An aging workforce, a weakened economy, new therapeutic trends, and double-digit health plan rate increases have all converged, putting enormous pressure on employers struggling to meet their employees’ healthcare needs with limited financial resources. These challenges and changes have pushed prescription drugs—or what some industry observers call “the pharmaceutical conundrum”—onto center stage. As one of the fastest growing segments of healthcare benefits, prescription drugs are a main target for employers’ efforts to rein in healthcare costs.


The challenge is to build a broad-based prescription plan that ensures access to the right medication at the right time and discourages inappropriate drug use, without imposing a financial hardship on either employer or employee. To meet it, benefit managers must keep their employees’ interests and an array of cost and quality control strategies in mind. An effective health benefit package is one in which drug coverage decisions are made in the context of their impact on total healthcare costs, productivity costs, employee health outcomes and clinical quality. No two companies have the same employee profile or precisely the same set of concerns, and there’s no single formula to follow.


As a relatively new component of health benefit plans, drug benefits and the techniques for managing them, have evolved rapidly in recent years. As new benefit design techniques are tried and tested, we learn more about their relative effectiveness, their acceptability to employees, and their downsides.

The elements of a prescription drug plan can be simply divided into three categories: design incentives; formulary-based strategies; and clinical interventions. This guide describes the following specific options: generic substitution, tiered co-payments, incentives or requirements (such as use of mail order drugs), therapeutic substitution, formularies, and prior authorization. Disease management, though not directly encompassed in drug benefit design, is a clinical intervention increasingly being incorporated into overall health plan designs to contain total healthcare costs. In addition, the guide describes how health plans or PBMs can negotiate reimbursement rebates to save money on ingredient costs.

In evaluating which design features to include, employers should assess the potential impact of each approach on their overall human resource and health plan goals. Some design features carry a price tag. Some result in savings to the plan and the employer at the expense of access or cost to the beneficiaries. Some are effective at aligning incentives and savings potential to both employers and beneficiaries. Some approaches are invisible to the beneficiaries, and some clearly improve quality of care.

Education of employees about their benefits is essential to optimize the effectiveness of the incentives created and ensure employees know how to obtain the pharmaceutical products that will restore or maintain health and promote productivity. Disclosure about plan options and drug formularies prior to open enrollment, notices about appeal rights, and education regarding use of incentives to the best advantage, are important components of employee education. In addition, employers should be certain that a fair and clinically sound appeals process is available. These consumer protections will help assure that pharmaceutical-related cost containment efforts do not result in greater total healthcare costs or productivity loss.

These as well as several additional examples are described in considerably more detail in Section III of the Guide.

The Guide

This guide is designed to highlight key areas to address, present prominent studies to consider, and explore primary sources of the data benefit managers need to make well-reasoned decisions about Rx coverage. Perhaps more importantly, throughout An Employer’s Guide to Pharmaceutical Benefits we emphasize the facts and figures needed to make optimal choices, often by highlighting key questions to ask.

Not all of the sections of the Guide will be of interest to all employers. To some extent it depends on how involved a company is in working directly with its health plan and pharmacy benefit manager (PBM) to shape benefit design. Some of the information is provided as a reference.

  • Chapter I, Choosing and Using the Right Tools, is the foundation of the Guide. It provides an overview and examples of design incentives, formulary-based strategies, and clinical interventions that support the management of pharmaceutical benefits.
  • Chapter II, Engaging Employees, emphasizes the fact that the best benefit design and programs will fall short if employees are not aware and engaged.
  • Chapter III, Choosing and Managing Vendors, provides pointers on working effectively with health plans, PBMs, and other vendors.
  • Chapter IV, Understanding the Pharmaceutical “Food Chain” covers in detail the critical, confusing, and controversial subject of prescription drug pricing.
  • Chapter V, Evaluating Outcomes, looks briefly at measures that can be used to determine the value of benefit programs. Proactive employers who wish to delve deeper will want to carefully review
  • Chapter VI, Rx and the Workforce, which provides information for benefit managers seeking to evaluate direct and indirect healthcare costs in the context of workforce productivity.
  • Chapter VII, Drug Costs in Context, explores the cost of pharmaceuticals relative to total healthcare spending and looks at the drivers of drug expenditures.
  • Chapter VIII, Toward Patient-Directed Healthcare, provides an overview of newer financing models for health benefits. Finally, Chapter IX, Looking to the Future, provides a glimpse of what is on the horizon.
  • The Guide also contains appendices with worksheets for employers, information on additional tools, disease management resources and a glossary of common terms and definitions.


Employers are at the center of one of our greatest healthcare challenges--managing their employees' demands for each new advance in medical technology—including innovative drugs—with the reality of its cost. This is not a comfortable position for any employer. This guide is designed to help pharmaceutical benefits manager build a foundation for decision-making. Make no mistake, this is one of the most difficult issues for employee benefit managers to "get their arms around". The guide is organized so each employer can target those sections that are most relevant. The document was developed to enlighten those new to the game, support those wishing to take a more active role in design and administration and challenge the seasoned professional to explore new possibilities.

For the full text of the "Guide" in PDF format click here.

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