The private health plans that administer the Medicare drug benefit use various tools to encourage the use of generic drugs in order to lower total drug spending. Higher generic drug use also appears to encourage consumers to continue taking their medications. This study examines how different drug plan benefit and formulary designs influence the selection of generic drugs to treat high cholesterol among Medicare beneficiaries. We found that a low copayment for generic statins is the strongest factor influencing the use of these drugs, and eliminating the copay altogether has an especially large effect. Other tools that have an effect are higher copays and prior authorization or “step therapy” requirements for popular brand-name statins. In this drug class, where generics can be readily substituted for brand-name drugs for most people, adoption of the policies most effective in encouraging generic use could lead to considerable savings for the plans, Medicare, and enrollees. We estimate that every 10 percent increase in the use of generic, rather than brand-name, statins would reduce Medicare costs by about $1 billion annually. Plans could apply the lessons from this analysis and consider a zero copay for use of generic drugs, and Medicare might consider further incentives for plans to use benefit designs that increase such drugs’ use.
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