Medicare Part D – High Cost drugs drive up OPEB costs

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.