Formulary

If you’re a small business owner trying to navigate the world of health benefits, you've probably come across the term formulary. It sounds complex, but it’s simply a list of prescription drugs covered by a health insurance plan. Understanding how formularies work can help you and your employees make better healthcare choices, especially if you're considering setting up an Individual Coverage Health Reimbursement Arrangement (ICHRA). In this guide, we’ll break down what a formulary is, how it works, and why it matters for your small business.

What Is a Formulary?

A formulary is a list of prescription drugs that a health insurance plan covers. Insurance companies design these lists to control costs while ensuring access to necessary medications. Drugs on the formulary are usually categorized into different tiers based on their cost, effectiveness, and availability.

Types of Formularies

There are two main types of formularies:

• Open Formulary: Covers a wide range of drugs, giving employees more options. However, this can be more expensive for both the employer and employees.
• Closed Formulary: Covers only specific drugs. If a drug isn’t on the list, the employee would have to pay the full price out-of-pocket. This option helps control costs but limits choices.

How Do Formulary Tiers Work?

Formularies categorize drugs into tiers, which determine the cost-sharing amount an employee will pay. Typically, the lower the tier, the lower the cost:

• Tier 1: Generic drugs – Lowest cost to the employee.
• Tier 2: Preferred brand-name drugs – Moderate cost.
• Tier 3: Non-preferred brand-name drugs – Higher cost.
• Tier 4: Specialty drugs – Highest cost, often for complex or rare conditions.

These tiers help employees understand their out-of-pocket costs and guide them to more cost-effective options.

Why Formularies Matter for Small Businesses

If you’re offering health benefits or setting up an ICHRA, understanding formularies can help you:

• Control Costs: By choosing a plan with a closed formulary or a tiered system, you can keep expenses predictable.
• Ensure Employee Satisfaction: Employees value access to affordable medications. A well-structured formulary ensures they get the care they need.
• Compliance and Flexibility: ICHRA allows employees to choose individual health plans that best suit their needs, including formularies that cover their specific medications.

Formulary and ICHRA – A Perfect Match

One of the best things about ICHRA (Individual Coverage Health Reimbursement Arrangement) is that it lets employees choose their own health insurance plan. This means they can select a plan with a formulary that fits their medical needs. As an employer, you don’t have to worry about managing a group health plan or keeping track of which drugs are covered. It’s a win-win for cost control and employee satisfaction.

How to Evaluate a Formulary

If you’re helping your employees choose plans or guiding them through ICHRA, consider these factors:

• Medication Needs: Make sure essential medications are on the formulary.
• Cost Structure: Look at the tiering system and out-of-pocket expenses.
• Network Pharmacies: Check if local pharmacies are in-network, as out-of-network pharmacies might cost more.

This helps employees make informed decisions and reduces the likelihood of unexpected costs.

Common Questions About Formularies

• Can employees request a drug not on the formulary?
  Yes, but they’ll need a doctor’s authorization and may have to go through an appeal process.
• Do formularies change?
  Yes, insurance companies update formularies annually. Drugs can be added, removed, or moved to different tiers.
• How does ICHRA affect formulary choices?
  ICHRA gives employees the flexibility to select a plan with a formulary that matches their needs, enhancing their overall healthcare experience.

Why SimplyHRA Is the Best Choice

Navigating health benefits doesn’t have to be complicated. At SimplyHRA, we make it easy for small businesses to offer affordable and flexible health benefits using ICHRA. With our platform, you can:

• Control Costs Without Surprises: Set a budget that fits your needs.
• Empower Employees: Let them pick the plan (and formulary) that works best for them.
• Stay Compliant Hassle-Free: We handle all the paperwork, so you don’t have to.

Ready to simplify health benefits? Sign up now or Schedule a demo today.

Frequently Asked Questions (FAQs) about Formulary:

Q: How do insurance companies decide which drugs go on the formulary?

A: Insurance companies work with pharmacy and therapeutics committees, which include doctors, pharmacists, and other healthcare professionals. These committees evaluate drugs based on their effectiveness, safety, and cost-efficiency. Medications that provide the best value for patients are more likely to be included.

Q: Can a formulary impact an employee’s ability to get a specific medication?

A: Yes, if a drug is not on the formulary, the employee may need to pay the full cost out-of-pocket or request an exception. This process can involve prior authorization or step therapy, where they must try a lower-cost alternative first.

Q: How often do formularies change?

A: Most insurance companies update their formularies annually, but changes can occur mid-year due to new drug releases, price changes, or safety updates. It’s important for employees to review their plan’s formulary regularly.

Q: Is it possible to appeal if a needed medication isn’t on the formulary?

A: Yes, employees can file an appeal for non-formulary drugs, especially if they have a medical necessity. This typically involves a letter from their healthcare provider and may require additional documentation.

Q: Do all health plans have the same formulary?

A: No, formularies vary by insurance provider and even by plan type within the same provider. This variation allows employees more flexibility in choosing a plan that meets their specific medication needs.

Q: How does a formulary affect the cost of medications?

A: Drugs on the formulary are usually categorized into tiers with different copayment or coinsurance amounts. Lower-tier drugs are more affordable, while higher-tier or non-formulary drugs can be significantly more expensive.

Q: What is a specialty drug in a formulary?

A: Specialty drugs are high-cost prescription medications used to treat complex or chronic conditions, such as cancer or rheumatoid arthritis. These are typically in the highest tier and may require special handling or prior authorization.

Q: Can ICHRA be used to cover medications not on a formulary?

A: Yes, employees can use ICHRA funds to reimburse out-of-pocket expenses for non-formulary medications, as long as the costs are considered qualified medical expenses by the IRS.

Q: Are over-the-counter (OTC) drugs covered in a formulary?

A: Typically, OTC drugs are not included in a formulary unless prescribed by a healthcare provider. However, some health plans offer coverage for certain OTC medications as part of wellness benefits.

Q: Can employees compare formularies when choosing a health plan with ICHRA?

A: Absolutely. One of the main benefits of ICHRA is that employees can shop for their own health insurance plans, which allows them to compare formularies and select a plan that best fits their medication needs.