare Part D does not provide coverage for factor products, they are covered under Medicare Part B.)
Parsing the Information
When it comes to high-cost drug coverage, consumers should be aware of the following:
- High-cost specialty drugs are the big driver of overall drug costs.
- As more high-priced biotech drugs enter the marketplace, consumers who use them should expect to pay a larger share of their drug costs.
- Although there have not been many specific cases of clotting factor covered as a Tier 4 drug, that could change. As the number of Tier 4 plans increases, coverage of biotech drugs (like factor products) is likely to increase.
- Tier 4 drug out-of-pocket costs are often in addition to out-of-pocket costs for drugs in Tiers 1, 2 and 3.
- For people with bleeding disorders, this could mean paying even more in out-of-pocket expenses. In addition to significant out-of-pocket costs for medical costs and “regular” drug costs, costs for Tier 4 drugs could add thousands of dollars to total out-of-pocket costs.
The question then becomes: How much is too much in out-of-pocket costs? For individuals with expensive bleeding disorders, as well as for those with other chronic conditions, we must try to avoid getting to the point where insured individuals will either not seek or will be unable to access needed medical care because of unaffordable costs.
For now, it remains important for consumers to monitor any changes in their insurance plan coverage for factor products, including the possibility of Tier 4. It will also be important for bleeding disorder advocacy organizations to monitor Tier 4 coverage in the marketplace and develop appropriate policies to address this trend.