An Overview of 2021 Prescription Drug Benefits: Tiers, Cost-Sharing

In 2021, prescription drug benefits took many forms as employers and payers played with tier structures and cost-sharing strategies to help manage prescription drug costs for employees, a Kaiser Family Foundation (KFF) report found.

More than nine out of ten employees with prescription drug coverage were in a plan that offered tiered prescription drug spending. Health plans have a diverse array of prescription drug spending tiers, including specialty, non-preferred specialty, generic, biologic, and more. Most employees were in a plan that offered three or more prescription drug spending tiers.

Small businesses were more likely to have a higher number of tiers than large businesses.

The researchers found that 56 percent of small companies structured their prescription drug cost-sharing in 2021 to have at least four tiers. Meanwhile, slightly more than half of the larger companies surveyed could say the same. Nearly four out of ten large employers implemented three tiers (39 percent) compared to less than three out of ten small employers (28 percent).

Company size was not the only determining factor when it came to cost-sharing for prescription drugs. The structure for prescription drug cost-sharing also may differ based on the type of health plan.

For example, high deductible health plans with saving options were less likely to have a high number of prescription drug spending tiers. Less than half of employees in such plans (44 percent) had access to four tiers or more of cost-sharing. 

This dichotomy may make sense in light of large employers’ proclivity to offer fewer tiers, since two-thirds of large employers offered a high deductible health plan with savings option, compared to 20 percent of small businesses and 56 percent of mid-sized companies.

Additionally, nearly one in ten employees in high deductible health plans with savings options (nine percent) faced zero cost-sharing after satisfying the deductible.

Copayments were the first most popular way to structure cost-sharing. Average copayments started at $12 in the first tier and increased to an average of $124 in the fourth tier.

The second most common way to structure cost-sharing was through coinsurance. Average coinsurance rates started at 20 percent for the first tier and grew to 25 percent for the second tier, 35 percent for the third tier, and 32 percent for the fourth tier.

Plans that offered coinsurance as a form of cost-sharing assigned either a maximum dollar amount, minimum dollar amount, both types of limits, or neither. In specialty drug tiers, 54 percent of health plans assigned a maximum coinsurance dollar amount, compared to 46 percent in fourth-tier drugs and 36 percent in third-tier or “non-preferred” drugs.

Health plans were more likely to set a minimum coinsurance dollar amount for third-tier drugs. They were also more likely to set both a minimum and a maximum coinsurance amount in third-tier plans (36 percent).

A fraction of employees were in plans that had equal cost-sharing across drug types (four percent), with the exception of specialty drugs.

In plans with three tiers or more, the first tier drugs had the highest likelihood to have no cost-sharing for generics (five percent). The same was true in plans with just two tiers, in which six percent of plans offered first-tier generic drugs at no cost to employees.

Drug pricing tiers can be very inflexible. But payers and employers are exploring ways to reshape prescription drug formularies in order to increase access, affordability, and medication adherence, such as reinventing formularies to offer older but still efficacious drugs in a low-cost tier.

Drug formulary innovations could be key to driving down prescription drug spending, along with other strategies including preventive care, drug price transparency, and legislative action.