Retirees to swallow more drug costs

Barbara Matney has exceeded her annual prescription-drug-benefit limit.

Barbara Matney, wife of a Libbey-Owens-Ford Co. retiree, waited anxiously for the mailman to bring medication refills she had ordered from her prescription drug plan. Instead, she got a call from plan administrators who informed her she had exceeded an annual limit imposed Jan. 1 and must send a check for $800 to cover the cost of the medication.

“It's making me sick,” sighed Mrs. Matney, 58.

Unable to make the payment, she has stopped taking some drugs and is scraping by on physician samples to treat a variety of maladies, including diabetes, depression, heart problems, and high blood pressure.

Other retirees could find themselves in similar straits. Struggling to pay for a growing variety of ever pricier medications, many firms are reducing prescription drug benefits for retirees.

Forty percent of firms said they would consider doing so in a 1999 survey of large companies by the national benefits consulting firm Hewitt Associates LLC. The most common step is to increase costs borne by beneficiaries, especially for expensive drugs for which cheaper alternatives are available.

The labor-sponsored Alliance for Retired Americans, which supports Medicare coverage of prescription drugs, said there is little doubt that more retirees will be without coverage or will have to scrape by on lesser coverage.

“There is a real concern that whatever coverage they have is not going to continue,” said Dianna Porter, public policy director for the AFL-CIO-backed organization that boasts a membership of 2.5 million.

A quarter of Americans over age 65 are enrolled in prescription drug plans provided by their former employers or those of their spouses, according to the alliance. Overall, two-thirds of retirees have drug coverage through various sources, including health maintenance organizations, private insurance, and government programs for the poor.

The proportion of retirees with drug benefits drops to about 50 percent in the second half of the year when coverage is exhausted because the retirees exceeded annual maximums, alliance officials note.

Retirees aren't the only Americans facing cuts in prescription plans because of skyrocketing costs. Private insurers spent nearly 20 percent more to provide drugs in 1998 than they did in the previous year, according to the nonprofit Employee Benefit Research Institute.

The average cost of the 50 most-prescribed drugs for seniors last year went up more than twice the 2.4 percent inflation rate, according to a study by Families USA, a nonpartisan consumer health organization.

But the increase in drug prices is only one reason. Various studies, including one that measured the number of new prescriptions written by physicians, have shown that people are taking more drugs, according to the research institute.

As employers in turn struggle to control costs, retirees are vulnerable because they take more prescription drugs than other Americans.

Drugs account for 40 to 60 percent of employer expenditures on health care for retirees, according to Hewitt Associates, which says outlays on drugs could grow to 80 percent by 2003. In comparison, drugs represent 15 percent of employer health care expenditures for active employees. The comparison isn't entirely fair, however, because Medicare, not employer insurance, covers many non-drug health expenses of retirees.

The prescription-drug-cost issues arise as employers are cutting overall health care coverage for retirees. Two-thirds of firms with more than 200 employees offered health coverage to retirees last year, down from 80 percent in 1999, according to the Alliance for Retired Americans.

Prescription drug expenditures at the Toledo-based U.S. headquarters of Pilkington Plc., owner of the former Libbey-Owens-Ford, have risen 15 to 20 percent annually, said spokesman Amber Macksey.

She declined to discuss changes in drug benefits for Toledo retirees but pointed out that the cuts were agreed to in negotiations with the union that represents hourly employees at Toledo-area operations, Local 9G of the United Steelworkers' Aluminum, Brick & Glass Workers unit.

“We really strive to do the most we can for the money we have to spend,” Mrs. Macksey said.

Barbara Matney, who is covered under her husband's health plan, isn't sure how she is going to cope with the cuts.

The changes, including higher co-pays, affect about 4,200 Toledo area retirees. She and her husband, Virgil, who worked 34 years at the firm's former East Toledo plant, have a combined income of $1,400 a month. They live on the city's eastern outskirts, in a mobile home that is in need of repairs.

“The roof is leaking,” she said. “We were contemplating getting a new roof. But I don't know how we can do that now.”

Pilkington implemented an annual maximum of $2,000 for drug payments for retirees, effective Jan. 1, as part of a 1998 labor contract with the union. Previously, there was no limit.

Mrs. Matney said she was unaware of the change until she was informed she had exceeded her annual maximum. People close to the situation said the company sent out letters explaining the changes.

Pilkington won't be the last company with local operations to cut drug benefits for retirees, experts predict.

“We've got contract talks soon and I'm sure that's going to come up,” said a union leader at a local factory. He spoke on the condition he wasn't identified.

Another firm, Toledo-based Owens Corning, plans no major changes in prescription drug benefits, said Mark Snyder, benefits director. Few major changes have been made in coverage for retirees since 1994, although co-pays have increased, he said.

Many local firms are closely examining prescription drug benefits with an eye toward cost-cutting, said consultant Barbara Sears. The most common change, she said, is graduated co-pays. A typical arrangement is that the enrollee pays $5 for generic drugs; $15 or $20 for brand-name drugs without alternatives; and $30 or $40 for brand name drugs for which there are less expensive alternatives.

“We're seeing co-pays going up considerably,” said Ms. Sears, president of Benefit Resource Systems, Inc., of Sylvania.

At most firms, retirees have the same co-pay as active workers. But, she said, “We'll see more of a spread in the future.”

Few local firms have followed the lead of Pilkington and imposed an annual maximum on retiree drug expenditures, said Gary Thieman, a principal in the Toledo-based benefits consulting firm Findley Davies & Co.

“That's not saying we might not end up there someday,” he added.

Of the firm's 130 local clients, “all have their eye on prescription drugs,” he said.