Plan Sponsors Research Articles

Practical Applications of The Blind Side: Managing Downside Risk in Corporate Defined-Benefit Plans

Average funding ratios for U.S. defined-benefit pension plans are low enough to set off triggers for mandatory contribution increases and have led to a greater emphasis on risk-reduction strategies among US plan sponsors. Authors <b>Abdullah Z. Sheikh</b>, and his colleague, <b>Jianxiong Sun</b>, both of <b>J.P. Morgan Asset Management</b>, offer pension fund managers and trustees a “common sense solution” rather than a “magical formula,” in their article for the Spring 2013 issue of <b><i>The Journal of Portfolio Management</i></b>, The Blind Side: Managing Downside Risk in Corporate Defined Benefit Plans. This <b><i>Practical Applications</i></b> report explores two main facets of the authors’ approach: The impact of non-normality of asset returns on a defined-benefit pension plan’s liabilities and the development of a multidimensional risk management framework for managing contribution risk. “There are a lot of plans that are at the forefront of adopting some of the more well-thought-out solutions. At a basic level, the strategy we’re recommending is very intuitive,” says co-author Sheikh. <b>TOPICS:</b>Pension funds, financial crises and financial market history, VAR and use of alternative risk measures of trading risk

Target- Benefit Plans in Canada An Innovation Worth Expanding

The limitations inherent in the traditional pension models – defined contribution (DC) and defined benefit (DB) – are facing increased scrutiny and new models are developing in response to these pressures. Due to extremely low interest rates and the volatility of equity markets, over the past several years many DB pension plans have suffered significant solvency deficits. As a result, plan sponsors have sought relief from higher contributions required under pension laws. Temporary relief measures granted in certain jurisdictions have not addressed the underlying issues but have provided merely short-term solutions. At the other end of the spectrum, DC plans incorporate both predictable contributions and an alignment of risk and reward for plan members, but they leave complicated investment decision-making to plan members who frequently have no investment expertise. Furthermore, DC plans fail to capture substantial value available from pooling of costs, investment risk and longevity risk among plan members. We need to move beyond the DB versus DC debate towards a middle-ground option that incorporates some of the positive attributes of both designs. Target-benefit plans (TBPs) can deliver the cost predictability of DC plans combined with a defined-benefit-type pension to retirees, with predictable contribution levels, and enable pooling of longevity and investment risks. This Commentary reviews the recent New Brunswick shared risk pension legislation and draws lessons that can be applied to the design of similar TBP legislation elsewhere. In most Canadian jurisdictions, pension laws do not currently accommodate single-employer TBPs – although several provinces have taken initial steps. Existing legislation generally prohibits reduction of accrued benefits outside of the multi-employer unionized environment, and a key element of TBPs is their ability to let benefits vary as a function of the funding status of the plan. Tax rules must be changed to accommodate single-employer TBPs. As well, clear and logical accounting guidance for TBPs must be established to facilitate the emergence of such plans. Also, a jurisdictions wishes to permit conversion of accrued benefits to target benefits, legislative change is required. In New Brunswick, accrued benefits may be converted, which can promote intergenerational equity. Pension standards laws across the country will have to be changed in order to facilitate the emergence of new design options such as single-employer TBPs.

The Impact of Leakages on 401(K) Accumulations at Retirement Age

The simulation results for this testimony suggest that, assuming no participant behavior change for participation, contribution or asset allocation resulting from reduced access to 401(k) balances, retirement balances from 401(k) plans, and IRA rollovers originating in 401(k) plans, may be increased substantially for young employees with thirty or more years of eligibility if cashouts at job turnover, hardship withdrawals (and the accompanying suspension of contributions) and plan loan defaults were substantially reduced or eliminated. However, this analysis needs to be accompanied by a very strong caveat that, prior to policy making, there are clear data gaps that will need to be filled. For example, Holden and VanDerhei (2001) found that participants in plans with a loan option have higher contribution rates than those without such access, cet. par. It is likely that a similar relationship exists with respect to the availability of hardship withdrawals. The potential reduction in participation and contribution rates from reducing or eliminating access to cashouts at job change would likely be even greater; however, since this is not a plan design variable that be controlled by the plan sponsor, there is no way to quantify the likely impact based on historical data.

The Role of Economic, Fiscal, and Financial Shocks in the Evolution of Public Sector Pension Funding

Many studies have documented the pervasive underfunding of public sector pension plans in the United States in recent years. The deterioration of the funded status of public pension plans coincided with severe fiscal crises that state and local governments experienced in the 2000s. This development has led to a suspicion that state and local governments have decreased employer pension contributions as a backdoor means of running fiscal deficits. In this paper, the authors investigate the extent to which this phenomenon has occurred. They estimate panel data regressions using the Boston College Center for Retirement Research’s Public Plans Database, which provides data for 2001 through 2010. The authors find that contrary to popular belief, plan sponsors do not reduce their contributions in response to negative fiscal or economic shocks. In contrast, plan sponsors’ contributions to their pension plans increase in response to growth in their unfunded liabilities. The authors document that the public pension underfunding crisis during the 2000s developed largely as a consequence of portfolio returns that fell short of expectations. Public pension plans’ assets portfolios have a relatively high share of equities and other risky assets, leaving the plans’ funded status vulnerable to asset price fluctuations. Although plan sponsors increased their contributions in response to the growth of unfunded liabilities, they did not do so by enough to fully counteract the effect of the subpar portfolio returns. This finding holds across the spectrum of plans ranked in terms of funded status in 2010.

The Impact of Flexible Benefits Plan on Organization Commitment and Intention to Quit

In the past decade, the employee benefits industry has undergone considerable change with regard to the types of benefits available at the workplace. Plan sponsors have experimented with a variety of strategies to developing creative ways to tailor their benefit plans to the varying needs of employees. One approach set up is the flexible benefits plans. Thus, the focus of this paper is to develop economic study, test the relationship between benefits plan (traditional and flexible) as independent variables and organization commitment, employees’ intention to quit as dependent variables on one side, on the other side we test these relationship according to the employees’ demographic characteristics as control variables, with data from a sample of BHP company in Algeria and in headquarters in Australia, a total of 330 respondents were randomly selected as the sample of the study, data was analyzed by (IBM SPSS statistics 20), the study is divided into two parts. In the first part, our result prove that both of traditional benefits plan and flexible benefits plan are related with organization commitment and intention to quit, but the workers under flexible benefits plan demonstrated a higher commitment and lower intention to quit than traditional plan. The second part, the results also show that the demographics characteristics can play important role in the determining of employees’ behavior, we prove that there is different in term of commitment and intention to quit among employees according to the differences in the demographic characteristics. DOI: 10.5901/mjss.2014.v5n8p136

Defined Contribution Plans as a Foundationfor Retirement Security

This article discusses why employer-sponsored defined-contribution (DC) plans and individual retirement accounts (IRAs) are such an important part of the U.S. retirement system. The authors discuss the numerous positive strides taken by plan sponsors to increase participation, provide more diversified portfolios, and offer immediate eligibility to a mobile workforce. They argue that the DC system provides a strong foundation upon which to continue to strengthen the U.S. retirement system and is preferable to alternative proposals that seek to wholly or partially supplant the employer’s role with expanded government provision of retirement benefits. The authors recommend that policymakers and the employer community work together to build on the substantial progress already made regarding coverage, participation, and contributions as well as in the promotion of guaranteed retirement income and other retirement risk management practices. <b>TOPICS:</b>Retirement, legal/regulatory/public policy

Ottawa's Hidden Deficit: The Widening Gap between Federal Government Pension Liabilities and Assets

Defined-benefit (DB) pension plans have been in trouble in recent years, largely because their sponsors have tended to underestimate their liabilities. As Canadians saving for retirement in registered retirement saving plans and defined-contribution pension plans have begun to realize, low yields on low-risk assets require more saving to achieve a given future income. Many DB plan sponsors, however, use inflated assumptions about returns – effectively presuming that risky investments will unfailingly pay off – to obscure the need for higher contributions. In Canada, the largest DB plans are those for federal government employees. Canadian taxpayers underwrite a promise that assumes a rate of return well in excess of current interest rates on federal government bonds – even on assets that do not exist. Although Ottawa has taken steps to rein in the growing cost of pension plans for public servants, uniformed personnel and MPs – arguably the largest and richest defined-benefit pensions in the country – these plans’ unfunded liabilities are massive, much larger than reported, and still growing. The contributions to these plans, even after the most recent reforms, come nowhere close to covering the rocketing cost of their taxpayer-guaranteed promises. An economically meaningful fair market value estimate of the unfunded liability of federal government employees’ pension plans puts it at $272 billion as at March 31st, 2013 – some $120 billion higher than reported. The same approach to determining the annual cost of benefits accruing in these plans shows it to be between 45 and 60 percent of pensionable pay – more than twice as high as reported, and a far higher rate of tax-deferred wealth accumulation than is available to other Canadians. The federal government should incorporate these numbers in the official measures of its net debt and annual budget balance. This would be a key first step toward reforms that would alleviate a burden that few taxpayers know they bear, and that would protect taxpayers from risks few know they run.

Risk-Taking Behavior Of Public Pension Plans Before And After The Financial Crisis Of 2008

This paper investigates whether public pension plans risk-taking behavior has changed after the recent financial crisis of 2008 by testing two contrasting hypotheses on pension funding: risk transfer and risk management hypotheses. In managing pension assets, public pension plan sponsors may have an incentive for risk transfer because underfunded pension obligations can be shifted to future taxpayers (risk transfer hypothesis). Facing a budget constraint, they may also have an incentive for risk management because they would prefer to stabilize their contributions (risk management hypothesis). Using a sample of 126 public pension plans for the period of 2001?2011, this paper finds that public pension plans risk-taking behavior has changed after the financial crisis of 2008. Before the financial crisis, public pension plan sponsors invest more in equities when a large required contribution is expected, which is consistent with the risk transfer hypothesis. After the financial crisis, however, the plan sponsors invest less in equities when a large required contribution is expected, which is consistent with the risk management hypothesis. The findings suggest that public pension plans risk-taking behavior is not constant over time, but can be varied depending on market conditions.

Evaluation of increased adherence and cost savings of an employer value-based benefits program targeting generic antihyperlipidemic and antidiabetic medications.

A major employer implemented a change to its employee health benefits program to allow beneficiaries with diabetes or high cholesterol to obtain preselected generic antidiabetic or generic antihyperlipidemic medications with a zero dollar copayment. To receive this benefit, plan beneficiaries were required to participate in a contracted vendor's case management and/or wellness program. To assess changes in medication adherence and the costs for generic antidiabetic and generic antihyperlipidemic medications resulting from participation in a zero copay (ZCP) program. This was a retrospective pre-post comparison group study, evaluating adherence and cost. Participants using an antihyperlipidemic and/or antidiabetic medication during the study identification period and post-implementation period for the program were considered eligible for the study. Eligible beneficiaries who enrolled in the ZCP program during the post-implementation period were considered participants, while those who did not enroll during this period were considered nonparticipants. ZCP program participants and nonparticipants were matched via a 1-to-1 propensity scoring method using age, gender, comorbidity count, medication type (antihyperlipidemic, antidiabetic, or both), and baseline adherence as matching criteria. The proportion of days covered (PDC) metric expressed as a mean percentage was used to assess adherence to medication therapy, while payer cost was examined using prescription drug utilization expressed as per member per year (PMPY) and cost change per 30 days of medication expressed in dollars. Among participants who were users of antidiabetic medications, the mean adherence rate was sustained from pre- to post-implementation (81.8% vs. 81.9%); however, it decreased in the matched nonparticipant group (81.9% vs. 73.1%). This difference in mean adherence over time between the participants and nonparticipants was statistically significant (0.1% vs. -8.8%, P less than 0.001). Similar results were found among users of antihyperlipidemics. The mean adherence rate was sustained over time for participants (77.7% vs. 78.3%) but declined over time for nonparticipants (77.6% vs. 70.8%). The difference in mean change over time was statistically significant between participants and nonparticipants (0.6% vs. -6,8%, P less than 0.001). Average prescription costs PMPY increased for participants of the ZCP program during the post-implementation period; however, the increase was not larger than the cost increase among nonparticipants ($581 vs. $584, P = 0.95). Furthermore, among antihyperlipidemics the cost increase post-implementation was actually significantly less for participants than nonparticipants ($51 vs. $143, P less than 0.001). Plan sponsors are increasingly evaluating the use of value-based benefit design (VBBD) to change member behavior. This ZCP program used a reduction in cost sharing to incentivize members to use more generic drugs and to enroll in a care management coaching program. The study also demonstrated that a VBBD program can have a positive impact on adherence and cost outcomes among those who participate compared with nonparticipants.

Should eligibility for medication therapy management be based on drug adherence?

Medicare Part D prescription drug plans must offer medication therapy management (MTM) services to qualified enrollees. Eligibility criteria used by plan sponsors are restrictive, and fewer than 10% of Part D enrollees receive MTM services. The extent to which plan criteria identify beneficiaries most at risk for suboptimal medication use is unknown. To (a) evaluate potential underuse of and poor adherence to evidence-based medications used in the treatment of Medicare beneficiaries with diabetes, heart failure, and chronic obstructive pulmonary disease (COPD) over 3 years; (b) determine whether MTM eligibility criteria used by the modal Part D plan in 2011 (drug spending ≥ $3,000, ≥ 3 chronic conditions, ≥ 8 Part D medications) identified Part D enrollees at greatest risk for underuse of and poor adherence to these drugs; and (c) demonstrate how sensitive MTM eligibility is to variations in criteria levels. Study subjects were selected from a 5% random sample of Part D enrollees with 1 or more of these diseases in 2006 and followed through 2008 or death. Longitudinal patterns of exposure and adherence to angiotensin-converting-enzyme inhibitor/angiotensin receptor blockers, beta-blockers, and COPD controller drugs were tracked comparing patterns for enrollees meeting/not meeting the modal 2011 MTM eligibility criteria. Use of evidence-based medication was consistently suboptimal for every disease cohort studied. Higher rates of exposure and adherence were observed among those with high drug spending taking multiple Part D drugs. Current MTM criteria were found to target beneficiaries with above average utilization of evidence-based medication and to exclude those with more problematic utilization patterns. We estimate that lowering the maximum required drug count from 8 to 2 would increase the percentage of beneficiaries eligible for MTM by two thirds. Our findings suggest that MTM eligibility criteria are not optimally targeted to capture underuse of and poor adherence to evidence-based medications. Policymakers should weigh the pros and cons of loosening restrictive MTM eligibility criteria to target patients with potentially greater needs.

Moving branded statins to lowest copay tier improves patient adherence.

Statins are efficacious in reducing the risk of major cardiovascular events for both primary and secondary prevention, yet long-term adherence is poor. Their effectiveness could be compromised in actual practice when patients are not adherent to the treatments. Higher copayments have been shown to be associated with lower adherence to statins. To assess the effect on patient adherence of moving branded atorvastatin and rosuvastatin from the second to the first tier by a Medicare Part D plan sponsor. Pharmacy claims and eligibility records between July 1, 2009, and July 31, 2011, of Medicare Part D members not receiving the low-income subsidy were analyzed. New atorvastatin and rosuvastatin users in January 2010 (2010 cohort) were compared with those in January 2011 (2011 cohort) after this formulary tier change (tier-reduction group). Adherence was defined by the proportion of days covered (PDC) over 6 months. The impact of tier reduction on adherence was evaluated via logistic regression for binary outcome (PDC≥0.8) and generalized linear regression for continuous PDC by comparing the 2011 cohort with the 2010 cohort, adjusting for demographic and clinical characteristics. Other statin users (97% on generic statins) were also analyzed, serving as a nontier-reduction comparator group. We identified 12,437 members in the tier-reduction group. Between the 2010 and 2011 cohorts, mean PDC increased from 0.77 to 0.83, and the proportion of members with high adherence increased from 62.0% to 72.9% (both P < 0.001). After regression adjustment, members in the 2011 cohort were more likely to be adherent (OR=1.68; 95% CI=1.55-1.82) and had a 5.9% increase in PDC (P < 0.05). There was no significant increase in adherence observed in the comparator nontier-reduction group. Findings from this study suggest that financial incentives may improve medication adherence. Future studies should evaluate whether such formulary strategies improve long-term adherence and patient outcomes.

The Effect of Internal Capital Shocks on Manager Behavior: Evidence from Changes in ERISA Pension Accounting Rules

Trade groups and pension plan sponsors argue that pension obligations constrict investment and lead to economic inefficiencies. In 2012, Congress passed Moving Ahead for Progress in the 21st Century (“MAP-21”), which changed the ERISA pension accounting rules such that mandatory pension contributions decreased. I show that the existing ERISA pension accounting rules influence managerial behavior by showing that a large percentage of plans reside at pension funding statuses which avoid ERISA-related penalties, that firms are more likely to engage in actuarial changes to achieve these funding statuses, and that shareholders react favorably to MAP-21. Exploiting the rule change, my results suggest that recipients of pension funding relief increase shareholder payouts and hoard cash. These shareholder payouts are increasing in manager-shareholder alignment and decreasing in manager-labor alignment. While I do find evidence that immediate investment increases, it is concentrated in firms with deficient internal controls or governance systems that facilitate entrenchment.

A risk-based premium: What does it mean for DB plan sponsors?

This paper develops a risked-based premium calculation model for the insurance provided by the Pension Benefit Guaranty Corporation (PBGC). It takes account of the pension fund’s and the plan sponsor’s investment policy and extends Chen (2011) by considering distress termination triggered by the sponsor’s underfunding. We empirically illustrate our theoretical pricing formula for the 100 biggest American DB sponsoring companies. Our result clearly casts doubt on the current practice where about 70% of the PBGC premiums charged are flat. We observe that the funding ratio and the leverage are the main risk factors in a risk-based premium calculation.

Converting Traditional Defined Benefit Plans to Hybrid Plans:A Decade of Change

Over the past two and a half decades, a number of large employers have converted their traditional defined benefit plans to hybrid plans. Plan conversions are based on employer and employee preferences, and the desirability of hybrid plans depends on economic conditions, the regulatory environment, and legal uncertainty. The authors examine the factors that affected plan sponsors’ decisions to convert traditional DB plans to hybrid plans during years 2000–2009, a period characterized by adverse economic conditions, legal controversies, and regulatory change. They examine the pension choices of Fortune 1000 companies and estimate the likelihood of plan conversions as a function of the financial status of the plan sponsor, pension plan funding, and costs. The timing of plan conversions relative to major changes in federal regulations, specifically the passage of the Pension Protection Act of 2006 and the economic crisis, are explored. Finally, they examine whether the factors that prompted conversions in the early part of the decade were the same as those that prompted similar conversions later in the decade.

Joint Risk of DB Pension Underfunding and Sponsor Termination: Incorporating Options-Based Projections and Valuations into PIMS

When a private pension plan sponsor with an underfunded plan becomes insolvent, the difference between the value of the plan’s assets and its termination liabilities represents a liability for the Pension Benefit Guaranty Corporation (PBGC). Hence, accurately modeling the joint statistical distribution over time of defined benefit (DB) pension underfunding and sponsor terminations is critical for estimating PBGC’s prospective cash flows and evaluating its financial position. It appears that the current Pension Insurance Modeling System (PIMS) approach to modeling risk does a reasonable job of capturing its statistical properties effects on PBGC cash flows, though some aspects of the might be improved and metrics expanded. The paper outlines how an options-based approach to modeling the joint distribution of defaults and underfunding in PIMS might be implemented while preserving the strengths of the current model. Moving to an options-based approach would allow PIMS to be used to estimate the fair values of future liabilities. Such an approach could have a significant effect on the perceived financial position of PBGC.

Integrated Risk Management for Defined Benefit Pensions: Models and Metrics

The Pension Benefit Guaranty Corporation (PBGC) insures private sector defined benefit (DB) pension plans when an employer becomes insolvent and is unable to pay its pension liabilities. In principle, the insurance premiums collected by PBGC should be sufficient to cover potential losses; this would ensure that PBGC could pay the insured benefits of terminated pension plan without additional external funding (e.g. from taxpayers). Therefore, the risk exposure of the PBGC from insuring DB pension plans arises from the probability of employer insolvencies; and the terminating plans’ funding status (the excess of the value of insured plan liabilities over plan assets). This paper focuses on only the second component, namely the impact of plan underfunding for the operation of the PBGC. When a DB plan is fully funded, the PBGC’s risk exposure for an ongoing plan is low even if the plan sponsor becomes insolvent. Thus the questions most pertinent to the PBGC are what key risk factors can produce underfunding in a DB plan, and how can these risk factors be quantified? We explore the most important risk factors that produce DB pension underfunding, namely investment risk and liability risk. Both are interrelated and must be considered simultaneously in order to quantify the risk exposure of a DB pension plan. We propose that an integrated risk management model (an Integrated Asset/Liability Model) can help better understand DB pension plan funding risk. We also examine the Pension Insurance Modeling System developed by the PBGC in terms of its own use of some of the building blocks of an integrated risk management model.

Web-based survey to assess the perceptions of managed care organization representatives on use of copay subsidy coupons for prescription drugs.

Promotion of prescription drug coupons and vouchers by pharmaceutical manufacturers has increased in recent years. These coupons and vouchers usually subsidize patients' cost-sharing obligations. In other words, drug companies pay for a patient's portion of the drug cost, and the remaining cost is paid by the patient and the patient's health plan. This practice is normally used for brand name drugs but can and has been used for generic drugs. Copayments (also known as copays), and especially high copays for higher cost drugs, are used by managed care organizations (MCOs) to place a higher financial burden on patients and also provide an appreciation of the medication cost. At the same time, tiered copay plans offer incentives, in the form of lower copays, to use available equivalent generic alternatives or lower cost brand name drugs, instead of high cost brand name drugs. With higher tiered copays for brand name drugs being offset by coupons, little is known about MCO representatives' perceptions about the use of copay subsidy coupons for brand name prescription drugs. To assess health plan managers' and pharmacy benefit managers' (PBMs) perceptions about the use of prescription drug copay subsidy coupons. A 28-item online survey instrument was used to collect data from health plan and PBM representatives. A sample of 834 MCO representatives was selected from the Academy of Managed Care Pharmacy membership directory. Pharmacists, managers, directors, and executive officers working in pharmacy, formulary, and clinical pharmacy operations were selected for the survey. Respondents from non-MCO settings and government-sponsored health plans were excluded from the survey. A total of 122 surveys were returned after 3 emails (i.e., an invitation and 2 reminder emails) of which 105 were usable surveys, giving a response rate of 13.7%. A 5-point, 11-item Likert scale (1 = Strongly Disagree and 5 = Strongly Agree) was used to measure respondents' perceptions toward prescription drug coupons. Some items referred to coupons used repeatedly over a year to get copay discounts (i.e., long-term use coupons) whereas some items referred to coupons distributed for trial purposes (i.e., short-term use coupons). Of the 105 respondents, 100 (95.2%) agreed that copay subsidy coupons encouraged nonpreferred brand name drugs over preferred brand name drugs. A total of 102 (97.2%) respondents agreed that brand name drug coupons undermined tiered formulary structure. Ninety-two (87.6%) respondents agreed that short-term use coupons increased plan sponsor's costs while 96 (91.5%) respondents agreed that sponsor cost increased with long-term use coupons. A total of 68 (64.8%) agreed that short-term use coupons should be eliminated whereas 78 (74.3%) respondents agreed that long-term use coupons should be eliminated. Among MCOs' many business activities are efforts to contain rising pharmacy costs. The results of this survey indicate that MCO representatives believe that incentive programs such as prescription drug coupons and vouchers lead to an increase in brand name drug utilization, which undermines their formulary controls and, in turn, can be expected to increase overall health care costs.

Are Some Clients More Equal than Others? Evidence of Price Allocation by Delegated Portfolio Managers

Pension plan sponsors often manage their portfolios via multiple management companies. We find that some plans receive systematically better prices when management companies trade the same stock, on the same day, in the same direction for multiple clients. The number of management companies per client is an important predictor of being a favored or disfavored client, consistent with competition over clients. Average magnitudes of transfers across clients are as large as 0.50% of dollar trade volume. We find that these transfers are larger when opportunities are greater, when clients are newer, and around year-end when client attention is high. Moreover, clients who benefit reward management companies with as much as a 50% increase in future dollar trading volume. We rule out alternative explanations such as market timing skill, directed brokerage arrangements and different trading practices. We interpret the collective results as evidence of conflicts of interest.

Assessing the Impact of Real Estate on Target Date Fund Performance

Defined benefit (DB) plans have used direct real estate in their asset allocations for forty years. Defined contribution (DC) plan sponsors are using the shift to asset allocation funds as an opportunity to do the same. We found that if direct properties were added to target date funds over the past four decades, DC participants in these funds would have experienced substantially improved risk-adjusted performance. <b>TOPICS:</b>Real estate, retirement, in portfolio management

Attitudes of Medicare-eligible Americans toward mail service pharmacy.

For many years, community pharmacies provided mail delivery as a convenience for a small segment of special circumstance patients who requested it. Fueled by a movement among plan sponsors and prescription benefit managers to encourage or require its use, growth in mail service pharmacy began to accelerate in the 1980s and now accounts for nearly 25% of the market in the general population and a much higher percentage of seniors. To assess the attitudes of Medicare-eligible Americans toward concerns that have been raised about mail service pharmacy and its mandated use in the prescription benefit plans of public and private insurance programs. Existing published literature was reviewed, and interviews were conducted with Medicare-eligible persons aged 65 and older to identify potential areas of concern with mail order pharmacy services. A survey was constructed and mailed to a nationally representative random sample of 6,500 persons between the ages of 65 and 79 in July 2012. By the cutoff date, 669 completed surveys had been received, and an additional 221 had been returned as undeliverable, resulting in an overall response rate of 10.7%. Nearly half of respondents listed chain pharmacy as their primary source of prescription medications (47.7%) followed by mail service (34.1%), independent pharmacy (13.1%), and other (5.1%). Responses of seniors residing in rural zip codes compared with those in nonrural zip codes demonstrated significantly higher agreement with several concerns, including lost or stolen medications, receiving the exact medication the physician prescribed, and the effects of exposure to heat, cold, or moisture. Two additional concerns approached statistical significance: the ability to speak with a pharmacist face-to-face and the ability to obtain medications quickly if needed. A total of 533 (83.7%) indicated they would oppose mandated mail order in their current benefit plan if it would cause the local community pharmacy they rely on for immediate medication needs to close. The mean risk of such an eventuality that respondents were willing to accept was 42.2%, indicating they would oppose mandatory mail order if there were greater than about a 4-in-10 chance it would cause the loss of their local pharmacy. Seniors appear to be practical and pragmatic about the sources of their prescription medications. While most see a role for mail service pharmacy, they are also aware of its limitations. Many have needs they believe cannot be adequately met by mail service or have relationships with local pharmacies and pharmacists they believe are important for maintaining their health and well-being. As a result, seniors are relatively risk averse when it comes to the loss of their local community pharmacy, even if they routinely use mail order for most of their medications. Beyond their specific concerns, most seniors oppose any restrictions on their freedom to use the pharmacy of their choice on general principle.