How will the removal of safe harbor affect EGWPs?

Medicare Part D may be on the brink of one of the biggest changes to the program since its start in 2006. A proposed rule from the Department of Health and Human Services would revise the safe harbor protection that currently allows pharmaceutical manufacturer rebates to be paid after the point-of-sale and start requiring such rebates to be credited against the drug’s point-of-sale price.

This change could dramatically reduce the member’s cost of many brand-name drugs that receive rebates for Medicare beneficiaries. It also affects employer group waiver plans (EGWPs) and merits immediate action on the part of plan sponsors and insurers offering EGWPs.

Under the current rules, prescription drug plans (PDPs) and Medicare Advantage prescription drug plans (MAPDs) use anticipated rebate revenue to reduce their projected net plan liabilities. The proposed rule would move the revenue from a retrospective payment to an additional discount at the point-of-sale. Some PDPs and MAPDs will need to reduce copays to pass actuarial equivalency tests.

Most EGWPs are likely to see a financial impact in 2020. When plan designs have no deductible and no coinsurance, the shift from post-point-of-sale to point-of-sale rebates will affect spending phase progression and the net plan liability when coverage gap discount payments are reduced for brand-name scripts that receive rebates.

In this paper, Milliman consultant Steve Kaczmarek explains how the removal of the safe harbor protection will affect EGWPs and what EGWP sponsors and insurers can do to mitigate changes.