Prescription Drug Insurance

Prescription drug insurance is insurance is purchased to help with the cost of medicines your doctor prescribes for you. This insurance also provides a safeguard against unknown prescription costs that you might incur in the future.

While often included in medical policies, prescription drug insurance is different from medical insurance, which helps pay for doctors or emergency room visits as well as certain medications that you might receive in the physician’s office, at home or during a hospital stay. Your medical and prescription drug insurance may be provided by the same company or in some cases by different providers. Certain companies specialize in prescription drug insurance.

There are a number of ways to obtain prescription drug insurance. Many people receive insurance through their employer, where the employer helps cover some of the cost. Others may receive insurance through the government (state or federal) or the military. You may also purchase as an individual from a commercial insurance provider or pharmacy benefit manager.

Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, also known as Medicare Part D, prescription drug coverage became available to everyone eligible for traditional Medicare. Medicare Part D prescription insurance is offered by private health plans who work with the federal government to provide this option to the Medicare eligible public.

Prescription Drug Insurance Formularies

Prescription drug insurance allows plan members to purchase prescription drugs at a reduced cost because the provider typically manages the drug costs across of all its members by the use of a drug formulary.

When considering enrollment in a particular prescription drug plan, it is a good idea to check ahead of time to be sure that the medications you are taking are included on the formulary and to understand what happens in the event they are not included. Even if your medications are included on the formulary, the portion you have to pay, call the prescription co-payment, might differ depending on which particular drug you are taking.

  • For example, a plan might cover a prescription migraine medicine available generically such as Imitrex (sumatriptan) at a lower co-payment than a branded migraine medicine such as Frova (frovatriptan). Or, the plan might cover some branded migraine medicines at a lower co-payment than other brand name migraine products. Sometimes, a plan asks the member to try the lower cost medication to see if it works before agreeing to pay for the higher cost medication at all. This is called step therapy.

Most plans organize their formularies into tiers, or groups. When tiers are used in a formulary, your co-pay (the amount you pay for a particular medicine) will be different for medicines on different tiers of the formulary. For example, your co-pay for medicines on tier 1 of the formulary will be lower than your co-pay for medicines on tier 2 of the formulary. There are three common prescription drug plan design structures:

Open Formulary

Offers members access to non-formulary drugs at a higher co-pay. Open formulary plans may include multiple tiers, or levels of cost sharing.

  • For example, a four-tier structure might have the following cost sharing requirements: $10 generic formulary, $35 brand name formulary, $50 non-formulary which in this case includes branded drugs not preferred by the plan, 25% of cost on high cost drugs such as specialty drugs.

Closed Formulary

It offers members access to only drugs that are on a formulary list. Coverage for non-formulary drugs is not available. Non-formulary drugs can be purchased at retail cost.

No-Formulary

While rare, this type of plan offers members access to any drug. Formulary listings do not apply to these plans.

Mail Order Prescriptions

Most plans also include a mail-order prescription drug program that allows members to receive a 60 or 90-day supply of medication through the mail. This option is generally beneficial for people on drugs for chronic diseases such as heart failure or diabetes and usually allows members to receive a 3 month supply of their medication for a 2 month co-pay.

Other Formulary Terms to Know

Prior Authorizations

In addition to using tiered systems, many plans may require Prior Authorizations for certain medicines. If the medicine you have been prescribed requires a Prior Authorization, your physician will need to submit a special request to the insurance company providing your medical history and a reason that you need a particular drug over another potentially less expensive alternative. If a particular request is denied and the physician and/or member feels strongly that this was a poor medical decision, an appeal can be filed with the plan to reconsider its coverage decision.

Step Therapy

Insurance companies use step therapy policies to ensure that patients have tried certain medicines before more expensive alternatives. This requirement to try specific medicines first is referred to as a “step-edit.” Many insurance plans follow step therapy policies for certain illnesses where a wide variety of medicines are available, such as migraine disease. Often times, your plan can look at your medication history electronically to determine whether or not you have tried a particular drug and if so, can automatically bypass a step edit in order to cover your drug. Your doctor may also be able to submit a Prior Authorization request if you need treatment that is different from the plan’s recommended step therapy.

Quantity Limits

In addition to step therapy restrictions, insurance companies may place restrictions on the amount of medicine that you can receive in a period of time. This has been especially true for the migraine class of medications where often smaller quantities are approved for short term episodic treatment. These restrictions on quantity may be based on a variety of factors, including cost and safety. In some cases, a plan may cover a larger quantity of medicine if your physician submits a Prior Authorization request.

Other restrictions to covered medicines may apply so it is important to talk to your doctor and contact your insurance provider if you have questions.

Alternatives to Help with the Cost of Prescription Drugs

Pharmacy Discount Programs

Many pharmacies, including Wal-Mart, Target, and Rite Aid, have started offering low-cost generic drugs. If you are taking generic medications, you may be able to receive one to three months of medicine for between $4 and $10. The list of medicines available will vary by pharmacy, and sometimes by time of year. In many cases, the price at the pharmacy may be cheaper than your insurance co-pay. It is very important to

Flexible Health Care Spending Accounts

A Flexible Spending Account (FSA), or Health Savings Account (HSA), is one way to save for the cost of prescription medications that your insurance plan does not cover. These plans, often available via your employer, offer a pre-tax way to save money for medical expenses, including co-pays and medicines not covered by your insurance plan. Learn more about Flexible Spending Accounts here.

Coupons and Prescription Assistance Programs

Almost all pharmaceutical companies offer coupons for migraine medications as well as Prescription Assistance Programs for individuals who demonstrate financial hardship and cannot afford their prescribed medications. Visit our Offer Center to see if you can benefit from any of these coupons and programs.

Written by: Lisa Erwin | Last reviewed: November 2010.