Pharmacy Use and Costs in Employer-Provided Health Plans

Insights for TRICARE Benefit Design from the Private Sector

by Geoffrey F. Joyce, Jesse D. Malkin, Jennifer E. Pace

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The military health system, as well as the private health care sector, has experienced rapid growth in pharmaceutical expenditures. In 2002 alone, the Department of Defense spent about $3 billion on outpatient pharmacy benefits. As part of an effort to redesign the TRICARE pharmacy benefit to save costs, the Department of Defense is considering moving from a two-tiered to a three-tiered co-payment system, which will increase the co-payment for some classes and brands of drugs. Providers (acting in the interest of their patients) would, theoretically, have an incentive to prescribe less-costly options. To predict how changing to a three-tiered system will affect costs and pharmacy utilization, the authors use an existing data resource to determine how beneficiaries age 45 to 64 in private-sector health plans responded to similar changes in pharmacy benefits. In this analysis, the authors assess, among other potential outcomes, how changing to a three-tiered system would affect aggregate costs and pharmacy utilization and how it would affect the utilization of specific (high-cost) classes of medications.

The research described in this report was sponsored by the Office of the Secretary of Defense (OSD). The research was conducted jointly by the Center for Military Health Policy Research, a RAND Health program, and the Forces and Resources Policy Center, a RAND National Defense Research Institute (NDRI) program. NDRI is a federally funded research and development center supported by the OSD, the Joint Staff, the unified commands, and the defense agencies.

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