Understanding pharmacy benefits and prescription drug plans

Understand how benefits plans will cover prescription drugs.

Most employer-sponsored health plans have a prescription drug benefit, so as you research and compare plans it's smart to understand how the plan(s) you’re considering cover prescriptions.

Three Types of Pharmacy Plans

While specific pharmacy benefits will depend on a specific health plan, drug coverage is usually provided in one of three ways:

  1. Prescription coverage with a copay. With this kind of plan, the member doesn't have to meet a deductible before receiving drug coverage, but each prescription will typically be subject to a copayment. Out-of-pocket costs may vary depending on the drug: A low-cost generic drug might cost $12 in copay; while a brand-name drug might cost 40% of the full price.
  2. Prescription coverage after meeting a deductible. With this type of plan, the member must meet the plan's annual deductible before insurance covers any of the cost for prescription drugs. As an employer contemplates a plan with this pharmacy arrangement, he should consider that the average deductible for single coverage in 2016 was $1,478, and at small firms it was higher: $2,069.
  3. Prescription coverage with a special prescription drug deductible. Some plans have separate deductibles for prescription drugs, meaning they're separate from the plan's overall medical deductible. Typically, with this type of plan, once the medical deductible is satisfied, you will still have a copayment or coinsurance for prescriptions.

Not All Plans Cover All Drugs

Not all health plans cover all drugs. Each health insurance plan has a list of prescription drugs that it covers, called a formulary. Some drugs on your plan's formulary may be covered automatically with a doctor's prescription. Others may be covered only for treatment of specific conditions or after you've tried a different, preferred drug first.

How Prescription Drug Pricing Works

How much a member will pay will vary based on your plan, but drug prices generally depend on their tier -- drug coverage tiers are a way of categorizing different kinds of drugs and encouraging patients to use more cost-effective options when possible.

Not all insurance plans utilize drug tiers, the number of tiers varies by plan, and not all drug tiers work the same way. But drugs from higher tiers generally cost more out of pocket than drugs from lower tiers. Here’s how that can work:

  • Tier 1 may include only generic drugs. Drugs from tier 1 may only cost you a minimal co-payment.
  • Tier 2 may include preferred brand-name drugs. This co-pay will generally be higher than tier 1.
  • Tier 3 may consists of non-preferred brand-name drugs, with an even higher co-pay.
  • Tier 4 may include what are called “specialty drugs.” These are drugs that are costly and associated with treatment for rare or serious medical conditions.

With nearly 60% of Americans over the age of 20 relying on prescription meds, pharmacy benefits are an important component of any company's medical plan2. Because drug costs can vary significantly depending on a member's health plan, it's essential to take the time to explore how each plan you’re considering treats prescription drugs.

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