March DTR Analysis: Drug Coverage

Generally, most private health plans today include drug coverage or at least make it available as an option. In the group market, employers might-and often do-include drug benefits as an integral part of the health benefits package they establish for their employees, according to Jack Rovner, senior partner and co-chair of the Health Law Practice Group, at Neal, Gerber & Eisenberg LLP.

“In the individual markets, drug coverage is usually an ‘add-on’ for additional premium,” Rovner says. “In Medicare, drug coverage will be an option starting in 2006 with the introduction of the Medicare Part D benefit. A health insurer that contracts with CMS to offer Medicare private plans [Medicare Advantage plans] in 2006 will have to include a Part D drug benefit in at least one such plan that the insurer offers in each service area for which it has a CMS contract.”

Drug or medical benefit

Most health plans consider drug therapies for chronic conditions a “drug,” rather than a medical benefit, according to Rovner.

“Health plan formularies also reflect a move toward coverage of ‘quality of life’ as a health benefit, rather than coverage only to ‘cure disease,’” he says. “As the chart shows, most private health plans follow Medicare's approach of covering practitioner administered drugs as a medical benefit [where the plan usually pays the practitioner one amount for administration and the drug administered], while self-administered drugs are considered a drug benefit.”

The chart shows that AIDS, Alzheimer, insulin, and arthritis medications-which are drugs required to maintain health and function, not to cure “sickness”-are almost always covered as drug benefits, not health benefits, according to Rovner. “In contrast, a significant number of health plans cover oncology drugs, which treat cancer, as medical or medical/drug benefits. Supposedly the distinction is that oncology drugs are used to ‘cure’ cancer, while the drugs for AIDS, Alzheimer, diabetes, and arthritis ‘maintain’ or try to control a chronic condition,” he says.

The assignment of maintenance drugs as a drug benefit may or may not have a better economic result for the enrollee with these chronic conditions, based on the characteristics of the drug and/or medical benefits they have. “Of course, to the extent an enrollee does not have, or does not buy-if an option-drug coverage, then inclusion of these drug categories as drug benefits means no coverage. But if they were considered part of medical benefits, then general health benefits would cover them without regard for drug coverage,” Rovner says.

Rovner also believes that there is an inherent "discriminatory" aspect to a health plan's determination whether to classify these as drug benefits versus medical benefits.

“Those with AIDS, Alzheimer, diabetes, arthritis, and similar chronic conditions requiring drugs to maintain function are ‘required’ to buy drug coverage-if available-but others might forego drug benefits to save premium and bet that their health will not require purchase of large amounts of expensive drugs,” he says. “If the risk pool of the health plan is large enough, this may result in an overall lower cost for enrollees in the health plan on a macro basis, but still the healthy with no need for maintenance drugs subsidize those with need-which, of course, is the underlying concept of health insurance risk pools.”

The move to “quality-of-life” benefits is reflected in the high percentage of drug benefit plans that cover fertility, injectable and oral contraceptives, and sexual dysfunction medications, Rovner says. “They may well be needed to preserve health-that is, a vigorous physical and mental outlook,” he says. “Similarly, smoking cessation coverage is a way to improve health and prevent development of a very expensive disease: cancer. So smoking cessation coverage may make economic sense for health plans, even though smoking starts as a choice, albeit a poor one. In fact, the availability of coverage for drugs to address these quality-of-life matters can result in better overall health for enrollees, which means lower overall cost for health plans. Hence, statistically, it’s probably a good financial bet for health plans to cover drugs that address these kinds of quality-of-life matters.” 

The chart does reflect some line drawing by health plans regarding certain quality-of-life drug therapies, according to Rovner. “For example, plans are roughly 50/50 whether to cover anorexiants-which arguably address obesity-and human growth hormones-which can be subject to abuse. The near-universal exclusion of health plan coverage for cosmetic and experimental drugs may reflect medical-necessity standards, which usually must be satisfied for a health plan to provide coverage. Cosmetic drugs may be a quality-of-life issue for some, for example, but the chart suggests they are over the line in terms of ‘wellness versus vanity.’ Experimental drugs are, by definition, not yet established as therapeutically effective and may be subject to fraud and abuse.”