Medicare Part D – High Cost drugs drive up OPEB costs

May 31, 2017|Parker Elmore

So, you’re an employer who generously offers medical benefits to your retirees. If so, you’ve seen prescription drug prices skyrocket over the last several years – increasing by an average of 14% per year from 2011-2015 and continuing through today. Prescription drug spending by retirees enrolled in the Medicare Part D program has been growing faster than other components of Medicare on a per-enrollee basis and that trend is expected to continue through at least 2025.

How does this impact my OPEB Plan and accounting under GASB 45 / 75?

Liabilities for OPEB Plans are driven by many factors but the most important is the cost of coverage. As such, these spikes in prescription drug / Rx costs flow through to your premiums and ultimately increase the OPEB liabilities on your financial statements, result in higher annual cash costs for your organization & your retirees and create pressure in other areas of your budget. For more information on the new GASB 75 accounting standard & the impact on OPEB, check out a recap of our recent Lunch-n-Learn on the subject.

What’s driving the costs?

A report issued earlier this year by the Inspector General of the Department of Health & Human Services found that most of the increase is due to spending on drugs that cost $1,000 per month or more. Ten drugs (including those for diseases such as hepatitis C, cancer, and multiple sclerosis)  alone accounted for over one-third of the Part D catastrophic Part D spending in 2015. Beyond that, many of these high-cost specialty drugs were not available in pill form until the last several years. Now that they’re in pill form, they’re more readily available & covered by Part D which serves to drive up costs for employers & retirees alike.

What can you do?

If you haven’t already, it’s a good time to consult with your healthcare consultants and pharmacy benefit managers (“PBM”) to review your plan’s drug “formulary”. While these drugs are often very desired & beneficial, you need to weigh the costs of such drugs vs the ability to cover your entire retiree population.

Categories: GASB 45, GASB 75, OPEB, Retirement