Information for Consumer Groups about the NAIC’s
Model Act on Prescription Drug Benefit Management
What is the NAIC?
The National Association of Insurance Commissioners
(NAIC) is made up of insurance regulators from each state
that are concerned with both consumer protection and the
assurance of a viable, competitive insurance market. This
means they must balance issues of affordability and
operational efficiency with consumer concerns. The NAIC
provides a forum for stakeholders to provide input into
the development of insurance-related public policy.
Model acts developed by the NAIC are often adopted by
states or used as a basis for developing their own state-
specific legislation or regulation.
What is the NAIC doing about
pharmacy benefits?
NAIC has recently completed the “Health Carrier
Prescription Drug Benefit Management Model Act.” This
model act establishes requirements pertaining to
insurance company programs for managing
pharmaceutical benefits. Many insurers, and their
subcontracted pharmacy benefit management companies
(PBMs), limit their pharmaceutical benefits through
formularies, prior authorization requirements, tiered co-
pay structures, and other techniques. Such techniques are
collectively known as “pharmacy benefit management
procedures” or “PBMPs.” PBMPs are used to give
preference to selected drugs and discourage use of other
non-preferred drugs. The NAIC’s model act establishes
some very helpful consumer protections, but in other
ways falls short of what consumer groups might like to see.
In what ways does the NAIC model
improve consumer protection?
The NAIC model act does establish a requirement that
formularies and certain other PBMPs be established by a
committee of health care professionals (called Pharmacy &
Therapeutic or P&T committees) that determines which
drugs should receive preferential treatment based in part
on the documented clinical effectiveness. The model also
requires that information about formularies and the use of
PBMPs be disclosed to consumers. In addition, the model
act requires health plans to have a process for considering
cases in which the consumer has been denied access to a
drug as a result of the application of a PBMP. The
consumer may receive coverage if the doctor can show
that the drug is medically necessary.
Is the NAIC model act adequate to assure
full consumer protection?
While the NAIC model act represents an improvement
over the current lack of rules, it does not go far enough.
The model act does not include certain common insurance
practices in NAIC’s definition of PBMPs, including tiered
co-pays, therapeutic substitution, and generic substitution.
Therefore, the protections afforded by the model do not
apply to these practices. For example, there is no right of
appeal if a medically necessary drug is placed in a very
high tier co-pay structure and is therefore unaffordable to
a consumer. Furthermore, there are no limits on out-of-
pocket liability for consumers. So the accumulation of
expenses from numerous high tier co-pays is unlimited.
In addition, the NAIC model act does not establish parity
between pharmacy and other benefits. For example, when
an insurer denies coverage of a particular drug (because it
is not on the formulary or because the consumer has not
obtained proper authorization), the NAIC model act does
not explicitly require notice of denial or notice of appeal
rights to the consumer. Such notices are required by state
and federal law when any benefit is denied, but it is not
enforced or even recognized as it pertains to pharmacy
benefits. Had the NAIC model act required such notice, it
would have made clear that the existing law has no
exemption for pharmacy benefits.
Can we do better than the current model act?
The model act itself does not have any legal authority. In
order for states to adopt the NAIC model act (with or without
modifications), states must actually pass legislation or
regulation through their usual process. Therefore, there is an
opportunity for consumers and other stakeholders to
influence the ultimate policy on pharmacy benefits as each
state considers this model act.
What is the insurance industry’s position
on the NAIC’s model act?
The industry clearly opposes many provisions of NAIC’s
model act. Insurer’s offered an alternative that was
significantly less favorable to consumers. The table on the
following pages provides a comparison of NAIC’s model
act, the insurance industry alternative, and provisions that
consumer groups might wish to have included in the
model act.
Why should consumer groups
get involved?
The insurance industry is likely to actively lobby the states
against any legislation to establish even the modest
consumer protections provided in the NAIC model act.
Consumer groups will be the best advocates of legislation
to adopt the NAIC model act, as well as to seek additional
protections not currently included. Consumer groups can
also share personal examples of cases where existing laws
have not been followed or enforced, and seek compliance
through dialogue with health plans, Departments of
Insurance, and Attorneys General. Without strong
consumer advocacy, insurers will surely prevail.

National Pharmaceutical Council

Since 1953, the National Pharmaceutical Council (NPC) has sponsored and conducted scientific, evidence-based analyses of
the appropriate use of pharmaceuticals and the clinical and economic value of pharmaceutical innovations. NPC provides
educational resources to a variety of health care stakeholders, including patients, clinicians, payers and policy makers. More
than 20 research-based pharmaceutical companies are members of the NPC.

National Pharmaceutical Council

1894 Preston White Drive, Reston, Virginia 20191-5433
Phone: (703) 620-6390
Fax: (703) 476-0904
Web: www.npcnow.org
Desired Provision
PBMPs should be defined to
include all current and future
limits on access to drugs.
PBMPs should be based on
clinical evidence, not just cost.
The array of drugs on the
formulary or otherwise given
preferred status should be
adequate for most consumers
(e.g., there should be at least
one type of drug from each
class available).
Consumers should be
protected from unlimited out-
of-pocket (OOP) costs,
especially in a tiered co-pay
plan. This protection should
include an OOP limit , a limit
on how high tiered co-pays
can be, or an appeal right to
obtain upper tier drugs at a
lower co-pay when medically
necessary.
Consumers should be given a Not addressed.
notice of denial when they
attempt to get coverage for a
non-formulary or otherwise
unapproved drug. Such notice
should include a statement of
appeal rights.
NAIC Provision
PBMPs are defined to include
only formularies, prior
authorization, step therapy, and
dose limits.
NAIC language generally
achieves this, though it could
be strengthened.
Not addressed.
Not addressed.
Comment Insurance Industry
Alternative
No consumer protections are No regulation of PBMPs except
established for tiered co-pays, for formularies. There are,
generic substitution, however, some disclosure
therapeutic substitution, or requirements about dose
any other type of access limits.
limitation that may be
designed in the future.
Only formularies must be
based on a process that
includes (but is not limited to)
evaluation of clinical
information. No other PBMPs
need to be based on any
clinical information.
An earlier NAIC draft had Not addressed.
language requiring preferred
drugs to produce similar or
better results than other non-
preferred drugs in the class for
the majority of the population.
This language was cut.
This is a parity issue. Many Not addressed.
plans have OOP limits on all
benefits except pharmacy, and
many states limit how high the
co-pays can be on in- and out-
of-network benefits in a PPO,
but not on drug benefits.
This is a parity issue. Denial Not addressed.
notices are required by law for
all benefits, but not enforced
for pharmacy benefits.
Desired Provision
Consumers should be given an
opportunity to request
coverage of a drug that has
been denied because of
formulary or other PBMP issues.
Reviews should be decided by
health care professionals using
documented clinical criteria.
Decisions on exception
requests should be made
within 2 days, and urgent
cases should be handled as
promptly as the condition
warrants.
When a drug is approved
through an exception process,
refills should require no
further review.
When a drug is approved
through an exception process,
the co-pay should be no higher
than the co-pay of the plan’s
preferred drug.
Information about which
drugs are on the formulary or
subject to a PBMP should be
made available to any
provider.
Information about which
drugs are on the formulary or
subject to a PBMP should be
made available to any
member or prospective
member.
NAIC Provision
NAIC language establishes an
exceptions process, but only for
the limited list of PBMPs.
Reviews must be decided by
health care professionals using
documented clinical criteria.
NAIC language gives a 3 day
turn around and requires
urgent cases be handled
expeditiously.
NAIC language achieves this.
Plans may not charge a higher
co-pay for drugs approved on
exception than the highest co-
pay level for formulary drugs.
But this may be more than the
co-pay applicable to the plan’s
preferred drug.
NAIC achieves this.
NAIC achieves this.
Comment Insurance Industry
Alternative
An exceptions process is
established, but only for drugs
denied as a result of a deletion
of a drug from the formulary.
(Formulary denials for drugs
that were never on the
formulary would have no
exceptions process.) Also,
exceptions requests may be
denied by non-health care
professionals with review
criteria that need not be
documented or clinical.
Also gives a 3 day turn around,
but does not require an
expedited process for urgent
situations.
Subsequent refills may require
review, at the insurer’s
discretion.
Not addressed.
The insurers’ substitute
achieves this for formularies
and dose limits only.
The insurers’ substitute
achieves this for formularies
and dose limits only.
Desired Provision
Information should be
provided in laymen’s terms to
both existing and prospective
members about the use of a
formulary or any other PBMP.
Written materials given to new Not addressed.
and prospective members
should clearly delineate what
is a “covered benefit” and
what is “excluded.”
Drugs covered at the time an
insurance policy is purchased
should not be deleted from
the formulary unilaterally by
the insurer until the policy
period is over and the
consumer has the option to
switch to another carrier.
New drugs should be
promptly considered by the
P&T committee for coverage.
The P&T committee should
meet at least quarterly to
consider the need to modify
its formulary or their PBMP
policies as applied to specific
drugs based on new
information and studies.
The P&T committee should
consider requests for changes
to their formulary or PBMPs
from both practicing
physicians and consumers
affected by their decisions.
NAIC Provision
NAIC achieves this, but only
provides information to active,
not prospective, members.
Plans can make unilateral
changes in the formulary or to
PBMPs any time during a
contract year. However, NAIC
does require plans to give 60
days notice to members.
No specific language, just a
requirement that the P&T
committee meet at least
annually to update the
formulary.
P&T Committees must meet at
least annually.
Not addressed.
Comment
Although a plan says drugs are Not addressed.
“covered” and non-formulary
drugs are not specifically
excluded, they may deny
coverage on the basis that
specific non-formulary drugs
are not covered.
An earlier draft did require
quarterly meetings, but was
cut.
Insurance Industry
Alternative
The insurers’ substitute
achieves this for formularies
only.
Insurers may delete drugs
from the formulary with 30
days notice. Any other
changes do not require notice.
Not addressed.
P&T Committees must meet at
least annually.
Not addressed.
Desired Provision NAIC Provision Comment Insurance Industry
Alternative
P&T committees should include P&T committee should include Actively practicing P&T committee should include
licensed, actively practicing clinicians with “knowledge & practitioners have a better clinicians with “knowledge &
physicians and pharmacists. expertise” about drugs. awareness of current day expertise” about drugs.
hassles and patient needs
than corporate employees,
even though they may have
been trained as MDs or
pharmacists.
Therapeutic interchange Therapeutic interchange is not Therapeutic interchange is not
should only be allowed with recognized as a PBMP and recognized as a PBMP and
case-by-case approval from therefore is not addressed. therefore is not addressed.
the prescribing physician.
Health plans should not NAIC allows plans to Not addressed.
establish arbitrary limits on specifically and explicitly
the quantity of a specific exclude or restrict coverage or
medication it will cover. Such number of doses in the terms
restrictions should only be of coverage.
based on clinical evidence.