2020 Employer Health Premiums: 5 Things To Know

Written by Joanna Morrow

Joanna Morrow, Principal and Founder of Employer Benefits & Advice, is an employer consultant and advocate who has worked in the employee benefits industry for over two decades. She works diligently to help employers overcome obstacles in their business by sharing her expertise in Human Resources, Benefits & Compensation, Process Mapping, Risk Management and ERISA/DOL/IRS compliance. She is a licensed life and health insurance professional in the State of Arizona and is an active member of the National Association of Health Underwriters (NAHU).

2020 Employer Health Premiums: 5 Things To Know

In 2019, the United States is projected to spend over $500 billion on prescription drugs, by some estimates—12 times more than the $40.3 billion spent in 1990*. A large portion of that will be paid for by employers via their group health insurance premiums.

Both President Trump and Democratic candidate, Senator Bernie Sanders have recently proposed their own plans for reigning in drug costs. While 2020 Presidential candidates look for ways to make good on their campaign promises, employers are looking for more immediate tactics as they start to negotiate their 2020 health insurance renewals.

Prescription Drug Costs as Percentage of Employer Premium

For every dollar an employer spends on health insurance premiums, approximately 25% goes toward prescription drug costs currently. That number is rising and unless significant changes come about as a result of tough legislation from both sides of the aisle, it’s estimated that number could be as high as 40% in 10 years.

Below are cost-saving tactics that often get overlooked at renewal. These are just some of the effective steps employers can take to reduce prescription drug costs, ultimately lowering their overall spend.

1. Design Your Drug Formulary

Drug formularies are a list of drugs the health insurer agrees to pay for, at least partially, for any given disease or indication. It can be a complicated list that also includes a process for getting you the right drug for your condition, which may not be the first one your doctor prescribes.

Formularies are split into 2-5 groups based on price, called “tiers”. Each tier is typically associated with a copay, which is a flat rate you pay for the drug at the pharmacy.

Here’s an example of a common four-tiered drug formulary, though yours may be slightly different:

  1. Tier 1, $20 copay: very low-cost drugs, mostly generics.
  2. Tier 2, $40 copay: higher-cost generic drugs and low-cost brand name drugs.
  3. Tier 3, $60 copay: brand name drugs for which there is no generic.
  4. Tier 4, $100+ copay: highest-cost drugs or specialty drugs like chemotherapy.

Renewal Strategy: Employers DO have a say in the drug formulary offered to employees. Small tweaks to a drug formulary can have a significant impact on premiums and yet it is often overlooked as a viable cost containment tactic. Talk to your employee benefit expert to learn more about the changes you can make.

2. Require Pre-Authorization on Select Drugs

Drug formularies vary by insurer and almost always have one or both of the following restrictions:

Prior Authorization
A process whereby the doctor is required to get permission from your insurer to prescribe a specific drug.

Step Therapy
A process whereby the doctor must first try cheaper, yet equally effective drugs to treat a person’s condition before proceeding to a newer, more costly drug, you must first try a lower-priced drug for the same indication.

Renewal Strategy: Ask your current carrier for a list of the prescription drugs being utilized on your plan currently. Check to see which drugs fall into the prior authorization or step therapy categories. Both requirements can take time to complete, but they are worth it when it comes to reducing plan costs for both employer and employee.

3. Introduce Deductibles

In addition, some insurance plans impose separate prescription drug deductibles, which as an example, require the employee to come out of pocket for the first $300 – $500 of prescription drug costs before the plan covers anything additional.

Renewal Strategy: Ask to see plan options that include a deductible on the prescription drug benefit and consider implementing at least one of those plans, alongside a richer option employees can buy-up to as a choice.

4. Teach Employees When to Pay Cash

Using generic drugs is a well-known way to save money on prescriptions without sacrificing quality, but a lesser-known option may be using cash to buy prescriptions—instead of using insurance.

Since the Trump administration signed a recent bill lifting pharmacy ‘gag clauses’, as of 2018 pharmacists can now say whether you’ll save money by not using insurance and paying with cash instead.

Many large retailers like Wal-Mart offer $4.00 generic drugs as a loss leader to bring you into the store. As an example, Wal-Mart has determined that for every $4.00 generic drug they sell, customers spend an average of $13.00 additional dollars before leaving the store.

So why would employees spend $20 on Tier 1 generic drugs, if they can buy those same drugs for $4.00 without using insurance at all?

Renewal Strategy: When rolling out your benefit enrollment materials, dedicate a separate presentation toward savvy consumerism strategies for employees. Distribute a list of the “Top 5” or “Top 10” things employees can do to save big $$ on prescription medications. Incorporate the information shared in suggestion # 5 of this article also.

5. Teach Employees When to Go Outside the U.S.

Canadian online pharmacies can often deliver certain expensive drugs at a much cheaper price than what consumers could buy in the U.S.

Look at these pricing differences for two drugs, commonly prescribed for the treatment of diabetes and deep vein thrombosis.

The higher price in both scenarios represents the cost of the drug in the U.S. as found at www.goodrx.com , while the lower cost represents the price of the drug at an online Canadian pharmacy called Northwest Pharmacy.

Januvia (Diabetes) – 30 tablets, 100 mg


Xarelto (Prevention of Blood Clots) – 30 tablets, 20 mg

Renewal Strategy: This year at open enrollment, give employees the tools and resources they need to save significant dollars on prescription medications.

For help with your cost-savings strategy or to learn other tactics employers are using to save on health insurance in 2020, contact my office for a conversation, consultation or just to introduce yourself. I’d love to meet your introduction if I haven’t already.

*Pew Charitable Trusts, “A Look at Drug Spending in the U.S.,”