Here are 5 more insurance-related key terms that are important to understand.
Utilization Management:
Utilization Management refers to how insurance companies determine what they will pay for, and what they won’t pay for.
Below are additional some terms you’re likely to encounter in the Utilization Management arena.
Formulary Restrictions:
Insurers use formularies — lists of preferred medications that are covered to some extent — to track what they pay for each drug. Typically formularies assign a very low copay ($5-10) for most generic drugs, a higher copay (~$25) for preferred branded drugs, and an even higher copay ($50-75) for non-preferred but still covered branded drugs. Drugs that are not included in the formulary may require even higher copays or co-insurance (a percentage of their price) or may not be covered at all. Formulary restrictions limit patient access to certain medications, particularly newer or more expensive drugs, and may force patients to seek alternative therapies.
Network Restrictions:
Many insurance plans have network restrictions that limit where patients can fill their prescriptions (and where they can seek care). Patients may be required to use pharmacies within a designated network, which can be inconvenient or inaccessible for some individuals, particularly those in rural or underserved areas.
Prior Authorization:
Some insurance plans require prior authorization before certain prescription drugs can be dispensed. This involves obtaining approval from the insurance company based on specific criteria, such as diagnosis or treatment guidelines. Since doctors sometimes make mistakes or else may not realize that the insurance plan has negotiated a more favorable price for one treatment versus another, it’s not unreasonable for an insurance plan to have some means of making sure a doctor is prescribing the right type of medicine, and preferably a lower cost one from among several acceptable options. Prior authorization is one such mechanism to ensure this happens. On the other hand, prior authorization requirements can delay access to medications and create heavy administrative burdens for patients and healthcare providers.
Step Therapy:
Step therapy, also known as “fail first” policies, requires patients to try lower-cost (usually generic) medications before receiving coverage for more expensive alternatives. While step therapy can help control costs for insurers and even ensure that a patient is treated per guidelines, it may delay access to optimal treatment options for patients, particularly those with complex medical needs who may need to deviate from the treatment paradigm that the insurer considers appropriate for most patients.
[Optional] If you’ve got a few extra minutes, you may enjoy this video that humorously explains the functions and dysfunctions of the U.S. Health insurance system.
One quick note however: for all its faults in the U.S. Systems that lead the presenter to suggest that the UK’s single payer public healthcare system is better, what this video misses is what the benefits are of a marketplace of competing plans. In the U.K., when the National Health System says it won’t pay for something, patients have no other option for coverage. In the U.S., one plan might refuse to cover something, but another will cover it. And if individuals and employers feel that this service or treatment is important, they will favor the plan that covers it. So enjoy the video - it’s fun - but don’t assume that the US should strive for a single-payer public healthcare system. That comes with its own set of problems.
You can also check out Healthcare.gov/glossary for an exhaustive list of health insurance definitions.