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Hitting the Copay Sweet Spot

By Brian Schilling

Medical copayments—that is, the $5 to $30 you're charged every time you go to the doctor or fill a prescription—are not unlike certain drugs: effective, but often improperly used. It's no surprise, really. The science of designing and applying copays across different drugs, services, and populations is still part art. According to Dr. Michael Chernew, of Harvard Medical School, who serves on The Commonwealth Fund's Commission on a High Performance Health System and has years of experience studying benefit design, hard and fast rules don't exist. But that doesn't excuse you from putting some thought into your company's copay structure. Does it discourage the use of low-value procedures? Is it barring access to sensible preventive care and screenings? Is a $5 copay even meaningful anymore?

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Getting the copay structure just right will always involve some tinkering since every company and every covered population is different. Even if your company's benefits were created with the principles of value-based benefit design in mind, plan on making changes periodically. The right copay levels one year might not be the right levels the next year, as new drugs, therapies, and health issues emerge. While there may not be any hard and fast rules to guide you, Purchasing High Performance can offer a few simple guidelines for fine tuning your company's copays:

The $5 copay is not irrelevant. Study after study has shown that the $5 copayment generally does have the expected impact of lowering utilization. Thus, the oft-encountered $5 copay should be applied judiciously—do you really want to reduce utilization of drugs that help those with chronic illnesses manage their conditions? Be advised that $5 is sometimes too much. Zero is the right amount for high-value preventive care. In some instances, it may even make sense to pay employees to seek care or a particular immunization. Ask yourself, how much you would be willing to spend to make sure your employees were protected from the swine flu?

The copay should never be a blunt instrument. The idea that a copay of any amount should be applied evenly across all drugs, all services, or even to all employees is obsolete. Copays should be kept very low or eliminated for low-cost, high-value services and drugs. High copays are perfectly acceptable for medically non-indicated or frequently overused services or for high-cost drugs, if less expensive, equally effective alternatives are available.

Copays affect different populations differently. Race, gender, age, economic status, and medical condition are all relevant factors to consider when setting copayments. Consider who your employees are and make absolutely sure that copays are not discouraging them from seeing needed, appropriate care. One study, for example, found that copays as low as $12.50 were enough to (inadvertently) deter women from getting needed mammograms.1 Another found that copays of no more than $15 were sufficient to drastically reduce the use of necessary and appropriate children's health services.2

Copays affect utilization of different drugs and services differently. One study found that increasing the office visit copay by $10 reduced utilization by nearly 20 percent, but the same study found that increasing prescription copays by just $1 reduced utilization by over 20 percent.3 A 2008 study found that reducing copays to $5 (from about $11) increased medication compliance by 7 percent to 14 percent among patients with several chronic illnesses.4 The bottom line: test the effect your copay is having and adjust it accordingly.

The deductible is part of the same equation. According to Dr. Chernew, you must consider the deductible and the copayment together. The deductible is the amount you pay out of pocket before your insurance will pay anything. It can range from zero to thousands of dollars, depending on the plan. The presence of a high deductible may negate or counteract the effect of a lowering a plan's copayment.

Tinker, but tinker with an actuary. Don't expect that your copay structure is OK as it is, no matter how much effort you put into devising it. Review your claims and consider where there might be waste or overutilization. Does a higher copay make sense there? Think also about underutilization. What drugs or services should be free? Dr. Chernew estimates that of 100 randomly chosen companies, no more than five have done a good job of setting copays that reflect the tenets of value-based insurance design (see related article). Engage the services of a health actuary or other professional to help guide your efforts. Expertise and experience will streamline the process of developing a copay structure that does what you want it to do.

For further reading and resources on the art and science of using copays to control costs and increase quality, see the links below.

NBCH's Value Based Benefit Design Purchaser Guide  

The Center for Value Based Insurance Design  

1 A. N. Trivedi, W. Rakowski, and J. Z. Ayanian, "Effect of Cost Sharing on Screening Mammography in Medicare Health Plans," New England Journal of Medicine, Jan. 24, 2008 358(4):375–383.
2 "Increase In Drug Copay Boosts Odds That Older Adults Will Cut Back Or Stop Taking Medications, Finds Study Presented At American Geriatrics Society," Medical News Today, May 5, 2008,
3 A. Chandra, J. Gruber, and R. McKnight, Patient Cost-Sharing, Hospitalization Offsets, and the Design of Optimal Health Insurance for the Elderly, National Bureau of Economic Research Working Paper #12972, (Cambridge, Mass.: National Bureau of Economic Research, March 2007).
4 M. E. Chernew, M. R. Shah, A. Wegh et al., "Impact of Decreasing Copayments on Medication Adherence within a Disease Management Environment, Health Affairs, Jan./Feb. 2008 27(1): 103–112.

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