Health insurance exchange formularies: Charting new waters in the world of formulary


New regulations in the Patient Protection and Affordable Care Act have led to the birth of essential health benefits. The Centers for Medicare and Medicaid Services’ (CMS) new division, the Center for Consumer Information and Insurance Oversight (CCIIO), is responsible for the oversight of the insurance offerings on the new health insurance exchanges, which have 10 required essential health benefit categories. One of these essential categories is prescription drugs. Prospective qualified health plans, prescription benefit managers, and consultant agencies have struggled through the legislation and guidance from CCIIO in an attempt to build benefits that meet the requirements. With elements of typical commercial offerings as well as those of Medicare Part D, there are many nuances that one must consider when building an exchange formulary and creating the surrounding benefit.

Health insurance exchange formularies: Charting new waters in the world of formulary

Debora B. Sternaman, PharmD


New regulations in the Patient Protection and Affordable Care Act have led to the birth of essential health benefits. The Centers for Medicare and Medicaid Services’ (CMS) new division, the Center for Consumer Information and Insurance Oversight (CCIIO), is responsible for the oversight of the insurance offerings on the new health insurance exchanges, which have 10 required essential health benefit categories. One of these essential categories is prescription drugs. Prospective qualified health plans, pharmacy benefit managers, and consultant agencies have struggled through the legislation and guidance from CCIIO in an attempt to build benefits that meet the requirements. With elements of typical commercial offerings as well as those of Medicare Part D, there are many nuances that one must consider when building an exchange formulary and creating the surrounding benefit.

On November 26, 2012, the Department of Health and Human Services (HHS), the Internal Revenue Service, and the Department of Labor published a flurry of proposed regulations regarding changes and additions to the Patient Protection and Affordable Care Act (ACA). A new section that was added is for standards related to essential health benefits (EHB). The EHB portion of the ACA legislation was created with the intent of ensuring that healthcare consumers have access to adequate coverage of medical, pharmaceutical, and dental benefits and also to standardize healthcare choices, thereby promoting competition among health plans and other insurers.1 The marketplace for these insurance offerings are called “health insurance exchanges,” which will offer plans that go live on January 1, 2014. Health plans and other entities that will be offering a benefit on the exchange will need to be approved as a Qualified Health Plan (QHP).  All QHP’s must have all of their details online by October 1, 2013, so that consumers can begin to compare, contrast, and decide on a plan.1,2

EHB rules require that 10 key areas of healthcare be covered by all plans operating on the exchanges. This helps to standardize coverage and ensure that regardless of which offering a consumer chooses they will have similar coverage (Table 1).1–4 The ACA requires these 10 EHB categories be included in all qualified health plans (QHPs) approved to offer coverage in the insurance exchanges. In order to further standardize these categories, the ACA established that they must be at minimum the same as a typical employer plan.2 Establishing what a typical employer plan is was turned over to the states and U.S. territories by HHS with some specific recommendations for identification. The key identifiers of a typical employer plan were the following: 1) the largest plan by enrollment in any of the 3 largest products in the state’s small group market; 2) any of the largest 3 state employee health benefit plans by enrollment; 3) any of the largest 3 Federal Employee Health Benefits Program plans by enrollment; or 4) the largest insured commercial health maintenance organization in the state.2,5  After reviewing and comparing the plans, 1 was chosen for each state and territory and considered the benchmark plan. These benchmark plans are posted on the Centers for Medicare and Medicaid Services (CMS) website at and include the minimum requirements for each of the 10 mandatory categories.3

Several states did not send in any plans; therefore, CMS used the standard that they set for these states. These states are considered federally operated exchanges as they elected to not be responsible for monitoring and evaluating the plans.5,6 There are 2 other types of exchanges-the state and federal combined, and state exchanges in which the state is exclusively monitoring the exchange independent of CMS. The federal and state combined exchanges allow the state to do monitoring with assistance from CMS; also, the state was instrumental in determining the benchmark plan. Regulations between state and federal may vary with, at minimum, the federal rules being required for participation in the exchange. Any state or territory that is operating in the federal space (either federal only, or state and federal) was required to have their submission in by May 3, 2013. State-based exchanges have a myriad submission deadlines including some that go throughout the summer.1–3,6,7

In order to be a QHP, insurers must offer at least 2 “metal levels” of benefits. Metal levels are based on the actuarial value of the plan (Table 2).  Gold and Silver must be offered, but they can include Bronze and/or Platinum as well. CMS set these up to try to ensure that consumers are able to compare apples to apples with respect to what their coverage will offer.1,8


One of the 10 EHB categories is prescription drugs. In the ACA regulations, CMS proposes that the health plan must cover the same number of prescription drugs in each United States Pharmacopeial (USP) category and class as the benchmark plan(s) in the state or territory in which they are operating. If the benchmark plan has a category or class in which no products are covered, the QHP must cover at least 1 product in that category or class. QHPs must also submit their drug list to the exchange overseer, wether federal, state, or both, and must have policies and procedures in place to allow an enrollee of their plan to request a clinically appropriate drug if not covered by their plan.2 Originally, the proposed ruling stated that plans covering 1 product in each of the 158 categories and classes would be sufficient.1 However, after several comments on this section were received regarding the clinical inappropriateness of only 1 agent, HHS clarified in the final ruling it would require the greater of 1 agent or the benchmark number. The Center for Consumer Information and Insurance Oversight (CCIIO) further clarified that the benchmark intent was to ensure a subset of medications was covered, but regulators fully intend for the formularies to include additional agents that may not count toward the numbers. Therefore, QHPs must cover at minimum the same number of agents, or 1 agent only if there are no agents on the benchmark plan in a category or class. CCIIO also noted the counts required are not individual drugs but rather unique chemical entities. Furthermore, it is important to note that the actual unique chemical entities on the formularies need not be identical to the benchmark plan, rather just the counts of those entities.2–4

Thus began the confusion. CCIIO did not share with prospective QHPs what they considered to be a unique chemical entity. They stated that in determining the benchmarks they used the USP 5.0 version and that they will require submissions to be done using RxNorm RXCUIs-a standardized numbering system for prescription products.CCIIO has stated they chose RxNorm to help normalize and more easily compare. RxNorm provides a normalized reference number for clinical drugs and is available through the US National Library of Medicine. CCIIO then took the RxNorm file and performed a crosswalk to the USP categories and classes. This information is not published at this time. CCIIO has stated they will not be sharing this information as it is for their own count purposes and that, clinically, QHPs should be able to determine what falls into what category, which has been proven to be extremely difficult.2,9,10

QHPs will be evaluated at a minimum annually. The formularies that have already been submitted or are still being worked on will be available for the 2014 calendar year, the first year of the exchanges. Although CCIIO has not yet given the date, benchmark counts for the 2015 plan year will likely be available in early 2014 to allow for changes to be made to the formularies (or complete overhauls) prior to submission deadlines for 2015. CCIIO will compare and contrast all 10 areas of the EHBs against other QHPs being offered in the same states and territories. QHPs that are outliers will be notified of this and expected to adjust their coverage to be more in line with the other plans to ensure for as much synchronicity in the benefits as possible.2,7,9


While CMS already uses RxNorm for Medicare Part D, they use specific RXCUIs for the Formulary Reference File (FRF) which Medicare Part D uses, and publish these files on a monthly and annual basis. For the exchanges, CCIIO took the December 3, 2012, full file and chose a subset of approximately a quarter of the RXCUIs that could apply towards the unique chemical entity counts. This subset, of approximately 5,000 RXCUIs, results in about 1,040 unique chemical entities. The highest unique chemical entity required, if creating a formulary that needs to operate in every state, would be 1,032.3 Depending on the state or territory, counts of chemical entities can vary significantly, from 565 to 1,023 unique chemical entities required on the formulary. The average count sits at 906 unique chemical entities. States that have the lowest number of unique chemical entities, beginning with the lowest count, are Colorado, Utah, Minnesota, Washington D.C., Maryland, and California. The states with the highest counts, beginning with the highest, include Connecticut, Alaska, Delaware, West Virginia, and Idaho. Because of the variation in counts, a plan operating in multiple states may have to offer multiple formularies, layer products into the formulary for 1 state, or be more robust in 1 or more of the states they are operating in to make it operationally easier by creating only 1 formulary.2,3

CCIIO stated that all submissions should be performed using the December 3 version of RxNorm; however, many prospective QHPs utilize other databases that routinely update RxNorm for their data source. Also, the subset of products that CCIIO counts has changed with the addition of new RXCUIs in the last few months. Many unique chemical entities have more than 1 RXCUI associated with them due to generic products, unique trade names, and various strengths. Some specific strengths of products may even have more than 1 RXCUI assigned, making it difficult to figure out how to use those products to make the counts without duplicating a unique chemical entity or continuing to add agents with no change to the count.10

Further complicating matters is how to determine what a true unique chemical entity is by CMS definition. For the most part, a unique chemical entity is a chemical name. If there are different dosage forms, release forms, and combination products with the same chemical name in it, they likely will count as the same agent in a category or class. However, this is not always true; trial and error, i.e. looking for agents that may have a second or third indication which could place them in to a therapeutic category, must be used to determine when unique chemical entities cannot be identified using logical methods. Adding to this issue is the fact that products could potentially fall into more than 1 category and class due to secondary indications and how CMS classified the agents. So, adding 1 RXCUI may result in the addition of a count in more than 1 class. While this is positive, again figuring out which classes or agent caused this is somewhat elusive.11

CCIIO has offered some assistance to aid in the testing of formularies and to figure out which products fall into what categories and classes. Through the CMS website (, prospective QHPs, pharmacy benefit managers (PBMs), and other entities working with the prospective QHPs can gain access to the Health Insurance Oversight System (HIOS), which has a category and class count tool (among other tools to assist with some of the other 10 EHBs required). The tool requires a file with only RXCUIs to be loaded into it. After the file is loaded, the tool will send out a file with the category and class counts as well as a file called the “exceptions file.” The exceptions file will show all of the RXCUIs on the submission that are not being counted. The category and class output is helpful to compare to the benchmarks posted on the CMS website for each state and territory to find out where the prospective QHP is possibly deficient.12 The exceptions file has been helpful to find out the approximately 5,000 RXCUIs that are accepted. This has helped various consulting firms, prospective QHPs, and PBMs try to “back in” to the CCIIO crosswalk. Although assignment of those RXCUIs is still based on clinical judgment, it is at least a window into the products and how to group those products into USP categories and classes.

In order to meet the category and class counts, prospective QHPs have done a variety of things. For example, they might create a formulary that is an open formulary, allow tiering to control costs, create a specialty tier, and so on. This may be a standard practice for major commercial health plans in the country. The issue with this is that if the QHP starts to exclude anything at a more global level, for example by route of administration or categories of drugs (infertility or cosmetic, eg), the benefit will very quickly become deficient. This means that prior to submission, the plan would need to determine what they hoped to exclude, account for that in their submission, and run through the HIOS tool to see if this causes deficiencies. If there are deficiencies, the plan would need to figure out what caused them and add back in the coverage for specific products in those categories that they had hoped to exclude. Because the formulary is open, whenever a new product hits the market, it will automatically be on the formulary which may drive costs up. Also depending on the metal level of the offering, the higher tiers may not be able to be as tightly controlled, therefore again driving up costs. Finally, the submission file would require that all products that are covered be listed and could, therefore, potentially have 20,000 or more lines of data to manage.

Another option being deployed by many prospective QHPs is to create a closed formulary. This option would take into consideration any of the standard-type exclusions that typically would get put on an open formulary and bring back in whatever products are necessary to meet the counts. A closed option allows for greater control when a new product hits the market. If the new agent is clinically superior to an agent already on the formulary, the closed option would allow plans to remove the current agent and replace it with the new one, as opposed to suddenly offering coverage of both. However, state insurance regulations do apply, so if there are notification requirements upon removal of a product the QHP would be required to follow those requirements before doing so. Other positives of a closed formulary include the ability to forecast the drug-spend, as well as a smaller number of products for the submission of the formulary and thus less data to monitor. Negatives to this type of formulary depend on how the closed formulary is set up. If set up at National Drug Code (NDC) level this would require daily monitoring to see if an NDC changes or if a new NDC for a specific product already on the formulary hits the market. Processes for monitoring the drug files (Medi-Span, First Databank) should be in place to ensure that products are not inadvertently removed from the formulary, thereby making the formulary deficient.

Once the agents have been determined, the next step is utilization management. The submission files require that both prior authorization (PA) and step therapy (ST) be included as a flag. Specifics on the programs are not required to be spelled out. Quantity limits are not specifically called out on the submission file; however, CCIIO has stated they should be submitted, whether they be detailed in the justification section of the submission or referred to as something that will be posted on the QHP’s website.12 Some prospective QHPs have stated they would put PA or ST on all branded agents. The potential issue with doing this is that it may flag that plan as an outlier upon comparison and require they update their formulary submission. Many have taken what is currently on their offering, or if they are a new plan (like many of the Consumer Operated and Oriented Plans), have decided to go with standards that are offered by the PBM they are working with. When going with standards that are currently being used, especially for areas like mental health, it helps to justify why that is in place and hopefully keep the plan from being flagged as an outlier. Most insurance offerings have PA or ST on the majority of their specialty products. Even if just for prescriber and indication verification, this may help to control the costs in that high dollar spend category. Quantity limits are another great way to ensure that inappropriate “dose creep” is not occurring. Many prospective QHPs have felt the more quantity limits that are in place for safety and maximal dose, the better (without going overboard).2,9,12


As previously stated, submission files require flags for PA and ST. They also require the RXCUI value and a tier value. This is all that goes on the second tab of the submission file. The first tab has the benefit information to go with the information on the second tab. The formulary tab (second tab) requires that each RXCUI only appear 1 time. This can be tricky if it is an RXCUI that is shared between a brand single-source product and a generic, due to them being the same unique chemical entity. Usually, plans determine the branded product in that case and likely remove it. Other instances where there may be conflicts include when an RXCUI is shared between a product for which the QHP is going to add PA or ST and a product without utilization management. The submission file does have a way to validate that there is not duplicated coverage, so plans can ensure they have addressed these prior to submission.2,9,12

The benefit information (first tab) will require descriptors of what falls in each tier as well as the copayments or coinsurance for various day supplies. Because the insurance exchanges are a part of the ACA regulations, they require all the preventive care items to be covered at a zero cost share to members in the exchanges as well. CMS has stated that they will allow for those to be included in the tier 1 grouping and then noted, in the justification section of the submission, that the products for preventive care are in that tier. Some prospective QHPs have created an individual tier value specifically for those products and any other products they determine they want at a zero cost share for enrollees.2,9,12

If a formulary does not meet the benchmark counts required where they are operating, they must document why in the justification section. CCIIO has stated that if a prospective plan is having a near impossible time finding enough agents in a category or class, they can note that. CCII has not stated whether this will be acceptable upon final review. If a plan is covering products that are used for inpatient or products that they deem to fall under the medical benefit, they can note what those products are and how they bring the counts to be whole again in the justification section of the submission template.2,12

QHPs are required to be accredited by URAC or the National Committee for Quality Assurance (NCQA), which means regulations regarding prescription benefits must be followed, including pharmacy and therapeutics (P&T) committee oversight.2 This brings in the clinical element of the formularies. Not only must the formularies meet the benchmark for the states and/or territories they operate in, the formulary offerings must be deemed clinically sound. This brings in some questions with respect to unique chemical entities.11 For example, if a formulary were to include olmesartan as one of its agents for cardiovascular disease, angiotensin receptor blockers, it would not need to include olmesartan/hydrochlorothiazide or olmesartan/amlodipine/hydrochlorothiazide. Therefore, in the hypertension category a formulary could conceivably cover only single-ingredient products ensuring that the other single ingredients were also on the formulary and require that members take 2 or more agents. Clinically, the question is whether this will this decrease utilization of the appropriate combinations of medications due to multiple copayments and multiple products that need to be taken per day. Also, prospective QHPs and their P&T committees should consider that a large percentage of olmesartan utilization in the current commercial population is currently in combination. Thus, the question remains whether this is an appropriate clinical tactic or rather just a cost-controlling one that makes the formulary as narrow as possible.


Questions regarding when a formulary can change, how often it can change, and whether  these changes need to be submitted have run rampant. CCIIO has stated they require the QHP to certify that their formulary meets at minimum the requirements of the prescription benefit section at all times.2–5 This means that changes should not cause the formulary to become deficient. They have not placed any regulations on frequency of changes; however, many states have regulations that the QHPs operating in those states must follow. If a new medication that is clinically superior to other agents in the class hits the market, and it is actually counted by CMS, a plan could potentially remove an older agent and add the newer agent to their formulary without having to resubmit their prescription drug benefit file. Although CCIIO has stated they will not require resubmission when the formulary changes, some states do require resubmission, and CCIIO may determine that without resubmission they lose some control and may begin to require more frequent submissions.2,4

While agents can always be added and potentially exceed the counts, if something warrants that an agent be removed in the middle of the year and there is no alternative available to refill that category and class, the formulary may become deficient. This may occur if an agent is removed from the market or studies demonstrate major safety issues and the P&T committee deems the agent to be unsafe. Because the agents that CCIIO actually counts only result in a handful more agents than the highest in every category, this scenario could truly result in a deficient formulary, but likely will have similar issues for all QHPs across the nation (depending on their counts). CCIIO recognizes this and would require that an amendment justification be submitted to them or the state (or both) depending on how the exchange is operated.2,12

As of now, CCIIO has not released any guidance with respect to alterations of the formulary for tier values (moving products from tier 2 to tier 3, vice versa, or any other monetary adjustment) throughout the plan year. When making changes throughout the year, QHPs should ensure that they are maintaining the actuarial value for the formulary based on copayments for the metal levels. It is possible this will change too, much like Medicare Part D, and require that changes are restricted through close monitoring.2,12


As with the birth of Medicare Part D in 2005, the EHB regulations are vague, leaving a lot to interpretation and further clarification. CCIIO continually states that they will not regulate it as tightly as they do Part D. However, the EHBs seem strikingly similar to the situation in 2005 in the uncertainty in how to implement and maintain the new benefit. As time goes on and CCIIO gives more clarification, it is very likely more oversight of the plans will take shape. Will prescription benefit submissions begin to be required quarterly or monthly? Will CCIIO state that within the unique chemical entities, if there aren’t any generics, then at least 2 need to be preferred products? Will all the criteria for the utilization management (PA, ST, quantity limit, and any other restrictions) be required to be submitted? Will CCIIO state that ST can only have 2 agents that have to be tried and failed prior to receiving the targeted agents? The answers to these questions are unknown and are not detailed in the legislation.

Many believe that this benefit may be even more complex than Medicare Part D. Over the next few years, there are sure to be several changes, requirements, and challenges to this benefit. Some plans have decided not to participate now due to the uncertainty that lies ahead and instead are waiting to see how the exchanges shake out as CCIIO clarifies more and more of the offering and the requirements. Unfortunately, this is a learning game for all involved, and it is through questions from prospective QHPs and their PBMs and consultants to CCIIO that more clarification is given, which can be a good or a bad thing. It is important to remember, there is a need to be ready to adapt to the unknown challenges and be ready to alter course at any time. As with anything new there are challenges, bumps, and uncertainties. However, working together to offer this new line of insurance to the many uninsured in our country will help this be successful regardless of the final path when the dust settles. ■

Table 1. EHB statutory benefit categories

Ambulatory patient services
Emergency services
Maternity and newborn care
Prescription drugs
Laboratory services
Mental health and substance use disorder services, including behavioral health treatment
Preventive and wellness services and chronic disease management
Rehabilitative and habilitative services and devices
Pediatric services, including oral and vision care

Formulary/Source: Refs 1,2

Table 2. EHB metal levels

Actuarial value of beneficiary cost





Formulary/Source: Refs 1,8




1.  US Department of Health & Human Resources. Patient Protection and Affordable Care Act; standards related to essential health benefits, actuarial value, and accreditation. Proposed rule. Federal Register, Vol. 27, No. 227, November 26, 2012. Available at: Accessed May 2013.


2. US Department of Health & Human Resources. Patient Protection and Affordable Care Act; standards related to essential health benefits, actuarial value, and accreditation. Final rule. Federal Register, Vol. 78, No. 37, February 25, 2013. Available at: Accessed May 2013.


3. Centers for Medicare & Medicaid Services, Center for Consumer Information and Insurance Oversight. Additional information on proposed state essential health benefits benchmark plans. Available at: Accessed May 2013.


4. Centers for Medicare & Medicaid Services, Center for Consumer Information and Insurance Oversight. Essential health benefits bulletin.  December 16, 2011. Available at: Accessed May 2013.


5. US Department of Heatlh & Human Services. HHS to give states more flexibility to implement health reform. News release, December 16. 2011. Available at: Accessed May 2013.


6. Institute of Medicine. Essential health benefits: balancing coverage and cost. Available at: Accessed May 2013.


7. Centers for Medicare & Medicaid Services, Center for Consumer Information and Insurance Oversight. Marketplace timeline. Available at: Accessed May 2013.


8. Academy of Managed Care Pharmacy. Obama administration releases three proposed rules to implement provisions of the Affordable Care Act, including prescription drug benefit design under essential health benefits (EHBs).  November 2012. Available at: Accessed May 2013.


9. National Conference of State Legislatures. American health benefits exchanges. Available at: Accessed May 2013.


10.  US National Library of Medicine, National Institutes of Health. RxNorm. Available at: Accessed May 2013.


11. Centers for Medicare & Medicaid Services. Medicare prescription drug benefit manual, chapter 6. Part D drugs and formulary requirements. Available at: Accessed May 2013.


12. Centers for Medicare & Medicaid Services. Enterprise portal. Available at: (log-in required). Accessed May 2013.



Dr Sternaman, is director, formulary services at Catamaran. She is from Georgetown, Texas.

Disclosure: The author reports no financial disclosures as related to products discussed in this article.

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