Why Separate Rx Out-of-Pocket Maximums Make Financial Sense In Today’s Market

Top 3 Things You’ll Learn

  1. Two major market changes challenging the practice of combined out-of-pocket maximums
  2. How a separate Rx OOPM protects clients from the moral hazard that manufacturer coupons create
  3. Two important rules of executing a separate Rx OOPM strategy

In 2014, the Affordable Care Act (ACA) required that medical and pharmacy benefits combined could not exceed the ACA out-of-pocket maximum (OOPM) limits. Consultants worked hard to make sure that their self-funded employer clients had combined out-of-pocket maximums where pharmacy and medical claims accumulated towards a unified out-of-pocket maximum amount. Since then, there have been two significant market changes that have given consultants reason to question whether the practice of keeping medical and pharmacy accumulators combined still makes sense.

Two Changes Impacting Integrated OOPM

First, the rapid growth of prescription drug costs and rebates, plus the vertical integration of many carriers and pharmacy benefit managers (PBMs), has made pharmacy the largest source of revenue and profit for most insurance carriers. The pharmacy black box – opaque contract terms, unreliable clinical oversight, conflicts of interest, and lack of clinical strategy transparency – results in clients’ spend skyrocketing along with their carriers’ earnings. If consultants attempt to carve-out their pharmacy benefit, they face prohibitive integration fees or restrictions designed to protect the carriers’ considerable margins.

The second dynamic change is the growth of drug manufacturer coupons and assistance dollars that help cover the costs of high-cost brand medications. According to IQVIA, after accounting for manufacturer assistance dollars, only 2.6% of pharmacy claims have a member cost-share exceeding $50. Additionally, research from the Oregon Experiment and the Rand Study shows that $0 cost-sharing can increase utilization dramatically: increasing ER utilization by 40%, office visits by 50%, and hospital admissions by 30%. Savvy members have learned they can use drug coupons to meet their health plan deductibles and OOPMs faster – thereby protecting their own bank accounts.

Preventing this kind of effect should be of critical concern to employers. The problem is that this type of moral hazard is not accounted for when setting premium equivalents for their clients’ High Deductible Health plans (HDHPs) and Preferred Provider Organizations (PPOs). While PBMs have programs designed to limit this abuse, they require that the claims are filled at the PBM-owned pharmacy. In the case of limited distribution medications, retail coupons, or prepaid debit cards used by drug manufacturers, the PBM does not have a line of sight into who is paying the claim – making the PBM program ineffective.

Drug manufacturer coupons have created a moral hazard among savvy members who use drug coupons to meet their health plan deductibles. Separating the Rx out-of-pocket maximum can be an ideal strategy to prevent unnecessary costly healthcare expenses.

Benefits of Separate Rx OOPM

So, what is a consultant to do? This is where a separate Rx OOPM can be a powerful tool. With a separate OOPM, consultants can free their clients from the boot of the carrier. Group size carve-out limits, integration fees, and charges are no longer a concern – allowing them to market for a competitive pharmacy contract with outside vendors instead of remaining beholden to the carrier’s preferred PBM solution.

Separate OOPMs also protect the medical benefit from the moral hazard that manufacturer coupons create. While a member might be able to use coupons to hit their Rx OOPM, they’ll still be exposed to their medical OOPM, which may prevent them from seeking unnecessary costly care. As a tertiary benefit, separate OOPMs also help to reduce administrative or accumulator errors that can occur when one vendor makes a change to a file feed while the other is unaware.

To execute a separate OOPM strategy, you need to know two important rules:

  1. The total combined OOPM for the medical and pharmacy benefit combined cannot exceed the ACA OOPM requirement ($8,550/$17,100 for single and family respectively in 2021). For example, clients can have a $4,000 medical OOPM and a $4,550 Rx OOPM, but not a $4,550 medical and $4,550 Rx OOPM.
  2. To be considered a Qualified High Deductible Health plan (QHDHP), both the medical and pharmacy deductible need to be above the IRS threshold ($1,400 for individual, $2,800 for family). Keep in mind that QHDHPs have a lower OOPM threshold in 2021 as well ($7,000 for individual and $14,000 for family).

Creating a Separate Rx OOPM for HDHPs

While it might seem unorthodox to suggest a separate Rx OOPM for a QHDHP, the benefit of avoiding the manufacturer coupon moral hazard is magnified under a HDHP.

To understand why, consider this example: Humira is the #1 drug in the world and has manufacturer coupons to pay $6,000 of drug costs and $14,000 available on a pre-paid debit card as well. If the member has a $5,000 combined medical and Rx deductible and OOPM, and that member uses the prepaid debit card on a HDHP, no one will know.  It will only take one claim for the member to hit their deductible and OOPM and have 100% coverage for the remainder of the year for both medical and Rx.

If you break up that same plan design into a $2,500 medical and $4,500 Rx deductible and OOPM, the member would hit their Rx deductible in January, but they would still have a $2,500 medical deductible and OOPM. The separate medical and pharmacy OOPM plan design has now protected the medical plan from the hazard that manufacturer coupons can create.


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