Living benefit riders to life insurance policies: Pricing considerations and strategy
Adding benefit riders to policies provides meaningful coverage for those who need it, and carriers usually can do so at a relatively low cost.
The rapid spread of COVID-19 is having a widespread impact across industries worldwide. Leaders across the healthcare industry, including pharmacy benefit managers (PBMs), are working to develop policies and interventions to address the rapidly changing healthcare landscape. PBMs are a major influencer in the supply chain of outpatient pharmaceutical products, including financing, distributing, pricing, shipping, and setting policies that affect how prescription medications are dispensed. These entities have moved quickly to develop new policies that provide guidance and assurance to their plan sponsor clients and members amid the coronavirus outbreak.
Milliman is closely monitoring information as it is released by PBMs in their response to the COVID-19 outbreak in the United States and abroad. The interventions put into place serve to mitigate the administrative strain placed on providers, ensure adequate supply and access to medications for members, and support the continuation of business amid a time of great uncertainty. Although the responses were meant to be pragmatic, a major factor that has not been addressed is whether or not these strategies will add cost for plan sponsors, increase drug trend, exhaust the supply of certain pharmaceutical products, or override the plan provisions that sponsors had intentionally built into their programs to manage cost and care.
Our analysis of the information we reviewed led to three categories where we see most of the change across the PBM industry: pharmacy management, patient access, and supply chain. This discussion highlights actions PBMs are taking across these segments and the potential effects on plan sponsors and members.
Caveat: This is an overview of changes we have seen in response to COVID-19. Not all PBMs are using the approaches below. We recommend that you reach out to your PBM contact or pharmacy benefits consultant to ask for more information on what programs are relevant to you.
Extending prior authorizations. With shelter-in-place policies from many state and local governments making it harder for members to see their healthcare providers, many PBMs have decided to extend prior authorizations for previously approved prescriptions. These policies were enacted to help reduce the administrative burden on provider offices, allowing more resources to be devoted toward combating the COVID-19 outbreak. A typical example of an extension is to push out the prior authorization termination date by 60 to 90 days.
Lifting refill-too-soon policies. The refill-too-soon policies of most PBMs have been temporarily waived. By doing so, PBMs look to ensure that members with chronic conditions living in regions with shelter-in-place orders continue to receive an uninterrupted supply of maintenance medications despite the continued threat of quarantines and supply chain shortages. It is important to note that these refill-too-soon overrides require the availability of valid prescription refills—they do not negate the need for a prescription.
Setting quantity limits. Several drugs are being used in the acute care setting to treat severe cases of COVID-19. Several PBMs are instituting utilization management product bundles for these medications. These measures are being enacted to help ensure that an adequate supply of necessary medications is maintained for use in the acute care setting while also balancing the needs of existing patients in an outpatient setting. In most cases, those with prior histories of use can bypass these new quantity limits. Current medications that may be affected by these policies are Albuterol (asthma), Chloroquine/Hydroxychloroquine (lupus, rheumatoid arthritis), Kaletra (lopinavir/ritonavir, HIV), and Azithromycin (community-acquired pneumonia).
Transitioning members to 90-day mail-order pharmacy. Many PBMs are using the shelter-in-place policies from many state and local governments as an opportunity to migrate members with medications for chronic conditions to mail-order pharmacies. Proactive strategies, such as direct-to-member mail and telephone communications, are being used to engage members and educate them about mail-order pharmacy services. As a result of these strategies, some PBMs are projecting increases in members receiving 90-day mail-order prescriptions to be upwards of 20% even in voluntary mail programs.
Extending specialty pharmacy. Going beyond traditional medications, some PBMs are also allowing patients to receive a 90-day supply of certain specialty medications instead of the typical 30-day supply. However, PBMs are placing several limiting criteria on those specialty drugs that will qualify for this extension as a measure to help reduce exposure to excess costs, ensure patient safety, and prevent surges of excess supply of controlled substances.
Copayment overrides. Some PBMs are allowing temporary overrides for non-preferred items, but still allowing members to pay preferred copays. This program will be enacted if a specific pharmacy is out of stock for the preferred drug and the patient has an immediate need for the prescription. This could cause plan costs to increase due to increased utilization of non-preferred drugs compared to preferred drugs, the latter of which typically carry larger rebates to help control costs.
Ensuring adequate supply. It is uncertain whether PBMs will have the ability to ensure adequate product supplies for the duration of the pandemic. PBMs are closely monitoring the global manufacturing environment and reporting that they are not anticipating any disruptions to the supply chain on the manufacturer side that will disrupt their ability to supply their members. While manufacturers’ abilities to supply active pharmaceutical ingredients (APIs) is not in question, some PBMs are anticipating possible short-term supply disruption within pharmacies and healthcare provider organizations for select medications as a direct result of demand surge and distributors’ and wholesalers’ ability to accommodate these increases in volume. PBMs that own pharmacies have increased their ordering to keep up with the demand from the significant growth of mail-order and specialty utilization.
Developing supply mitigation strategies. In order to combat potential shortages in supply, PBMs have enacted several mitigation strategies. PBMs have ramped up their on-premise inventory levels of the most used drugs to ensure easy access. In addition to increases in inventory, PBMs are seeking out medication alternatives, such as branded versions of certain drugs that they anticipate will be in high demand during the coronavirus outbreak.
The changes PBMs are making to their policies to address the current coronavirus pandemic, although measured, will likely have effects across several key areas:
Pricing. Supply chain management and drug availability play an important role in the algorithm that PBMs and pharmacies employ to manage pricing. As supply and demand fluctuate, so do the pricing schemes and the factors used in the pricing algorithms. It is important for plan sponsors to keep an eye on the parameters that influence pricing. These parameters may include:
Costs to plan sponsors. The impacts of prior authorization extensions and refill-too-soon overrides are going to affect plan costs. Plan sponsors should monitor their claims on a weekly or monthly basis to help ensure that they are prepared for the increased costs. It is unclear whether these measures are fully needed or if they will have a significant impact on plan costs and cause major disruption to the supply chain. Plan sponsors should work closely with their consultants and PBMs to ensure that appropriate financial protections are in place and that prior authorization extensions and refill-too-soon overrides are not being abused. These measures should only be considered for short-term use and should be lifted as soon as it is appropriate to do so in order to mitigate unnecessary stockpiling, abuse, and waste.
Plan sponsors can expect to see a disruption in their usual monthly payments for pharmacy benefits. The transition from 30-day to 90-day fills alone may create cash flow timing issues. The other changes have the potential to increase costs in a way that is more than just a cash flow timing issue. We recommend monitoring your costs on a monthly and quarterly basis to determine the implications of these policies on your pharmacy spend.
Increases in mail-order and specialty pharmacy utilization. Plan sponsors should expect to see increases in costs as members obtain larger quantities of medications. Utilization of maintenance medications may double, or more than double, as members transition from 30-day to 90-day mail-order supplies.
The downstream effect of an increased use of mail-order pharmacies may vary and depend on the specific details of a plan contract, individualized habits of a plan’s member population, and differences in drug utilization. Plan sponsors can expect this transition to increase the risk of waste because it allows patients to receive higher quantities of medication that might then be made obsolete if therapy changes are made. However, increased costs due to waste may be offset, to some extent, by increased discount and rebate guarantees that are generally associated with mail-order pharmacy claims. Consequences on member satisfaction may also vary depending on member preferences and the overall quality of a PBM’s mail-order pharmacy services.
Consumer habits. The COVID-19 pandemic has resulted in an increased reliance on direct-to-home delivery services, a trend that is likely to leave a lasting impact on how consumers purchase their prescriptions. Social distancing and quarantine policies have resulted in a decline in foot traffic to brick and mortar pharmacies. In an effort to minimize contact with others, consumers have been encouraged to fill 90-day prescriptions, which reduces the number of trips to a pharmacy, or to forgo these trips entirely by using mail-order pharmacy services. It is possible that these habits will persist even after the pandemic is over as consumers become more accustomed to the convenience of these methods.
The policies PBMs have put in place to address the impact of the COVID-19 pandemic on prescription medications have the potential to affect pricing, costs to plan sponsors, utilization trends, and consumer habits. We anticipate seeing short-term increases in utilization and pharmacy spend over the coming weeks as these policies take hold. As we are still in the initial stages of implementing these policies, the magnitude of the impact on long-term pharmacy spend and overall healthcare costs is still uncertain. Therefore, we encourage plan sponsors to speak with their PBM consultants or actuaries to discuss the implications of these policies on their individual plans and how to best navigate these times of uncertainty.
How the pharmacy benefit industry is reacting to a pandemic: Policy changes, actions, and potential impacts
Pharmacy benefit managers have moved quickly to develop new policies that provide guidance and assurance to their plan sponsor clients and members amid the coronavirus outbreak.