THE AMERICAN JOURNAL OF MANAGED CARE
EFFECTS OF COST SHARING ON ADHERENCE
deductibles and copayments) workers face at the point
of care. In 1999, for example, 84% of people covered by
employer-sponsored health insurance had a physician
copayment of $10 or less, whereas 72% had physician
copayments of $15 or more in 2005.1Likewise, copay-
ments for prescription drugs on the second (preferred
branded) and third (nonpreferred branded) tiers have
almost doubled between 2000 and 2005, rising from $13
to $25 and from $17 to $33, respectively. The objective
of these changes is to encourage employees and their
dependents to compare the benefits of medical care
with the cost, to discourage the use of low-value medical
services, and thereby to slow down the growth rate of
health insurance premiums.
It is clear that increasing employee cost sharing
achieves its primary objective of reducing costs.2,3For
people with certain health conditions, however, increas-
ing employee cost sharing may have unintended conse-
quences. Several recent studies show that patients with
high blood pressure, elevated cholesterol levels, or dia-
betes mellitus (DM) are less likely to adhere to medical
therapy when drug copayments rise.4-9If the health of
nonadherent patients worsens such that they require
additional medical services, then reducing drug copay-
ments may actually increase total medical expenditures.
Furthermore, if one defines health costs broadly to
include health-related absenteeism and reduced on-the-
job productivity (often referred to as presenteeism) due
to a health condition, direct medical costs may actually
represent a small proportion of total health-related
At least 20 employers, including Pitney Bowes Inc
and the University of Michigan, are adopting a contrari-
an approach.12-14Rather than increasing copayments for
all drug classes, these employers are selectively reduc-
ing copayments for conditions such as diabetes, asthma,
and hypertension in which the clinical evidence sug-
gests there is a strong connection between adherence
to drug therapy and health. Unfortunately, there is no
ost employers are responding to rapidly growing
healthcare costs by asking workers to pay more
of the premium and by increasing prices (eg,
single study that performs a complete analysis of the
financial effect of changing DM drug copayments on
adherence, medical expenditures, absenteeism, and on-
the-job productivity from the perspective of an employ-
er, to my knowledge. The objective of this article is to
perform such an analysis for DM by constructing a
financial model that links together results from sever-
al different published studies. The Diabetes Outcomes
Analyzer model, which is a disease-specific application
of a general model proposed recently by Nicholson et
al,15,16focuses on DM because there are more studies
examining the key links required for the financial
model than for other diseases and because it is a fairly
common and expensive condition.
Although this financial model can help employers
design health benefits, one must be careful when inter-
preting the results. The model uses mean values (eg, the
percentage change in pharmaceutical expenditures
associated with a $1 change in the drug copayment)
across several different studies and then links these val-
ues together to estimate the financial effect of drug
copayments on total health-related costs. For pragmatic
reasons, I assume that the employee populations and
the examined interventions are similar to one another
and are representative of employers nationally.
BASELINE SITUATION FOR
The baseline situation for an employer with 5000
workers is given in Table 1.2,7,10,11,14,17-24The analysis
focuses on workers only. Dependents and retirees could
be incorporated, although the employer would not ben-
efit from any changes in absenteeism or presenteeism.
Each data element is described in column 1, the mean
The Effect of Cost Sharing on
Employees With Diabetes
Sean Nicholson, PhD
From the Department of Policy Analysis and Management, Cornell University, Ithaca,
NY, and the National Bureau of Economic Research, Cambridge, Mass.
This project was supported by Pfizer Inc.
Address correspondence to: Sean Nicholson, PhD, Department of Policy Analysis and
Management, Cornell University, Ithaca, NY 14853. E-mail: email@example.com.
EFFECTS OF COST SHARING ON ADHERENCE
THE AMERICAN JOURNAL OF MANAGED CARE
ments for certain expensive health conditions.12,13To
my knowledge, there is no study that has performed a
comprehensive financial analysis of the implications of
reducing drug copayments. This article constructs a
model based on different investigations that collectively
examined the relationships between copayments and
adherence to drug therapy, pharmaceutical spending,
nonpharmaceutical spending, absenteeism, and on-the-
job productivity. For DM, the model predicts that reduc-
ing drug copayments from their current levels would
save money by decreasing nonpharmaceutical, absen-
teeism, and presenteeism costs, which are more than
the resulting increase in pharmaceutical costs.
The model is flexible enough to examine the effect of
any copayment structure an employer is considering.
Furthermore, an employer can decide whether to in-
clude all health-related costs, including absenteeism
and presenteeism, or whether to focus only on direct
If reducing drug copayments more than pays for
itself, why are more employers not adopting this strate-
gy? One explanation is that DM is an exception; for
many other health conditions, reducing copayments
may increase pharmaceutical spending without convey-
ing improvements in health and productivity. A second
explanation is that employers or health benefit consult-
ants do not want to treat (or are not used to treating)
certain health conditions such as DM, asthma, and
hypertension differently. Finally, two thirds of the sav-
ings in the DM model come from improved on-the-job
productivity, and there is little published research
demonstrating a connection between benefit design and
tangible increases in employee productivity.
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