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In addition to anxiety and stress, the toll today’s troubling economy is taking on individual health can be seen in the cutbacks people are making in obtaining health care and prescription drugs. Many people are foregoing medical visits and services, choosing not to fill prescriptions, and dosing filled prescriptions in ways to make them last longer.

Several recent surveys document this worrisome trend:

• A survey of consumers by the National Association of Insurance Commissioners found that 22% have reduced the number of times they see a doctor as a result of the economy, and 11% have cut back on the number of prescription drugs they take or have adjusted the dosage of their medications to make a prescription last longer.
• The Kaiser Family Foundation’s first tracking poll for 2009 found that more than half (53%) of Americans say their household has cut back on health care in the past 12 months, due to cost concerns. Steps taken include relying on home remedies and over-the-counter drugs rather than visiting a doctor (35%), delaying seeking needed health care services (27%), skipping a recommended medical test or treatment (23%), not filling a prescription (21%), and cutting pills in half or skipping doses to make a prescription last longer (15%).
• A survey from Consumer Reports found that nearly 70% of respondents had taken steps to “afford” their prescription drugs over the past year, and 28% did so in a way that had potentially harmful health effects. These measures included failing to fill a prescription (16%), skipping a dose (16%), taking an expired medication (11%), cutting pills in half (10%), and sharing a prescription (4%). Individuals under the age of 65 without prescription drug coverage were most likely to engage in such risky behavior in an attempt to control their costs.

That consumers have cut back on prescription drug spending is reflected in data from IMS Health, which reports that prescription drug sales in the United States grew only 1.3% in 2008. This is down from the 3.8% sales growth seen in 2007, a figure that was considered low at the time — the lowest growth rate since 1961 — and down from a rate of 8% in 2006.

Although everyone is concerned about getting health care and prescription drug spending under control, no one wants to do that in ways that endanger individual health or lead to the worsening of a chronic condition, requiring added intervention and spending down the road. When it comes to prescription drugs, consumers can stretch their health care dollars by using generics. However, according to Consumer Reports, nearly half of consumers harbor reservations about generics: 27% say generics have different side effects than their name brand counterparts, 22% believe they aren’t as effective, 18% believe they don’t meet the same federal standards, and 16% say they just aren’t safe. These misconceptions must be recognized, battled and corrected if generics are to achieve their potential in aiding prescription drug cost control in a safe and appropriate way.

Though participation in consumer-directed health plans is growing, only a small percentage of employees join these plans, and even fewer set up health savings accounts (HSAs). According to a survey from the Employee Benefit Research Institute, in 2008, 3% of the insured population, or 4.2 million individuals, were enrolled in a consumer-directed health plan, defined as an HSA paired with a high deductible health plan (HDHP). More — 11%, or 13.4 million individuals — were enrolled in an HDHP, and of these, 42% were eligible to contribute to an HSA, but chose not to do so.

Misunderstanding the mechanics of HSAs and ignorance of their potential advantages keep many people who are eligible for an HSA from seriously considering opening an account. Similarly, employees who have a consumer-directed health plan option might see the high deductible feature as offsetting, and not consider other advantages of the plan. If your company offers employees the opportunity to participate in a consumer-directed health plan, or if you are considering making this opportunity available, it’s important that employees understand how these plans work, so those for whom they are appropriate can benefit from this form of health care coverage.

Here’s a quick rundown of a few common consumer-directed health plan and HSA fictions, along with the clarifying facts.

• Fiction: The only reason an employer implements a consumer-directed health plan is to shift health care costs to employees. Fact: An employer makes an investment in a consumer-directed plan, just as it does with a traditional plan. Though the premium cost might be less for the employer, it is less for the employees’ share, too, and many employees would rather pay less for health care upfront (the premium) and the bulk of their costs at the time of service. Consumer-directed plans really represent an expansion of health plan choices for employees.
• Fiction: Since they’re paired with a HDHP, HSAs only make sense for individuals who are young and healthy. Fact: An HDHP-HSA pairing provides comprehensive health care coverage at an affordable price for individuals with all sorts of medical needs. Though the HDHP deductible is higher than that found in more traditional plans, the premium is lower as a result. So, even if the account holder must dip into the HSA to pay for expenses that would be covered at an earlier point by a more traditional plan, this must be balanced against the premium savings. Also, as noted below, most preventive care is not subject to the deductible and can be covered at 100% by the HDHP.
• Fiction: Because of the HDHP high deductible, HSA funds are quickly depleted; even for individuals with only basic health care expenses, an HSA account holder is unlikely to have any funds left to roll over at the end of the year. Fact: For many individuals, the bulk of their medical expenses consists of preventive care, and HDHPs can cover preventive health care expenses at 100% before the deductible. Depending on plan design, such expenses can include well-baby and well-child doctors’ visits and immunizations; adult physical exams and immunizations; and routine adult screenings, such as mammograms, Pap smears, prostate screenings and colonoscopies.
• Fiction: Unless you can predict your annual health care expenses accurately, you stand a chance of losing the money you contribute to an HSA. Fact: HSA funds that are unused in one year — whether they represent the contributions of the account holder or employer — carry over, and can be used to pay for health care expenses incurred in future years, even in retirement.

Resolving the confusion surrounding these and other consumer-directed health plan misconceptions can help employees better understand and appreciate the potential benefits of participating in these plans.

Prescription drug costs continue to be one of the fastest growing components of total health care costs. According to a 2008 report from the Kaiser Family Foundation, spending in the United States for prescription drugs in 2006 was $216.7 billion, more than five times what it was in 1990. Though spending for prescription drugs was one-third of that for hospitals and half of that for doctors’ services, the annual rate of increase for spending on prescription drugs has exceeded that for these other services in all but one of the last 11 years.

Nearly half (44%) of spending for prescription drugs is paid for by private insurance. Since employers are the principal source of health insurance coverage in the United States, they fund a major portion of the spending for prescription drugs. Therefore, it’s worthwhile for employers to understand the factors that go into the ultimate cost of the prescription drugs that are paid for, in part, by employee benefit plans.

When a new drug is first brought to market, the company that developed it enjoys some patent protection for the drug, which gives that company the exclusive right to sell that drug in the market for a certain period of time. This protection is intended to help pharmaceutical companies recover some of the cost of drug research and development, which can be substantial. By providing patent protection for a period of time, companies are encouraged to take the financial risk associated with new drug development. Only after the patent protection has expired can competitors bring lower-cost generic versions of the same drug to market.

When a company develops a new drug, it decides what price to charge for it, taking into account factors such as the research and development costs associated with the drug; whether other, different drugs with similar therapeutic effects are available; market demand; the current economic and competitive climate; and advertising costs and marketing strategy. While in some other countries governments play an active role in setting the prices for prescription drugs, this is not the case in the United States.

The price a drug manufacturer sets for its product is just the first piece of the equation that determines what the drug ultimately costs at the time it is dispensed to the consumer. Health plans and pharmacy benefits managers (PBMs) will negotiate with pharmaceutical manufacturers for discounts and rebates on their prescription drug products. The success of such negotiations and size of incentives achieved can vary significantly depending on a number of factors, including the utilization volume of the plan/PBM for the manufacturer’s products, placement of the manufacturer’s products on a plan formulary or preferred drug list, etc. Health plans and PBMs also can save costs by trying to achieve savings at the pharmacy level of the prescription drug distribution chain. This can be done by establishing networks of preferred pharmacies that agree to accept an established reimbursement rate in exchange for being included in the network, and by setting up or working with mail-order pharmacies.

Though these factors that establish the price of a prescription drug are out of an employer’s hands, there are things that any company with a prescription drug benefit can do to have some impact on what prescription drugs will ultimately cost the plan. Effective plan designs that encourage the use of generics and other preferred medications and that succeed in getting employees to use preferred and mail-order pharmacies can dramatically lower plan spending on prescription drugs. Working with a PBM or health plan that is proven effective with these strategies can be key in getting the most for your prescription drug dollar.