Understanding Non-Medicare Prescription Drug Coverage

Understanding Non-Medicare Prescription Drug CoveragePrescription drug coverage is an important but misunderstood benefit. Most health insurance plans and certainly most employer sponsored group plans have a prescription drug benefit. In recent years prescription drug benefits have become more complex.

The importance of prescription drugs cannot be doubted. In their best sense, prescription drugs have improved quality of life and extended life expectancy. In their worse sense, prescription drugs are very expensive and their cost has substantially contributed to the rise in health insurance premiums. The cost has become so high that many are skipping medications or not even filling the prescription.

There is widespread misunderstanding of prescription drug pricing even among those insured by an employer sponsored group plan. There are two things that need to be understood. Medicare Prescription drug coverage usually speaks of tiers and formularies.

Tiers refer to the level of drug purchased. Until recently most group plans used a three tier pricing structure. The first tier is the generic brand. The second tier is the brand name formulary. The third tier is the brand name non-formulary.

The first tier of drugs, the generic, is the easiest to understand and the least expensive. If the consumer purchases a generic brand, they will pay the lowest co-pay. Use of generic drugs does keep the cost of prescription drug plans lower.

The second tier is the brand name formulary. A formulary is simply the brand preferred by that particular underwriting insurance company. It is preferred because the insurance company has entered into a contract with the drug manufacturer to promote their specific brand to their members.

Be very careful here. Each insurance company will have its own formulary. Consumers often get trapped paying higher co-pays after they change insurance companies. The formulary under one insurance plan is not the same as another.

An example is the best way to explain this. A few years ago, before Prilosec became an over-the-counter drug, half of the insurance companies in Connecticut had Prilosec on their preferred formulary and half had Prevacid. Many clients who switched their insurance from one company to another, discovered that the brand they were used to was no longer available to them as a second tier drug. That meant that they would pay a significantly high co-pay because their preferred drub was now a third tier drug or brand name non-formulary.

The third tier drugs have the most expensive co-pay. These are comparable drugs but not preferred because the insurance company underwriting the plan does not have a contractual arrangement with that drug manufacturer.

As prices have risen over the last few years, many insurance companies have moved to a 4 tier system. The fourth tier usually does not have co-pays but is offered to the consumer at a “discount” negotiated by the insurance company.

As you would expect, many of the newer and most expensive drugs fall into this tier. For instance a $400 Parkinson’s drug, if it were on a preferred formulary might cost a consumer a co-pay of $35 – $100 depending on the plan and the state in which the consumer lives. If this drug is considered a 4th tier drug, the consumer can expect to pay a minimum of $200 and possibly much more.

Understanding Non-Medicare Prescription Drug CoverageEven some of the major insurance companies are now offering plans that include 4th tier options. People are buying these plans because the premiums are lower. Sometimes however, they discover that the price they have to pay for the “discounted” drug eats up all the premium savings and then some. A good health insurance agent will check the formularies before switching a client to a different insurance company and run the numbers to make sure this does not happen.

Finally, another kind of tier has been introduced by many insurance companies as a part of their prescription drug programs. It is called mandatory generic. A mandatory generic clause means that if there is a generic equivalent available for the brand named drug your doctor prescribed, you must take the generic drug  or pay the 3rd or 4th tier price.

Discuss your medications with your doctor. If your doctor feels that the generic equivalent is not appropriate for your treatment, he will write the prescription “dispense as written.” You will get the brand name drug. You will pay the higher price.

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