Understanding prescription drug coverage

To slow recent increases in prescription drug spending, many employers and insurers have adopted stringent cost-containment measures. Your share of the cost of a drug may depend on whether your medicine is a "preferred" or "non-preferred" brand or a generic version. This guide can help you sort through various cost-control structures so that you are better able to compare drug benefit plans.

 

What is a formulary? A formulary, also known as a "preferred drug list," catalogues the prescription drugs that your health plan may cover. Formulary drugs are chosen for inclusion on the list based on their safety, efficacy, and cost-effectiveness. Some formularies are more restrictive than others. So before signing up for a plan, make sure the medicines you and your family take are on the formulary.

 

If my drug is on the formulary, is it covered? Not necessarily. Coverage depends on what your prescription drug plan allows. Some benefit plans may exclude certain formulary drugs. For example, your doctor may prescribe Viagra for impotence. Even if it's on the health plan's list of preferred drugs for sexual dysfunction, your employer may exclude coverage of so-called "lifestyle" drugs from your prescription benefit plan.

 

What if my doctor prescribes a drug that's not on the formulary? Your doctor may prescribe any drug, but you may be required to pay for the prescription yourself. Some health plans will cover "non-formulary," or "non-preferred" drugs, but your co-payment will be higher than what you would pay for a formulary medication. In some cases, your doctor may be able to request an exception if the drug you need is not on the list.

 

What is prior authorization? Before prescribing certain drugs or filling prescriptions for those drugs, your doctor or pharmacy may be required to request the health plan's permission, a process known as "prior authorization." In some cases, you may be required to try a less expensive medicine before the health plan will pay for the one your doctor recommended.

 

What are generic drugs, and why are they less expensive? When it comes to dosage, safety, strength, how it is taken and how it's to be used, a generic drug is the same as a brand-name version. The difference is cost. When a drug's patent expires, a generic drug-maker can produce a less expensive version because the brand-name manufacturer has already absorbed the bulk of the research and development costs. To pass muster with the U.S. Food and Drug Administration, generic drugs must contain the identical amounts of the same active ingredients as the brand-name product.

 

What is a "three-tier" plan? Many employees today have prescription drug plans that feature some sort of "tiered" cost-sharing. In a three-tier arrangement, you'll pay the least amount out-of-pocket for generics, a little more for "preferred" drugs and the most for "non-preferred" or "non-formulary" drugs. Some plans add a fourth tier of cost-sharing for injectables or lifestyle drugs.

 

Can I save money by ordering prescriptions through the mail? Some drug plans offer a mail-order service for medications and encourage people to use this option by lowering their co-payments. Other plans make mail-order mandatory for long-term or maintenance medications.

 

SOURCES: Glossary of Terms (updated Sept. 10, 2004), Center for Drug Evaluation and Research, U.S. Food and Drug Administration, Rockville, Md.; Express Scripts Inc., St. Louis; Consumers: Are You Getting the Most Out of Your Rx Drug Benefit?

Tips to Help Choose and Understand Prescription Drug Benefits for Open Enrollment (Nov. 9, 2004), National Pharmaceutical Council, Reston, Va.