Author Archives: The Insurance Guy

Formulary – An Insurance Companies List of Covered Drugs

A formulary is a list of which prescription medications covered and what the coverage level is. The name formulary comes from the old pharmacist guide for how to mix compounds.  Better names for insurance formularies would be simply the drug list or drug coverage list.

Most insurance policies use a multi-level or tiered formulary.  The first tier is the lowest cost generic drugs.  These are the least expensive drugs, and insurance companies often offer incentives to using Tier 1 generics with a lower copay (the percentage that you pay).

A formulary is a list of which prescription medications covered and what the coverage level is.

A formulary is a list of which prescription medications covered and what the coverage level is.

Going up the price scale, the mid-level tiers are usually brand name drugs that are higher cost and often have a higher co-pay.  These are often called preferred medications.  And at the top of the scale are the non-preferred brand name drugs that carry a still higher co-pay.  This 3-level formulary was standard in the past.  Many companies are now adding sub-categories to build 5 and 6 level (or more) formularies.

Most insurance companies contract with a Pharmacy Benefit Manager (PBM) to negotiate prices with drug manufacturers and create their formulary.  As of this writing, just 3 PBMs administer prescription benefits for over 3/4 of the insured in the USA which gives them bargaining power.   One PBN might strike a deal for better pricing with one manufacturer and feature their products while another PBN might favor a competitor.

Of course, insurance companies want you to use the least expensive drug available while drug companies push their most profitable lines through heavy advertising and sales reps.  And doctors are stuck in the middle.

Insurance companies and PBMs often use a step action table or step action therapy requirement that doctors try the least expensive medications first.  It’s a good idea in theory as lower-cost medications are often as effective as the newer, more expensive, ones.  Unfortunately, it annoys doctors and often puts you in the middle.

Along with the PBN, most insurance companies use a Specialty Pharmacist or Specialty Pharmacy Company to manage drugs that are high cost or need supervision. These might include cancer medications or biologics, some costing thousands of dollars a dose.  The Specialty Pharmacist makes sure that the medications are used properly and not wasted.

Most Specialty Pharmacists are mail order and require a conversation with you or your doctor on a regular schedule.  Some people see this as a nuisance, but most specialty drugs start at $600 to $1000 a dose.  Modern medicine is great, but it can be expensive.

Robber Barons of Healthcare

It has taken a few days for the dust to settle from the introduction of the American Care Act.  My first opinion was that it’s supporters were just being selfish.  Congress is using something as important as our health care to re-apportion taxes from most American workers to the wealthy and wheeler-dealers like themselves.  Call them the robber barons of healthcare.

In medieval times, a robber baron was a noble who robbed, often through tariffs and tolls, travelers passing through their lands.  Today, it applies to those who seek to get wealthy by taking from others.

And taking is what they’re trying to do.  The fundamental Republican objection isn’t to healthcare; it’s about paying for healthcare, and especially if they have to pay for someone else’s healthcare.

Repeal of the Affordable Care Act would be an enormous tax cut, some $144 billion over the next ten years to those earning a million or more annually.  And it would lead to higher prices for most of the rest of us.

There are two ACA-related taxes that are particularly onerous to upper-income users.  One is a surcharge on Capital Gains taxes.  Capital gains are the profit made from selling assets, things like stocks and bonds, real estate, and other investment items.  These investment gains are taxed at a lower rate if they are held for more than a year.  Even with the surcharge, these investment profits still have a lower tax rate than wages.

The second ACA-related tax targeted for cutting is a Medicare surcharge applied to singles earning over $200,000 and couples making over $250,000.

The Congressional Budget Office summed it up as this: An $883 billion tax cut, $274 billion of it going to the richest 2%. $880 billion stripped from Medicaid. And 24 million fewer insured individuals over the next ten years.

Needless to say, many higher-income taxpayers want these taxes gone ASAP.  Call them the robber barons of healthcare.

Open Enrollment

Once a year we have an insurance ad fest.  It’s during open enrollment time when the Marketplace is open for selecting new plans or switching to ones with better coverage or lower prices.  Television, magazines, and newspapers love open enrollment as it drives a frenzy of adds.

Open enrollment is generally parts of November and December.  Plans are to open it in October in the future.  The dates may vary from year to year and it’s a deadline that you don’t want to miss.  During open enrollment, you can select a new plan, switch plans, or apply for subsidies.

Some, but not all, plans auto-renew.  That means, once you enroll, your plan may be renewed (usually at a new rate) every year.  It’s still a good idea to check rates and coverage yearly during open enrollment as there might be better deals available or insurance plans more suited to your situation.  Of course, if your plan doesn’t auto-renew, you need to pick a new plan yourself.

There are several situations that may qualify you for a special enrollment period.  Check the site for the rules as the government is sometimes picky, but special enrollment gives you the ability to review your coverage if your situation changes during the year.  Changes can include having a baby or adopting a child, getting married, losing other health insurance (but not because you quit it or didn’t pay), moving, becoming a citizen, or leaving incarceration.

If you miss open enrollment and don’t qualify for special enrollment, you might still be able to buy private unsubsidized health insurance from an agent outside of the marketplace.  Medicaid and CHIP enrollment is open all of the time.

Politics of ObamaCare

This site is dedicated to making insurance easier to understand, but there is a constant barrage of politics in ObamaCare that makes it confusing.  If you haven’t noticed, those who like it call it The Affordable Care Act (ACA).  Those who dislike it call the healthcare law ObamaCare. They are one and the same, yet there have been numerous surveys that show a majority are behind that Affordable Care Act while a majority opposes Obamacare.  Go figure…

The act was passed by a Democratic Congress and was opposed by the Republicans.  It’s very similar to the Massachusetts Health Care Act proposed and put place by Republican Mitt Romney.  Many of the provisions are very similar to those proposed by Republicans over the years.

In 1993, President Clinton proposed a healthcare reform bill that went much farther than today’s ACA.  The Republicans answered with a proposal called HEART (Health Equity and Access Reform Today) which included the key features of universally mandated insurance through the private sector.  The 2007 Healthy Americans Act, also a Republican proposal had similar features.

The bottom line is that deep down inside, the Republicans probably like the idea of universal health insurance.  But in this politically twisted world, they can’t admit it.  And so we have gone through over 50 votes to repeal the ACA in Congress and numerous Supreme Court challenges.  At the same time, 10 million Americans have gained insurance, many of them with health issues that made insurance difficult to get and keep.  Millions more have improved policies that provide more coverage.

Obamacare Winners and Losers

Road sign with the words Obamacare written in white on a green background set against the sky.Insurance companies and hospitals initially opposed the Affordable Care Act, possibly because it interrupted their business plans.  Insurance companies were unhappy with requirements that set a minimum amount of premiums that had to go to medical care and a maximum that could go to administration.  Most of the reputable companies were pretty close to the limits before the ACA was implemented and found that the increased numbers of insureds made up the loss.  At the time of this writing, there’s a bit of a merger and buyout frenzy going on as their stocks are near all-time highs, and many have extra profits.  Hospitals too were skeptical, but the first few years have shown increased patient counts and a larger number of paid bills.  It has turned out that most insurance companies and hospitals have benefited substantially with increased business and more standardized care.

Businesses, especially small business, have been hurt the most as legislation requires most of them to provide a minimum level of coverage.  Many are upset and very vocal about it.  Some of the largest employers like Walmart had to substantially increase their insurance benefits.

Doctors, especially doctors in private practice, have also been hurt.  Obamacare has taken the blame, but much of the problem started long ago.  Increasing prices, especially for specialty care, left many patients unable to pay.  At the same time, increasing complexities in the medical business have changed the way doctors need to run their office.   Gone are the days when a doctor could run an office with just a nurse.  Now they need a receptionist/office manager to keep things running, a billing specialist to understand the codes and regulations, an accountant, and maybe an advertising manager.  Add that to the enormous investment in equipment and medical supplies that even the smallest office needs and you can understand why more and more doctors are leaving private practice in favor of groups or hospital run businesses.

Marketplace Benefits

A key component of ObamaCare is the Health Insurance Marketplace.  The ACA legislation provided several important marketplace benefits.  Many of these are common sense items that better insurance companies tried to offer but had to roll back under pricing pressures.

One big note here.  These benefits apply only to new plans purchased from an official Health Insurance Marketplace.  Some older grandfathered plans may not include all of this coverage yet, as may some plans provided by employers.

Tops on my list of marketplace benefits are preventative services.  All plans sold through the Healthcare Marketplace are required to provide some services for free and without meeting deductibles, co-pays, or coinsurance.  The actual list varies from state to state, but most include shots and vaccines for the Flu,  Hepatitis A and B, Herpes, Human Papillomavirus, Measles / Mumps / Rubella, Meningococcal (Meningitis), Pneumonia, DPT, and Chickenpox.

These benefit everyone.  Vaccines cost the insurance company less than treating the diseases, they keep you healthier and safer and help prevent the spread of disease to others.

Most plans also include a bunch of no cost screenings.  Insurance companies have sometimes been hesitant to offer these because they can lead to expensive treatments, but they’re all in your best interest.  Screenings include an aortic aneurysm check, alcohol, blood pressure, cholesterol, colorectal cancer, depression, diabetes, diet, hepatitis, HIV, lung cancer, obesity, and STDs.  Like the vaccines, these aren’t fun things to think about, but early detection can often lead to a healthier you and less cost to the insurance companies.

Pregnancy coverage used to be an expensive add on to some insurance plans if it was available at all.  Obamacare eliminated gender-related rate differences or denials, and many women’s health services are now offered without deductibles, co-pays, or coinsurance (that means free!).  Benefits include wellness visits, mammograms, care and counseling before and after a baby are born, and more.   There is some basic coverage for pediatric dental and vision coverage also.

Outpatient care is covered.  No longer can an insurance claim be denied because a procedure wasn’t performed in a hospital.  And inpatient care (in the hospital) is covered.  It seams strange, but some health plans specifically excluded hospital coverage.  I guess they counted on people not reading the fine print.  ER visits are covered although most insurers will encourage you to keep the cost down by only using the ER for true emergencies.

Lab tests and prescriptions are covered.  Note that different insurers may have guidelines and limits so check your policy.  For example, prescription drugs are usually regulated by a formulary, a list of approved drugs.  Regular deductibles, co-pays, and coinsurance will probably apply here.

 Mental health is now covered just like any other disease or condition, which is what it is.  Psychotherapy, counseling, and behavioral health are covered.  Substance abuse is covered also.  

Recovery services are an important feature that was often excluded from coverage previously.  This includes the services and assistance that you might need to recover or live with a debilitating injury or disease.  Some, but not all, forms of rehabilitation including occupational, physical therapy, and speech therapies are covered.

This list of marketplace benefits is just a guide and specific coverage may vary by state and policy.  Be sure to check out different plans for coverage if you have a specific need.  Remember that pre-existing conditions are covered, so you can change plans annually during open enrollment.

ObamaCare Features

The backbone of Obamacare are several Obamacare features that improve on standard health insurance while keeping costs in check. Here’s a partial list:

  • Insurance companies can no longer deny coverage or increase your premiums based on your health.  Many had difficulty buying insurance because of pre-existing conditions.  Insurance companies only wanted to insure healthy people that had a lower probability of needing services.  It was better for the companies, but it left many people uninsured.
  • Insurers also had economic incentive to get rid of anyone that got sick using any contractual reason or excuse that they could.  Many people had insurance dropped because of honest errors on applications, things like forgetting to list minor surgeries that you may have had as a child.  Pre-existing conditions and most application errors are no longer a factor.
  • Gender discrimination is no longer tolerated.  Previously, insurers avoided insuring, or charged more for women in their child bearing years.
  • Unjustified rate hikes have been eliminated.  Yeah, I know some will snicker at this because rates still keep on going up, but at least now they’re based on actual medical expense ratios.  As a personal example, I once had health insurance through a small business group.  Rates were great for a while, but soon started to climb drastically.  The group had other plans that were less expensive but I didn’t qualify because of high blood pressure.  My rates went up and up as the healthy people in the group moved to the new plan leaving only us less healthy individuals that the insurer wanted to dump.
  • Lifetime dollar limits were eliminated.  This was a sneaky part of some policies that limited the amount that insurance companies needed to pay.  Sometimes it was a cap on all coverage, sometimes it was on certain conditions.  Medical costs build up real quick with major illnesses.  Many people who thought they were insured found that their plan limits left them only partially covered.
  • Young adults often had difficulty finding insurance on their own.  Entry level jobs often didn’t provide insurance and those going to school were left stranded.  One of the Obamacare benefits is that they can now stay on their parent’s plan until they reach 26.
  • Insurance companies always had an appeal mechanism for disagreements, but they were often slow and difficult.  Appeal rights have been standardized so they are streamlined and accelerated.
  • Finding coverage has become easier.  You can still buy coverage through your personal insurance agent but a key feature of Obamacare is in expanding coverage to tens of millions by subsidizing health insurance costs through the Health Insurance Marketplaces (HealthCare.Gov and the state-run Marketplaces).  Millions of people are currently taking advantage of this subsidy.
  • Regulations requiring most businesses with over 50 employees are required to provide health insurance coverage are being phased in.  There are some tax benefits to offset part of the cost.
  •  All plans need to meet set of minimum benefits.  This caused some controversy when President Obama mistakenly said that “you can keep your old policy”.   Policies that didn’t include what is considered as the 10 essential benefits had to be updated.   These essentials include free preventative care,OB-GYN services with no referrals, free birth control, and coverage for emergency room visits out-of-network.
  • CHIP Insurance (Children’s Health Insurance Program) was expanded and coverage has been made easier to get.
  • And there were some improvements to Medicare, even though seniors on Medicare don’t participate in the Affordable Care Act.

Individual Mandate

The individual mandate is just a fancy way of saying that everyone has to buy insurance. It’s one of the backbones of the ACA. Insurance works by spreading the risk among many, and the mandate is a way to make sure that there are many.

Health insurance works by taking in money from lots of people.  Some of these insured people might have no claims in a year, most will have a few, and a few will have large claims.  The individual mandate guarantees that the pool is large enough that costs balance out.

The government uses two main tool to enforce the mandate.  One is sort of a push, the other is a pull.  The push encourages participation with IRS penalties if you don’t have insurance.  They assess a penalty as part of your income tax.  The amount varies by income and is increasing every year.  The pull is a discount or subsidy offered through the insurance exchanges for many depending on income.  The subsidy can be in several forms including discounts on premiums or reductions in out of pocket expenses like deductibles and copays.

Discounted premiums are available through your state’s marketplace or  As of this writing, discounts start somewhere around 4X the federal poverty level, that’s about $55,000 yearly income for a family of 4.   Reduction in out of pocket expenses vary by state’s Medicare policies.  Some states are more generous than others.  These dollar amount calculations are very complex and well beyond what I can explain in this site.  For specifics, go to the federal healthcare site at

This is where the major opposition to the Affordable Care Act begins.  Some people just don’t want to pay for insurance and don’t think that they should be forced to.  They argue points such as freedom to choose, liberty from government mandates, and the cost.  Of course, some just want to wait until they’re sick to purchase insurance.  The government’s rationale is that everyone needs healthcare, just about everyone will use it, and there should be a mechanism in place to pay for it.

What is Covered

Insurance Plans – What is Covered

What is covered by insurance plans might seem like a simple question but there isn’t an easy answer. Every plan is different, and the reasons might surprise you.

For individual plans, or plans that you buy yourself, the what is covered is determined by the group or company that you buy it from. Most plans cover all of the basics with varying levels of deductibles and co-pays, but there are some plans that cut corners to save money and may leave you uncovered (for example, a plan that excluded pregnancy or cancer coverage). Be sure to check the coverage before you purchase an individual plan.

For group plans that you get at work, especially with larger companies, what is covered is probably determined by your employer rather than the insurance company. In fact, many large companies are Self Insured, and just contract with an insurance company to do the paperwork and negotiate fees.

What is Covered in the ACA

All private plans are required to cover a set of essential benefits as part of the Affordable Care Act.  Some insurance plans that you get from work may not cover all of these yet.  The benefits are:

  • Ambulatory patient services (outpatient care you get without being admitted to a hospital)
  • Emergency services
  • Hospitalization (such as surgery)
  • Pregnancy, maternity, and newborn care (care before and after your baby is born)
  • Mental health and substance use disorder services, including behavioral health treatment (this includes counseling and psychotherapy)
  • Prescription drugs
  • Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills)
  • Laboratory services
  • Preventive and wellness services and chronic disease management
  • Pediatric services, including oral and vision care

So suppose that you go to the doctor to get a tattoo removed and the insurance company from your job at MegaCompany Inc. tells you that it won’t pay the bill because it’s not covered. The underlying reason is probably because MegaCompany decided not to cover tattoo removal.

It’s possible to buy insurance that covers everything, and the insurance companies would probably love to sell it, but the cost would be enormous.

Health Savings Accounts

Health Savings Accounts – Health Spending Accounts

Insurance companies have blended  high deductible health plans with savings accounts to create a category known as Consumer Driven Healthcare.  The idea is that, with the high deductible, you’ll be more careful as you are spending your own money and keep medical costs down.  Then, once you have reached your  deductible, your spending or saving account can be used to pay for copays or coinsurance.

Federal tax laws allow some plans to set up accounts that allow you to pay for health costs with pretax money, meaning the contributions to the Savings Accounts or Spending Accounts are deducted from your paycheck before federal and Social Security taxes are withheld (sometimes state taxes too). These plans have some limits and requirements, but are generally a good deal. Some common types are:

Flexible Spending Account (FSA): a pre tax account where unspent balances may not be rolled over, other than for a limited grace period after each plan year.

Health Reimbursement Arrangement (HRA): an employer funded pre-tax account where unspent balances may roll over from year to year. Typically offered in combination with high deductible plans.

Health Savings Account (HSA): a pre tax savings account funded by employer or employee that may roll over from year to year and must be offered in combination with high deductible plans.

So if I go to the doctor for a boo-boo, and the bill is $100, and I haven’t met my deductible yet, and I have to pay the whole $100 myself:

  • It might take $140 or so before taxes for me to take home the $100 that I need to pay the doctor after the federal, state, and social security taxes are deducted.
  • Or it can take only $100 if I use a health savings account that lets me pay health bills with money before it is taxed.


Types of Policies

There are two major types of Health Insurance Policies, Fee for Service and Managed Care.

Fee for Service

Fee For Service is sometimes known as Traditional or Indemnity insurance

Health Insurance Policy

Health Insurance Policy

and, as the name implies, pays a set amount (fee) for each type of claim (service). This amount is called the Reasonable and Customary charge and is the prevailing cost of a medical service in a geographic area, but not always exactly what your doctor charges.

Additionally, these policies commonly pay only a percentage of the total bill, the most common is 80%, which leaves 20% for you to pay. So if you go to the doctor for a boo-boo, and the Reasonable and Customary charge is $100, the insurer will pay $80. If your doctor billed you for $100, you will pay $20, but if your doctor billed you for $110, you will pay $30.

Managed Care

Managed Care plans are known under many different names, most common are Health Maintenance Organizations (HMO), Preferred Provider Organizations (PPO), and Point of Service plans (POS). Almost all of these plans use managed care techniques to keep costs down and provide appropriate care. Doctors and facilities are often contracted to provide services at a discounted rate, and they may be required to follow set guidelines and procedures.

In a typical HMO, if you go to the doctor for a boo-boo, no matter how minor or serious it is, you will have to pay only the copayment amount. There are many variations of these plans and each insurance company may have their own plan names. We’ll discuss more about the differences in coming pages.