CHRISTOPHER M. BYRD

Ask almost any employee benefits manager what’s been at the top of his or her health benefits agenda over the past few years and chances are you’ll hear controlling the steep rise in prescription drug costs. Running at a close second might be the new consumer-directed health plans that have offered new hope to some as an alternative to addressing the dramatic increase in overall health care costs, which have also continued unabated for the past several years.
    Yet for all the talk about consumer-directed health, or CDH, most employers have been reluctant to take the plunge, opting instead for incremental changes to their benefit plan designs. Similarly, when it comes to dealing with prescription drugs, many employers have settled for tinkering around the edges rather than making bold changes that might lead to fundamental reform.
    As it happens, there is a school of thought forming around the idea that the CDH concept might be an effective solution to the prescription drug challenge and a great first step toward introducing the broader CDH concept to employee populations.
    In fact, we’ve seen a number of plan sponsors employ a wide array

of traditional and non-traditional tools to deal with the seemingly intractable problem of prescription drug cost inflation. But one of the most effective to emerge recently involves using CDH-inspired health reimbursement arrangements (HRAs) supported by debit cards.
    This article discusses some of the factors influencing the prescription drug cost trend, some typical employer responses to it, the CDH concept and how it applies to prescription drug benefits and, finally, the prescription-only health reimbursement account and how it can immediately impact several of the cost factors influencing the dramatic rise in prescription drug costs.

Some Factors Influencing Rx Cost Trends
Employer prescription drug costs have increased 18 to 20 percent in each of the last four years, according to a survey conducted by The Segal Company. And while some industry observers had forecast that these costs would begin to moderate in 2004, the Segal survey projects a continuation of double-digit increases again this year.
    There are a great many factors that have contributed to prescription drug cost inflation, some of which can have a positive impact on other health care

categories. For example, blood pressure and cholesterol drugs can prevent heart attacks; insulin keeps diabetes under control. However, it’s not always easy to translate the cost of new, expensive drug therapies into beneficial health outcomes. What’s more, the pharmaceutical and biotechnology industries continue to develop ever-more expensive therapies, creating new demand for these products, further driving up costs.
    Adding fuel to the fire, patient expectations have changed over the years. Many now expect their physicians to write them a ‘script and see it as an integral component of a satisfactory encounter with the health care system – a factor we call discretionary demand.
    In recent years, there has also been an explosion of “manufacturer market-share initiatives,” or direct-to-consumer (DTC) advertising of prescription drugs, which not only increases demand for specific name brand drugs, but drives up patient demand for prescription drugs overall.
    As the baby boom generation ages, the total population will become (and is already becoming) older, which adds to the general demand for drug therapies. Add to that the epidemic of obesity we’re experiencing in all age groups – which leads to myriad chronic illnesses – and the need for drug