Pharmacy Benefits Glossary: Essential terms everyone needs to know

Key insights from the Pharmacy Benefits Glossary: Simplifying complex terms for employers, employees, HR managers, and brokers

1. Simplified Definitions: This glossary breaks down common pharmacy benefit terms into easy-to-understand language for employers, HR managers, and brokers.
2. Essential Knowledge: Understanding terms like AWP, formulary, and copay accumulator programs helps in managing pharmacy benefits effectively.
3. Plan-Specific Insights: Clarifies key concepts related to self-funded and level-funded health plans, empowering decision-makers.
4. Resource for Cost Management: Learn about strategies like step therapy and tools like real-time benefit checks to control healthcare spending.
5. Actionable Resource: A go-to guide for navigating pharmacy benefits, making it easier to optimize costs and enhance employee satisfaction.

Navigating pharmacy benefits can feel like learning a whole new language. If you’re managing self-funded or level-funded health plans, you’ve probably encountered some head-scratching terms.

That’s where this glossary comes in—it’s designed to simplify the jargon so you can focus on what matters: making smart decisions for your business and employees.

This glossary is for employers, HR managers, and brokers who want to understand the ins and outs of pharmacy benefits. By getting a handle on these terms, you’ll be better equipped to save money, optimize costs, and take control of your healthcare offerings.

Glossary of Terms

We’ve broken down some of the most common and confusing pharmacy benefit terms, alphabetically organized for quick reference.

Drug Pricing and Payment Terms Every Employer Should Know

• Average Wholesale Price (AWP): The estimated price pharmacies pay for medications before discounts. While not always reflective of actual costs, it’s often used as a benchmark in drug pricing.
• Dispensing Fee: A fee paid to pharmacies for preparing and dispensing medications.
• Maximum Allowable Cost (MAC): The maximum reimbursement PBMs will provide for generic drugs. This ensures cost containment for employers.
• Out-of-Pocket Maximum: The most an individual will pay for covered healthcare expenses during a plan year, after which the plan covers 100%.

Plan Design and Management

• Copay Accumulator Programs: Programs that prevent manufacturer coupons from counting toward a member’s deductible or out-of-pocket maximum, potentially leading to higher costs for members.
• Deductible: The amount an employee must pay before their health plan starts covering costs.
• Formulary: A list of medications covered by a health plan, often divided into tiers based on cost and necessity.
• Plan Sponsor: The employer or organization responsible for administering a health plan.
• Prior Authorization: A requirement to get approval from the health plan before certain medications are covered.
• Step Therapy: A cost-management strategy requiring patients to try less expensive medications before stepping up to pricier alternatives.

Specialty and Maintenance Drugs

• Biosimilars: Nearly identical copies of brand-name biologic drugs that offer the same effectiveness but often at a lower cost.
• Maintenance Medications: Drugs taken regularly to manage chronic conditions, such as diabetes or high blood pressure.
• Specialty Drugs: High-cost medications used to treat complex or rare conditions. These often require special handling or administration.
• Specialty Pharmacy: A pharmacy focused on managing and dispensing specialty medications.

Technology and Reporting

• Real-Time Benefit Check: A tool that gives instant insights into prescription costs, helping employees see what they’ll pay at the pharmacy counter.
• Pharmacy Data Analytics: The use of data to identify trends, control costs, and improve member outcomes.
• Telepharmacy: The delivery of pharmacy services remotely using technology, offering convenience and accessibility.

Pharmacy Programs

• Member Advocacy: A support system that helps employees navigate their pharmacy benefits, resolve issues, and find cost-effective options. With Intercept Rx, this means having a team of US-based experts to guide you through every step of your journey.
• Medication Adherence Programs: Programs designed to ensure employees take medications as prescribed, improving health outcomes and reducing long-term costs.

Insurance and Plan Types

• Fully Insured Plans: A traditional insurance model where employers pay a fixed premium to an insurer who takes on the financial risk.
• Self-Funded Plans: Employers assume the risk for employee healthcare costs, paying claims as they arise. These plans offer flexibility and potential cost savings.
• Level-Funded Plans: A hybrid between fully insured and self-funded plans, offering predictable monthly costs and the potential for refunds on unused claim dollars.
• Stop-Loss Insurance: Protects self-funded employers by covering excessive claims beyond a predetermined threshold.

Conclusion

Understanding these pharmacy benefit terms is a game-changer for employers and brokers alike. With this knowledge, you can make informed decisions, control costs, and provide better benefits for your employees.

Intercept Rx is here to make pharmacy benefits less complicated. Explore more resources on our website, intercept.health, and see how easy managing pharmacy benefits can be.

For more details about how Intercept Rx simplifies pharmacy benefits, visit our Rx Optimization Program page.