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Drug Co-pays Mean Less Generous Health Care Benefits for Families Facing Chronic Disease

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November 21, 2011

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Benefits paid out under employer-sponsored health care plans are less generous to families covering a member with a chronic illness than to families without a chronically ill member, according to a trio of university researchers. The difference is due primarily to higher out-of-pocket expenses for prescription drugs.

For a given level of total health care spending, households covering chronic conditions spend 1½ to two times more on prescription drugs, the researchers found.

“Even when you are looking at the same level of total spending, families covering chronic conditions spent more out of pocket than those without chronic illnesses, and it doesn’t appear to be because the families are in different types of plans,” said researcher and IUPUI Professor Anne Beeson Royalty.

“It looks as though the difference is because certain types of services — such as prescription drugs — are covered less generously,” Royalty said.

For example, for households spending a total of $7,000 on health care, on average those with chronic conditions spend $2,215 of that $7,000 on prescription drugs, while other households average only $1,065 on drug expenses, according to the study.

“Because average coinsurance for prescription drugs is much higher than coinsurance on other health care services, that means that the households with chronic conditions pay more of that $7,000 out of their own pockets than do other households -- roughly $500 more in this case. The differences grow more pronounced as total spending increases,” Royalty said.

Royalty and her co-authors, Jean M. Abraham of the University of Minnesota and Thomas DeLeire of the University of Wisconsin-Madison, detailed their research in a white paper titled, “Gauging the Generosity of Employer-Sponsored Insurance: Differences Between Households With and Without a Chronic Condition.”

The researchers compared benefit differences based on total spending using data from a 10-year national survey of more than 47,000 families. They defined “total spending” as the amount the insured family paid to health care providers in out-of-pocket copayments and/or deductibles plus the amount paid to providers by the family’s insurance company. “Chronic conditions” were diabetes, cancer, asthma, anxiety or depression.

The study, the first to look at health care costs comparing out-of-pocket costs vs. total spending, and a first to compare families with a chronic illness to those without, raises questions about how health care plans are designed, Royalty said.

Based on their study results, the IUPUI professor and her co-authors say that employers and insurers should evaluate whether their health plans could be better designed to encourage the use of “high value” services, such as taking prescription medicines, by reducing the out-of-pocket cost of such services.

“If a person can keep a chronic condition under control with medication, not only will that produce better health but also fewer expensive hospitalizations,” Royalty says.

Royalty is a professor of economics at Indiana University-Purdue University Indianapolis and the director of the doctoral degree program in economics at IUPUI.

“Gauging the Generosity of Employer-Sponsored Insurance” is the first working paper of the Center for Health Economics Research at IUPUI. Royalty is the executive director of the center, which is part of the School of Liberal Arts at IUPUI. More information about the center can be found at liberalarts.iupui.edu/cher.