What is a formulary drug plan?
You may have heard the term “formulary” in reference to your benefits plan. Certain drug plans include formularies, which is simply a list of the drugs covered under that particular benefits program.
Formularies may vary from plan to plan, depending on the plan sponsor’s preference, and can include allowances and/or restrictions for certain brand name drugs. Often, formularies are described as “managed” or “open,” depending on what drugs are covered, what restrictions are in place and other factors. Typically those drugs found on the formulary listing will be reimbursed at a higher co-insurance to encourage employees to choose the lower cost alternative. Brand name drugs remain available, but at a lower reimbursement level.
The primary purpose of a formulary is to control drug plan costs. As most of us are aware, prescription drugs can be extremely expensive and when those costs are passed onto the plan sponsor, it can put a severe financial strain on the program. A formulary can mean a more stable drug plan, with fewer rate increases being passed on to members.
When it comes to determining what drugs to permit and which to restrict, plan sponsors rely on medical practitioners and pharmaceutical experts to assess the cost effectiveness and therapeutic value of a certain drug treatment. The entire formulary is subjected to this rigorous review, so that plan sponsors can feel confident that their plan is financially feasible, while plan members can rest assured that they are receiving effective medication for their ailment.
You may have also heard of the Ontario Drug Benefit program’s formulary. It lists what drug products are eligible for coverage through OHIP for the various government sponsored drug programs. Just as plan sponsors need to monitor their drug spending, the provincial government needs to do the same. It is interesting to note that a plan sponsor can elect a drug program formulary that will mirror the ODB program.
For employers, conveying the rationale behind formularies and explaining why they’re a vital part of a drug plan, can help to improve employees’ understanding – and appreciation of – their drug plans.