Most of us are familiar with the use of ‘deductibles’ and ‘co-insurance’ factors as a method of reducing the purchase price of a drug benefit plan. Both of these methods involve cost-sharing with the plan-user.  As such, this method of cost control is often interpreted as delivering less comprehensive protection.

For companies whose chief objective of their group benefits plan is to attract and retain key executives, this method of cost containment may conflict with their goal. There is another method to reduce premium costs.

This involves whether the plan covers brand-name drugs or generic only. Some plans may use the term “Lowest Cost Alternative (LCA)”.  This raises the question, “What is the difference between a brand name and a generic drug?”  A common non-prescription example using an over-the-counter pain reliever, is “Tylenol” and one particular drug store’s private label equivalent, “Life”.  Both are acetaminophen, but the brand name has a higher price.

In terms of quality there is no difference between generic drugs and higher-priced brand name drugs. They both require the same federal approval and have to meet the same regulatory guidelines.  The actual ingredients used in both must also meet the same standards.  Because there is a limited range of available products used as the excipients (“fillers”), in many instances they may even come from the same supplier. 

Generics are as effective even though they may have a different name or colour. Manufacturers of generics must prove to Health Canada that the product is just as safe as its brand equivalent, and that the active ingredients are as pure, will dissolve at the same rate, and absorb similar to the original brand.

The primary difference is the cost – generics are much lower priced than brand name drugs. Manufacturers of brand drugs are granted patent protection for a period of time following the initial introduction of a new drug. This enables the manufacture to recoup some of the research and development costs incurred while developing the drug. Once the patent protection has expired, other drug manufacturers can create equivalents under their own name.    An example is the antibiotic, amoxil (brand version) versus amoxicillin (generic version). A treatment plan consisting of 14 days and 3 doses per day costs approximately $15.54 (excluding dispensing fees) for the brand name as compared with $8.40 for the generic name, a savings of $7.14 by using the lower cost alternative.

Since there is a substantial difference in the cost of brand-name drugs as compared with generics, one plan design option for drug plans is to specify reimbursement is based on ‘the lowest cost alternative (LCA), or ‘generic drugs’.  This helps to reduce premium costs for health/drug benefits while still providing executives with comprehensive protection.  Employers can choose to incorporate the lower-priced generic drug option as a cost containment provision within their employee benefit plan.  Individuals who are not members of a group plan can also choose between the two options when purchasing an individual health and dental plan as a means of securing comprehensive yet affordable benefits.

by Jacqueline Figas, CLU, EPC

Jacqueline Figas CLU, EPC