In light of the COVID-19 crisis, do you have the necessary Directors and Officers coverage?
With the addition of the global COVID-19 pandemic, an already tumultuous D&O insurance environment has the potential to get much worse.
Employers and other plan sponsors have the option of carving in or carving out their pharmacy benefit program from their medical benefits. There are a number of important factors that should be considered when making a decision whether or not to carve out pharmacy benefits. This paper will identify the advantages and disadvantages of both options and raise important questions to consider when contemplating a move to a carve-out.
When the pharmacy carve-in approach is used, the employer contracts directly with the medical health plan vendor for medical and pharmacy benefits. The medical health plan vendor will either administer the program in-house or contract with a pharmacy benefits manager (PBM) vendor to process pharmacy claims and administer the pharmacy program. Because the employer contracts directly with the medical health plan vendor, there is no direct relationship with the PBM.
A pharmacy carve-in is typically used under the fully insured model. In 2015, the Pharmacy Benefit Management Institute (PBMI) reported 23% of smaller employers (less than 5,000 lives) and 7% of larger employers (greater than 5,000 lives) were fully insured1. Under the fully insured model, the employer pays a premium to the insurer and the insurer assumes the risk of the total claims amount rather than the employer.
When the pharmacy carve-out approach is used, the employer contracts directly with a PBM vendor to administer its pharmacy benefits program.
A pharmacy carve-out is typically used under the self-insured model. In 2015, PBMI reported 77% of smaller employers and 93% of larger employers were self-insured2. Under the self-insured model, the employer assumes the risk and benefits from managing costs. Pharmacy stop-loss insurance may be purchased to mitigate the risk of total claims amounts going over a certain threshold. A pharmacy carve-out can also be used with the fully insured model; however, this is less common.
If an employer currently has a pharmacy carve-in and is interested in carving out its pharmacy benefits, the following are some important questions to consider:
When considering a move to a pharmacy benefits carve-out, employers should consider the advantages and disadvantages of both a carve-in and carve-out. Employers should also consider other important factors such as current cost, appropriate timing, and internal staff expertise in order to make an informed decision.