Generics playing greater role in union negotiations


Generic drug use playing larger role in contract negotiations for health benefits with unions.


Generics playing greater role in union negotiations

A major point of contention in this year's contract battles between employers and workers has been healthcare costs: who's going to pay for what. But one thing both sides seem to agree on is that generic drugs are a good thing, and utilization of generics can be encouraged through contract agreements that contain tiered co-pays.

"We always wanted to make sure drug costs were kept in line," said Lauren Asplen, spokeswoman for GE Workers United, which represents more than 24,000 GE workers in 14 different unions. "Encouraging the use of generics through tiered co-pays is a good way to do that, and we never had a problem with that system."

Unions do appear willing to allow their workers to experience small increases in tiered co-pays for generics. As healthcare costs continue to escalate, companies are making design changes to the plan and sharing more of the cost of all drugs with employees. For example, the number of companies with a $15 office co-pay increased significantly from 24% in 2002 to 43% in 2003, according to Hewitt Associates, a research organization in Lincolnshire, Ill. At the same time, employers offering $10 office co-pays dropped from 58% in 2002 to 39% in 2003. (See sidebar on increases in prescription co-pays.)

Increasing co-pays for prescription drugs causes patients to reduce their use of medications and switch to lower-cost generic drugs, according to a 2002 study by RAND Health in Santa Monica, Calif., commissioned by the California HealthCare Foundation. "The measures that have been put in place by health plans do have the effect of lowering drug expenditures" and thus overall healthcare costs, said Geoffrey Joyce, a RAND economist.

Higher copayments cut costs by different amounts, according to the study. Increasing a single copayment from $5 to $10 per prescription cut annual per person spending by 22%, from $725 to $563, according to the RAND study. Doubling copayments in plans with multiple tiers reduced average drug plan spending by about one-third. Other changes cut costs less dramatically. Requiring mandatory generic drug substitution in two-tiered plans cut costs by 8%, while adding a third tier with incremental copayments of $10 cut costs by only 4%.

A Wyeth prescription drug benefit cost and plan design survey report found that a majority of employers are trying to be more aggressive in managing their prescription drug costs while also being less restrictive in the drugs their employees use. Most companies use tiered co-pay systems to encourage the use of generics, and most unions are content to allow that, say analysts.

But most companies still don't demand generic substitutions. "We wanted to maintain options for our employees, and so did the company, so that never really was an issue," Asplen explained. More than half of all health plans offer a three-tier system, charging the lowest co-pay for generics, the next-lowest for preferred branded drugs, and the highest co-pay for other branded drugs, according to the Pharmacy Benefit Management Institute in Tempe, Ariz.

One way employers are seeking to control healthcare costs is limiting benefits to retirees. That's because people over 65 make up 13% of the population but account for 34% of all prescriptions consumed and 42% of all prescription drug spending, according to a recent survey by Families U.S.A. in Washington, D.C. Employers are looking to the proposed Medicare drug plans passed by the Senate and House in June to help alleviate some of their costs, say analysts.

The GE contract did not limit drug benefits to retirees and may serve as a model in contract negotiations between several large companies scheduled for the rest of the year. These include Verizon Communications and the Big Three auto companies. The agreement resolved a bitter labor dispute, closely watched by other large employers fighting to hold down healthcare costs and by unions determined to hold the line on how much their members shell out through co-pays and deductibles.

The International Union of Electronic Workers/Communications Workers of America and the United Electrical, Radio, and Machine Workers of America, which represent most of GE's union employees, ratified the GE contract on June 26, after months of strife and a two-day walkout by workers in January over a proposed increase in their share of healthcare costs, reportedly to 30% from the current 17% a year. Under the new contract, GE will shift more of its rising healthcare costs to its workers—a move that is likely to encourage other large employers seeking similar concessions, according to analysts. The contract is expected to be ratified by all 14 of the company's unions, which collectively represent more than 24,000 workers. The GE contract gave each side some of what it wanted. It does require workers to pay more for their own health care, although less than the 30% GE originally sought. It also provides increased wages and cost-of-living increases.

Health care was a contentious issue because GE said its total healthcare costs rose 45% to $1.4 billion in 2002, compared with $965 million in 1999. Company officials said they expect a 15% jump this year. In the new contract, employees' average healthcare contributions, while rising, won't exceed 20% a year. Premiums will increase in 2004, in some cases more than doubling, depending on an employee's salary and marital status and whether he or she has children.

A single employee making between $37,500 and $50,000, for example, will experience more than a 20% increase. He or she would pay a healthcare contribution in 2004 of $4.49 a week, for example, up more than 50% from the $2.96 a week the employee currently pays. A married worker making the same amount would contribute $11.78 a week, compared with $8.71 a week now. A married employee with children would contribute $14.84, under a new tier added in this contract. Contributions would increase again as of Jan. 1, 2006.

Union workers staged a two-day walkout in January after GE increased the amount of money, or copayment, that participants of its Health Care Preferred Plan had to contribute when they sought medical care. That was the first such labor walkout at GE since 1969. About 75% of the unionized workers are participants in the managed care plan, while an additional 25% are part of GE Medical Benefits, which isn't part of a network for medical caregivers. One element of the new contract is that the tiered co-pay plan used by the managed care plan will now apply to the indemnity plan, said Asplen, which comes to $16 for branded drugs and $12 for generics.



Prescription drug
$5 co-pay $10 co-pay
52% 27%
46% 40%
29% 52%
$10 co-pay $15 co-pay $20 co-pay
39% 20% 12%
28% 30% 26%
15% 26% 32%
$10 co-pay $25 co-pay $30 co-pay Greater than $30 co-pay
13% 16% 11% 9%
9% 21% 22% 24%
7% 8% 19% 24%
1-tier 2-tier 3-tier
24% 32% 44%
15% 30% 55%
12% 24% 52%


"We've always recognized the importance of encouraging the use of generics, when a generic of equal quality is available, as part of the important issue of controlling health costs," Asplen said. "We did want to make sure that benefits weren't cut for branded drugs when a good generic isn't available."

Other companies are facing fights over healthcare costs. Verizon Communications began contract negotiations with the IUE/CWA and the International Brotherhood of Electrical Workers on June 16, and company officials have said publicly that they plan to require employees to pay a greater portion of their soaring health costs. In remarks to the media, Verizon VP Eric Rabe said the company is now paying $2.8 billion annually for health care for employees, retirees, and their dependents, and it wants employees to cover more than the 5% of their healthcare costs they currently pay. But a senior IBEW official said the company's plan to shift healthcare costs to employees is unacceptable. The contract is set to expire Aug. 2.

In the end, it is up to employers to design plans to encourage the use of generics, say some union officials. "We feel how they do it is pretty much up to them, as long as they don't limit benefits," said Ralph Vogel, president of the Guild for Professional Pharmacists, the San Francisco union that represents the pharmacists who work for Kaiser Permanente. "If they want to encourage the use of generics through tiered co-pays, that's fine with us, as long as they don't try to eliminate the benefit."

Martin Sipkoff


Martin Sipkoff. Generics playing greater role in union negotiations. Drug Topics Generic Supplement;147:28s.

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