Finding the right health care benefit plan that fits you and your organizations’ needs can be stressful with some plans containing certain components that you might not need. And with the rising costs of healthcare, particularly prescription drug prices, it has become increasingly difficult for organizations to succeed and get the right care for their employees. Prescription drug coverage is the most utilized health care benefit and can quickly consume the health care budget. Pharmacy carve-outs are a great option for self-funded, or self-insured, employers and have shown a large amount of savings within the first year.
How Pharmacy Carve-Outs Work
What are pharmacy carve-outs?
A pharmacy carve-out allows the employer to unbundle, or carve-out, their prescription drug benefits from their major medical plan to contract directly with pharmacy benefit managers (PBM). Doing so will give employers some transparency and better control over their pharmacy benefits and costs. Working with a PBM will give employers direct access to the price of their pharmacy benefits and the ability to evaluate the program performance.
Self-insured employers commonly use pharmacy carve-outs. A major advantage of doing so is the flexibility of the plan design which can help reduce overhead health care costs. With the added transparency of PBMs, employers are able to negotiate better deals and become more knowledgeable about pharmacy benefits.
A self-funded group health plan is one in which the employer eliminates obligations to a health plan provider by assuming the financial risk for providing health care benefits directly to its employees. For many employers, pre-packaged full insurance health plans do not provide the greatest value to their organizations. There are several reasons employers might want to avoid a traditional plan system.
- Exemptions: Self-insured plans are exempt from state-mandated insurance laws since they are regulated under federal law. A self-insured plan can establish consistency among the benefits program by excluding state-by-state mandates. Following state benefit mandates can add to the cost of employer benefit programs.
- An additional exemption of self-funding is the ability to forgo state premium taxes. The premium tax savings is about 2 to 3 percent of the premium dollar value.
- Reduced spending: Insurance carriers assess a risk charge, but self-insurance removes this charge.
- Employers pay for claims as they become due rather than premiums.
Employers wanting to avoid risk charges and state premium taxes are a concern for small and mid-sized employers. One of the greatest advantages of self-funding is the authority to structure benefits to the exact needs of your organization. Employers can customize the benefits they want to offer. Employers that switch from a fully insured plan to a self-funded plan typically show large first-year savings.
Most employers who utilize self-funding also purchase stop-loss coverage for their health care benefit plan to reduce the risk of large individual claims. Stop-loss insurance can act as a form of reinsurance and provides reimbursement for claims above a specific dollar level.
The ability to tailor the employer’s health care coverage to fit the organization’s needs can save unwanted and unneeded spending in the budget. By continuously modifying the plan design, employers can reduce costs by customizing their care and paying for what they specifically need. Self-funding the prescription drug benefit by carving out the employers’ needs and using a PBM can result in big dividends.
Employers who might want to redesign their health care plan and coverage are independent of state mandates which can aid in a smooth transition.
Pharmacy Benefit Management Transparency
The main objective of PBMs is to curate pharmacy prescription benefit plan options and they do so by working with drug manufacturers and wholesalers. However, the lack of transparency among PBMs has been criticized by its payers and policymakers. PBMs produce their revenue from several sources; such as mail-in and manufacturer rebates and specialty pharmacy services. The amount of the rebate they keep for themselves has continuously been under scrutiny. This has resulted in many employers being unsure of what bundled services they’ll be receiving and what they’re actually paying for.
Over the years, several states have passed laws to help regulate PBMs and require more transparency by prohibiting actions that can cause a conflict of interest or unfair business practices. When working with a PBM, it’s extremely useful to have comprehensive market evaluations and a true understanding of transparency. Each PBM might define transparency differently.
The benefit of using a PBM is its ability to negotiate pricing directly with a large network of pharmacies and drug manufacturers. And in return, PBMs present employers with better access to prescription drugs at competitive pricing.
Tailor Your Experience
Customizing your health care benefit plan resembles an a la carte experience; pick and choose which specific health care benefits to offer. When it comes to pre-packaged health care benefit plans, one size does not fit all. Instead of paying for health care coverage that is rarely used in grouped coverage, you can work with PBMs and curate a transparent detailed prescription drug benefit plan for your organization.
A carve-out plan can help ensure that your pharmacy needs are receiving the same attention as the medical benefits. Utilizing a carve-out plan allows employers to see the pharmacy claims data, pharmacy usage, and the right to audit; claims and rebate audits, and operational assessments. Using this plan will give you a clear understanding of what your health care spending goes towards.
Alltrust Insurance welcomes the opportunity to help your organization examine its plan design and offer expert experience with self-funded programs. We are happy to assist with any questions that might occur when evaluating your health care needs. Our team of certified experts will put your organizations’ health first. Let us reduce the stress of curating an insurance benefit plan. Reach out to Alltrust Insurance today to learn more about the services we offer.