The Effect of Changes in Co-payment and Premium Policies on the Use of Prescription Drugs in the Nova Scotia Seniors' Pharmacare Program

Key Implications for Decision Makers

As costs for provincial drug plans rise, policy makers are exploring various cost-sharing measures, which require patients to pay for a portion of each prescription they fill. Co-payments reduce the use of both essential and less-essential drugs, and there is growing evidence that reducing drug use can lead to poor health. This study examined ways to minimize the effect of co-payment policies on patients.

  • Co-payments based on a fixed fee per prescription, or co-insurance that charges a percentage of the prescription cost, should be used with caution. If used, less-essential drug classes that provide symptomatic relief should be targeted.
  • Co-payments should be combined with annual maximums - an accumulated amount above which patients pay no additional money. A combination of co-payments and annual maximums should be selected that results in a large percentage of patients reaching the annual maximum. This eliminates the effects of the policy on medication use for the most vulnerable patients (those with multiple health problems).
  • Premiums are preferable to co-payments. They can be income-based and do not have the potential negative impacts of co-payments.
  • Financial incentives that focus on physicians, rather than patients, should be explored.

Executive Summary

Target Audience

The primary audience for this report is drug program managers. A secondary audience is managers of other health programs for which user cost-sharing policies are being used or considered.

Context

Co-payment policies, where patients bear a portion of the cost of prescriptions they fill, reduce program costs but may adversely affect patients. The evidence is clear that co-payment polices reduce the use of essential as well as less-essential drugs, and there is also growing evidence that co-payment polices are associated with poorer health. Co-payment policies may also be inequitable, since they place the greatest burden on persons with lower income and worse health.

Most policy makers are well-aware of this evidence, but given the fiscal realities facing provincial drug programs, they see cost-sharing policies, including co-payments, as vital to program sustainability. As one policy maker said, "the risks associated with co-payments have to be balanced against the clear harm that would result from the failure to sustain the programs." Thus, from a policy perspective, arguments against co-payment policies are not practical unless paired with fiscally viable alternatives.

Interestingly, the effects of different types of co-payment and cost-sharing policies have not been systematically compared. Are some types of co-payment policies potentially more harmful to patients than others? This study sought to answer this question.

The Study

Starting in 1990, the Nova Scotia Senior's Pharmacare Program introduced co-payments. Subsequently, a number of changes were made altering the amount of the co-payment, the annual maximum of co-payments, and premiums. We used these changes as a natural experiment to study the effects of different types of co-payment policies.

Focusing on three specific classes of drugs, we used claims data for persons enrolled in the program to assess the effect of the policies on whether patients used a medication, and if so, the effect on the quantity of medication used. We also examined how policy effects differed depending on income and on seniors' overall medication costs.

We examined the effect of first introducing a fixed co-payment with an annual maximum ($3/per prescription with a $150 annual maximum co-payment), and then the effect of a subsequent change to 20 percent co-insurance (20 percent of the prescription cost up to a $150 annual maximum).

What Did We Learn?


  1. Policy makers should be very concerned about the potential for negative health outcomes from co-payment policies:
    The results of this study, and many others, show that co-payments reduce the use of both essential and less-essential drugs. Moreover, we found that co-payment policies were found to have a bigger effect on the quantity of medication used by patients than on whether they use a drug or not. This is likely because the decision as to whether a medication is prescribed rests largely with the physician, while the amount consumed is under the control of the patient.

  2. The results of this study provide practical evidence on fiscally viable ways to minimize potential harm from co-payment policies:
    This study found that different combinations of co-payments per prescription and annual maximum co-payments will affect patient drug use in different ways. The results of this study will help drug programs design cost-sharing policies that will not cost drug plan budgets while they reduce poor health. We found:
    • co-payments based on a fixed fee per prescription, or co-insurance of a percentage of the prescription cost, should be used with caution. If used, less-essential drug classes that provide symptomatic relief should be targeted. Also, co-payments should be combined with annual maximums, and a combination of co-payments and maximum annual co-payments should be selected that results in a large percentage of patients reaching the annual maximum. This eliminates the effects of the policy on medication use for the most vulnerable;
    • premiums are preferable to co-payments. They can be income-based and do not have the negative effects of co-payments; and
    • financial incentives that focus on physicians, rather than patients, should be explored.