Reign in drug-plan costs with simple solutions

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An effective drug plan is a necessary and indispensible part of any health and wellness program. Strategic plan management not only provides for the health of your employees but also contains costs, can increase productivity and decrease absenteeism, and have quite an effect on the bottom line. So what should you consider when implementing or reviewing your drug plan?

Drug plans are the most frequently used of any healthcare benefit. According to a recent study by Aon Hewitt, 60-80% of medical benefit plan budgets are eaten up by drug costs. That means Canadian companies are spending approximately $200m a week on prescription drugs.

What’s your goal?

Make sure the drug plan implemented by your benefits provider is in line with the overall philosophy of your health and wellness program, know what you want your drug plan to do and ensure that once it’s in place, it’s communicated effectively. Education for employees is key to keeping costs down and providing coverage that meets the needs of your organization’s demographic.

According to Kim Siddall, principal at Winnipeg based employee benefit management firm AQ Group Solutions, many employees don’t realize how their behaviour affects the cost and viability of their organization’s plan.

“Employees often don’t positively impact their plan with smart consumerism,” she said.” Making good choices about where to shop for their drug for example or, if they have a chronic condition, buying a larger supply at one time. They can also choose a pharmacy that has reduced dispensing fees and coordinate with their spousal plan if they have one.”

What to consider:

Mandatory generic drug substitution

According to Siddall, the easiest way for HR managers to contain drug plan costs is to ensure their provider includes mandatory generic substitutions in their drug plan.

“Generic substitutions are chemically identical from their brand name counterparts and do offer significant cost savings to plans,” she said.


Formularies, or the list of drugs your benefit plan will cover, control the eligibility of drugs and assist in containing drug costs. There are many types of formularies including open and managed. Speak to your plan provider about the options, which may include adding new drugs to the formulary only after their therapeutic value has been proven; listing only generic drugs on the formulary; or following the guidelines set by your provincial government.  

Drug plan allowances

While formularies are a great way to ensure high efficiency and low cost in your drug plan they are not always the best solution on their own. Employees may have adverse side effects to the drugs that are on the plan. Kim Siddall says a capped drug plan allowance to cover non-formulary drugs is a great solution.

Pay-direct drug cards

Pay-direct drug cards have a reputation for driving up claims and this can certainly be the case, but they can also offer savings and provide invaluable data for planning.

 “Pay-direct drug cards provide a tonne of information for the HR manager,” Siddall said. “For example, they can give an indication of what plan members are using, while protecting their anonymity of course, so HR managers are in a better position to make decisions about drug and health and wellness plans and get really strategic about what they get for their wellness dollar.”

They also offer savings. Unlike with paper claims, when a pharmacist signs on the be a part of a pay-direct drug plan they make contractual commitments that may include only marking up by a certain percentage or not charging dispensing fees beyond a certain amount.

“It’s a cost containment tool that you don’t even see,” Kim Siddall said. “Paper claims have less regulation so there’s the potential for greater costs using paper claims than using pay-direct drug cards.”

Taking control of your drug plan can deliver significant savings while remaining a valuable investment in the health and wellbeing of your employees.

What is driving up plan costs?

  • Government cost shifting
  • Recession
  • Drug cost inflation
  • Misunderstanding of benefits or obligations on the part of the employee, including not taking medications as prescribed
  • An increasing disease burden among your employee population, particularly in the ageing and overweight


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