By Samantha, Skurdahl, Managed Markets Intern, Palio
We’re passionate about the critical role that managed markets plays in today’s marketplace and our Managed Markets Monday series provides insight into what we think it takes to meaningfully and effectively communicate with the payer customer. This post shares insight on tiered formulary insurance.
Recently, the hot-button discussion topic around the proverbial national water cooler seems to be the changing face of healthcare. More specifically, there have been countless conversations and questions about the insurance system and how its current structure affects individuals and pharmaceutical access, marketing, and communications. Here at Palio Managed Markets, it’s our job to dissect the complexities of the insurance system for our customers, so we thought we’d share an overview of one particularly relevant topic: tiered formulary insurance.
Briefly, a formulary is a description of the type and number of drugs covered by any particular insurance plan (Familydoctor.org). The drugs listed in a formulary are commonly broken up into the following subcategories based on intended use and required co-pay:
- Tier 1: The lowest level of the formulary generally consists of generic drugs and low-cost branded drugs that command low co-pays
- Tier 2: Higher priced generics and drugs that are preferred on the formulary
- Tier 3: Drugs that command the highest co-payment, typically nonpreferred brand-name medicines
Formularies may add more tiers beyond the 3 standard ones, including tier 4 for new and experimental drugs and tier 5 for nonessential medicines such as those for weight loss and hair growth (Familydoctor.org and Carroll).
Over the past 10 years, prescription drug costs have risen at an average of 10% per year, a staggering number that has forced many employers and insurers to adopt this system of tiered co-pay pricing (Rand Health). The tiered structure attempts to control insurer costs by pushing physicians and patients toward lower-priced and generic drugs, allowing insurers to “share” healthcare costs through the higher co-pays. Essentially, if a drug is on a higher tier, the patient is required to pay a larger part of the drug cost through co-payment (Carroll).
Although cost sharing has proven highly beneficial to insurance companies, many argue that the tier system and higher co-pays may deter patients from getting the drugs they need. This lack of compliance could lead to increased long-term health issues and greater use of expensive emergency and hospital service, generating more costs for insurers in the end. However, if insurers can encourage patients to adopt generics and preferred drugs more widely, they have more flexibility in providing expensive biologics and experimental drugs that could greatly benefit patients (Steve Perlstein).
This tier structure and other formulary decisions made by insurers play an important role in the life and health of almost every American. The co-pay a drug commands can greatly influence its accessibility and, therefore, the overall treatment of a patient. As long as healthcare remains a national and political issue, it is crucial that policy makers remember the incredible importance of drug and co-pay costs in the overall health of the nation.
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