Is an Employer’s Health Plan Required to Count the Value of Drug Manufacturer Coupons Towards an Employee’s Out-of-Pocket Maximum?

Short Answer. Generally – no. For now.  Although, a few states (e.g., Virginia and West Virginia) have recently passed laws that would impose this requirement for fully-insured health plans and other states are considering similar proposals (these state insurance laws would not apply to self-funded health plans).  

Background. These days, almost all employer-sponsored group health plans require an employee (and any dependents) covered under the plan (each are referred to as a “member”) to pay “out-of-pocket” for covered expenses in the form of deductibles, copays, and coinsurance up to an annual limit, known as the out-of-pocket maximum (“OOPM”). When a health plan provides prescription drug coverage, it is common for the health plan to require the member to pay more out-of-pocket for specialty drugs than for generic drugs. This incentivizes the member to choose the less expensive generic drug.

Specialty drug manufacturers will sometimes offer financial assistance to members (often times referred to as “copay cards” or “coupons”) to offset the additional out-of-pocket expense for the specialty drug. In some instances, the member can use a coupon to buy an expensive specialty drug and will actually pay nothing from personal funds as the coupon might cover the entire out-of-pocket cost under the plan for the specialty drug. This can have the overall effect of increasing prescription drug costs for the plan as more members buy specialty drugs over generic drugs since they have no financial stake in the purchase of the specialty drugs. 

To address this issue, some health plans have been designed to exclude the value of any drug manufacturer coupons from the member’s annual deductible and OOPM. In other words, these plans do not allow the member to take the credit for the value of the coupon when calculating whether the member has satisfied the annual cost-sharing limits. For example, if a member applies a coupon to cover a $20 copay for the purchase of a specialty drug, that $20 would not be considered (i.e., would be treated as $0) when determining whether the member has satisfied his annual deductible and OOPM. Pharmacy benefit managers (“PBMs”) – third-party companies who administer prescription drug coverage for health plans – have developed several different types of programs (sometimes known as “copay optimization programs” or “copay accumulator programs”) that remove coupon amounts from members’ cost-sharing limits.

Legal Development. In April 2019, the Department of Health and Human Services (HHS) released new guidance on this topic that was vaguely worded and somewhat confusing in its application. In a non-binding commentary section of the guidance, HHS indicated that a health plan must include the value of a drug manufacturer coupon when calculating a member’s annual OOPM when the coupon is used to purchase a specialty drug that has no generic equivalent available. 

Several industry groups that represent employers and PBMs voiced concerns as to the vagueness of the new rule and its potential impact on these types of out-of-pocket accumulator programs. In response, HHS, the Internal Revenue Service, and the Department of Labor recently released joint guidance indicating that this new HHS rule would not be enforced for the 2020 calendar year.  Further, these three agencies indicated that they would revisit this topic and issue new guidance that would apply for 2021.   

Note, however, that some states, including Virginia and West Virginia, have passed laws that would require that the value of coupons be credited to a member’s deductible or OOPM.  These are state insurance laws that would not apply to self-funded health plans (i.e., health plan where the employer pays claims out of the employer’s general assets).  

Takeaway Message. For now, this means that health plans may continue to exclude the value of drug manufacturer coupons from a member’s annual deductible and OOPM, in all circumstances (unless a contrary state law applies). But stay tuned for developments, as things may change for 2021.