Table 2

Glossary of drug pricing and health insurance terms

TermDefinition
FormularyList of drugs covered under the health insurance plan. Often has tiers with increasing cost-sharing. Also includes utilization management requirements such as prior authorization, step therapy, or quantity limits.
List priceThe price manufacturers set for their medications. Also called wholesale acquisition cost or launch price. This price is often the basis for rebates, discounts, and fees throughout the insulin supply chain.
RebateA discount paid after the patient has received the medication. Typically, manufacturers pay rebates to PBMs for prescriptions filled by the PBM’s clients. Rebates negotiated between manufacturers and PBMs are often contingent on placement of the drug on the PBM's formulary.
BenefitsHealth care items or services covered under a health insurance plan.
CoinsuranceCost-sharing for covered benefits based on the percentage of the plan's cost (for example, 20%). For example, if the cost-sharing for a doctor's office visit is 20% coinsurance, the enrollee will pay 20% of the plan's cost for the visit.
Co-paymentCost-sharing for covered benefits that is a flat dollar amount ($20, for example).
Cost-sharingThe portion of the cost of benefits covered by insurance that the plan enrollee pays out of his/her pocket. This term generally includes deductibles, coinsurance, and co-payments, or similar charges, but it does not include premiums.
DeductibleThe amount health plan enrollees pay for covered health care services before the insurance plan starts to pay. With a $2,000 deductible, for example, the plan enrollee must pay the first $2,000 of covered benefits before the insurance plan will pay for care.
PremiumThe amount paid each month for a health insurance policy. Often health plan enrollees are responsible for paying a portion of the cost of the care they receive in addition to the monthly premium amount (see cost-sharing definition).
Prior authorizationRequires prescribers to obtain preapproval from the health plan before a medication will be covered. Often requires clinical information about the medical necessity of the medication.
Step therapyRequires patients to try and fail on certain medications before the requested medication will be covered by the plan. Often requires clinical information about the patient’s history with medications preferred by the health plan.