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Self-insurance Drug Cards Provide Greatest Flexibility

May 1, 1993
Related Topics: Benefit Design and Communication, Featured Article
Most companies that have reduced their prescription-benefits costs successfully by using a drug card have done so by the self-insurance route. Introducing your own drug card through self-insurance can eliminate the retention costs associated with fully insured benefits. Protection against the loss of indemnification can be achieved by having reasonable limits or caps, such as the ones often applied to mental-illness benefits. Currently, few arrangements for prescriptions have this protection that prevents runaway costs. The continuous introduction of new, expensive medications requires prudent limits on employers' exposure or their inclusion in specific and aggregate insurance.

Your company should be able to design a drug card to fit your needs and goals, so you should avoid a program that doesn't give you this flexibility. The program should:

  • Make available various deductibles and coinsurance options
  • Make the purchase of generic alternatives an attractive option (as generics are consistently lower in price)
  • Provide for discounts to enhance the cost reductions to your program further.

Employers may want to give an incentive to employees who are willing to make the effort to purchase generic drugs. A triple-tiered schedule of benefits will allow employees to pay a lower amount—perhaps even nothing—if they choose generic rather than brand-name drugs. Using this system, employees pay a higher amount if no generic is available. If the employees choose brand-name drugs instead of generics, they're charged an even higher copayment or penalty. Often an arrangement might be made for retired employees that's different from that for active employees.

Other issues that you should consider are whether there should be certain employee or family maximums that can't be exceeded for drugs, what type of deductibles you want to institute and whether or not you want coinsurance. These options and flexibilities may be available only with a self-insured program.

Personnel Journal, May 1993, Vol. 72, No. 5, pp. 104.

Recent Articles by Paul J. Amos and Robert B. Kubasak

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