The Rising Cost of Specialty Drugs
Spending by Canadian employers on specialty drugs is expected to
nearly double to $5.6 billion for private plans by 2020.
Specialty drugs including biologics represent an increasing percentage of the total spent on drugs each year. With some of these drugs costing thousands of dollars per month, it is no wonder why they may cause concern for plan sponsors. One of the best ways to deal with these new specialty drugs is to better understand what they are, how they work, and how they may affect your group benefits plan.
One of the key differences between traditional drugs and biologics is how they are manufactured. Traditional drugs are chemically synthesized in a process that can be easily replicated, while biologics are composed of living cells, tissues and micro-organisms using complex and proprietary manufacturing processes that are unique to each drug. These drugs are more expensive to research, manufacture and store, leading to a more expensive product for the consumer. The diseases they treat usually only affect a very small percentage of the population and many have no alternative options, enabling drug companies to charge as much as they want for treatment.
The benefit of these drugs for plan sponsors includes helping employees return to work sooner and supporting their long term health (so they can remain actively at work). Before drugs like Harvoni and Solvadi went on the market, Hepatitis C required lifelong treatment, whereas now with the availability of these drugs people can be completely cured within a year. Some of the other diseases these specialty drugs treat range from rheumatoid arthritis to multiple sclerosis to cystic fibrosis. The type of diseases that these drugs treat is only growing in scope. Some people rationalize the cost of these drugs by the shorter length of treatment required; however, plan sponsors typically would not bear the full cost of treatment for lifelong diseases.
What insurance is in place to deal with these costs?
Stop loss pooling is a critical tool for protecting plan sponsors from the impact of catastrophic specialty drug claims. Pooling works by removing the total amount of an individual’s claim that is greater than the pooling level under your policy. This removes claims that exceed the pooling threshold health renewal calculations. There are fees associated with pooling, but it is a valuable asset in minimizing the risk associated with these types of claims and providing more stable premium rates. Your plan might also have a drug maximum in place, which limits the amount in drug claims that is payable under your company’s plan.
If you would like any more information on specialty drugs or your group benefits plan, please don’t hesitate to contact your Silverberg Group benefits advisor today.