Drug formularies are probably the least understood component of a health insurance policy. Texas consumers rarely discuss the prescription formulary and how a formulary functions before securing coverage.
All Texas health insurance carriers rely on drug formularies in order to manage the plan’s prescription benefit. Although prescription drug spending has been relatively small compared to overall health care spending, it has been one of the fastest growing components. For this reason, health insurance carriers have been focused on managing prescription costs. The share of prescription drug spending paid by private health insurance companies rose significantly from 1990 to 2005, increasing from 26% to 48%. The Centers for Medicare & Medicaid Services (CMS) projects that from 2012 to 2022, annual expenditures on prescription drugs will grow by 75 percent to $455 billion. Outpatient prescription drugs will account for about 9 percent of total health care spending. By 2022, the Affordable Care Act (ACA) is expected to add an additional $15.3 billion in annual drug expenditures[1]
The term “formulary” means a list of drugs identified by the carrier that provide the highest degree of efficacy for the condition being treated in relationship to the lowest cost. The list of drugs included on a health insurance carrier’s formulary is based on research and documented results. Pharmaceutical companies will present scientific findings to health insurance carriers on the drugs they manufacture. The test results justify the decision to add a particular drug to a plan’s formulary. Formularies are designed to provide at least one brand name option for each drug class to ensure that more than generic drugs are available. Formularies are updated each year and are available either in a searchable format or as a PDF to download and print.
Typically, health insurance carriers will not prohibit the use of one drug as compared to another drug, but the carrier can provide a stronger benefit for the drug included in their formulary as compared to another in the form of a more attractive co-pay or a different deductible schedule.
For example, one Texas health insurance carrier includes Crestor on their formulary and the prescription would be subject to a $40 co-pay if the prescription deductible had been met. If the doctor insists on writing the prescription for Liptior which is not on the formulary, the co-pay will increase to $55. The patient still receives the prescription the doctor ordered, but the co-pay is slightly higher because it is not on the carrier’s formulary.
If a drug is either subject to the higher non-preferred brand name co-payment or not included in the carrier’s formulary and will not be a covered prescription benefit, the insured member has the following options:
- Request that the prescription be granted an exception – Ask your doctor to submit a request that the prescription be provided by the insurance plan “by exception” due to medical necessity.
- Substitute another prescription – Consult with your doctor to determine if a drug included on the carrier’s formulary will provide the same results as the original prescription.
- Submit a formal written appeal – This option is an escalation of the doctor’s request for an exception. A written appeal should include contact information for the doctor who wrote the prescription. Be sure to state in the letter that you are appealing the carrier’s decision not to cover the prescription and grant permission to the insurance carrier to contact your doctor to discuss the medical necessity of the prescription. It is advisable to copy the letter to your doctor’s office, so they are aware of the appeal. Always request the carrier to outline what steps will be taken to review the appeal and what steps can be taken if your appeal is denied.
The formulary is meant to alter our buying habits and attempt to change buying habits by encouraging the consumer to request the drugs that are preferred by the insurance carrier. The goal is to reduce the impact of prescription costs to the overall insurance premium cost without negatively affecting the desired results of the treatment. Formularies are an important component of health insurance plans and should be understood in order to get the most benefit from the prescription issued by your doctor.
Stateside Insurance Services, since 2003, has focused on providing comprehensive health insurance information, responsive customer service and expert industry knowledge for Texas consumers. Stateside has annually been recognized by health insurance carriers and the Health Insurance Marketplace as a Top Producer in Texas.
Whether the health insurance policy is for an individual, family, small business or supplemental Medicare coverage, Stateside dedicates the time, and our deep industry expertise, to ensure our clients have identified the best health insurance plan for their specific needs.
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[1] Consociate Health, Prescription Drug Trends, February 10, 2020