Narrow formularies, or drug lists that limit what prescriptions are covered under a pharmacy plan, are a hot topic in pharmacy benefits management right now. But before diving into that topic, it’s worth noting that according to the U.S. Bureau of Labor Statistics, the number of prescriptions filled grew 74 percent from 1992 to 2002. Of course, as more prescriptions are purchased, overall health insurance costs go up as a result — and with the implementation of the Affordable Care Act, including the law’s requirements for pharmacy coverage, employers must now devote more attention than ever to prescription drug costs in their health plan offerings.

Under the ACA, the industry is seeing more narrow formularies — meaning a smaller amount of plan-approved drugs — incorporated into employer-sponsored health care plans. The advantage here is that these formularies, or drug lists, drive employees toward filling their prescriptions with lower-cost generic medications. Employees who are prescribed medications that are not on these narrow formularies will then either have to pay more out of pocket (often the entire retail price of the prescription), ask their doctor to write a script for a generic equivalent (or another medication within the formulary that treats the same condition), or ask for a prior authorization from a physician.

There’s an obvious pro and con to this approach for businesses and their workforces.

Controlling Costs

The key advantage of health benefit plans with tighter formularies is that those plans cost less for the employer — and typically the employee, too. The magnitude of the cost savings varies, however.

Fewer Options for Employees

If your business offers a health plan with a tighter pharmacy formulary, this may create additional burden for those employees who face conditions that require maintenance medications. It may be worthwhile to conduct an anonymous survey prior to choosing a plan in order to assess the impact of introducing one with a tighter formulary.

Pharmacy formularies represent another lever that can be pulled (or not pulled) when considering the price of health care benefits and getting to the price point that works best for your company. The more you and your employees understand how to make your benefits best work for everyone, the happier your entire company is in the long run.

This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.

David E. Williams is president of Health Business Group, a strategy consulting firm serving clients in technology-enabled health care services, pharmaceuticals, biotech, medical devices and software. He is frequently quoted in the media on the business of health care and is the author of the Health Business Blog. David sits on the board of both private health care companies and nonprofits.