Now that open enrollment is under way in both the under-65 and senior markets, many brokers are challenged by how to help their clients navigate the complexities of drug costs and coverage. And, with the cost of prescription drugs rising faster than the cost of many of the other elements in today’s health care cost mix — accounting, in fact, for more than 20 percent of U.S. health care spending — it has never been more important to do so.

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How much your client will pay for their drugs is ultimately driven by other health expenses, including; deductibles, co-pays and co-insurance, and non-covered health expenses. So drug costs cannot be viewed in a vacuum, but must be considered a part of your client’s total cost of health care.

Navigating formularies

A health plan formulary is a list of drugs covered by any given plan, showing the drug’s tier level and restrictions. Each of these elements is important. Clearly, if your client’s drug is not covered, they will be forced to seek alternatives or pay out of pocket without any credit towards their deductible. A common misperception is that all formularies are pretty much the same. They are not. In many ways, formularies are going the way of narrow networks, by becoming more restrictive, and with more carrier and more differentiated among carriers. Further, the formularies for “on-marketplace” plans may differ from off-marketplace plans from the same carrier.

The tier level is also critical, as generally the higher the tier, the greater the out of pocket expense to the client. Again, any given drug may fall into different tiers on different formularies.

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And finally, the restrictions are important: particularly “step therapy” and “prior authorizations.” Step therapy requires an individual to try other drugs first before being approved for the drug they have been taking. And prior authorization requires the individual to call the carrier and make the case for approval of that particular drug. In either case, the process can be time consuming and frustrating, and may have to be repeated with each renewal. So all things being equal, a formulary where a drug is listed without restrictions is more favorable than one with restrictions.

Formularies are available on each carrier’s website, sometimes through search tools but often through downloadable PDFs.

Plan design and drug tiers

While formularies dictate coverage for a particular drug, the plan design itself, in concert with the formulary, dictates how much an individual will actually pay for a drug.

Without addressing the issue of deductibles for a moment, how much the individual will pay for a drug is governed by what tier it falls into. Most plans have three to four tiers. Generally, tier 1 drugs include generics, tier 2 and 3 drugs capture name brand drugs (preferred and non-preferred), with specialty drugs falling into tier 4. A typical out of pocket scenario for a four-tier plan may look something like $20 / $40 / $70 / 50 percent. For example, if your client takes a name brand drug on a monthly basis that falls into tier 3 in one plan, and tier 2 in another (and assuming the same plan design), they will save $30 per month or $360 per year, with the tier 2 plan.

Another element to look at is how deductibles apply to drugs. And, of course, when a deductible does apply, how big it is. There are three scenarios of deductibles: 1) the individual must pay the full prescription amount until the medical deductible has been be met; 2) the individual must pay the full prescription amount until a separate drug deductible has been met; or 3) no deductible applies to drug purchases.

Generics

If all of this isn’t complex enough, add in generics. Let’s assume for the moment that the client’s name brand drug is covered as a tier 3 drug across all plans. If there is a generic alternative available to the individual, and using the plan design above, that individual could save $50/month or $600/year using the generic.

Many insurance carriers have generic drug search capability on their website and some include generic alternatives in their formularies for quick identification. Further, there are resources such as MedlinePlus that allow you to search for generics based on the name brand. And if your client has concerns about a generic, in addition to speaking with their doctor or pharmacist, there are useful on-line resources such as Iodine that can be consulted.

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Many, especially seniors, are concerned about generics. But you should encourage your clients to speak with their doctor about these therapeutic alternatives. They can be just as effective as the name brand, and the savings significant.

Pulling it all together

Drug costs do not exist in a vacuum. They are part of an individual’s total cost of health care, which also includes plan premiums and other health care expenses. In order to determine the best plan fit, all of these items must be viewed together. This can be exceedingly complex when your client takes several drugs and/or contends with chronic conditions. And often the right choice is not the obvious choice.

My company, Vericred, recently completed an analysis of Crestor, a cholesterol-reducing drug against four New York state plans, one of each metal level. Deductibles ranged from $0 (platinum) to $4,000 (bronze). All plans covered Crestor with co-pays ranging from $30 to $45.

While it may be tempting to go with the platinum plan with no deductible and the lowest co-pay (but the highest premium) or to go with the lowest premium plan (carrying the highest deductible), the right solution when combining plan premiums and out of pocket Crestor costs was actually the silver plan. But with just one more drug, or a few office visits, the math can change.

Cash markets

The last piece of the puzzle is the cash market for drugs. A little understood fact is that, in many cases, you can buy a drug outside of your insurance for less than you would pay with your insurance. Let’s say your client is taking a generic drug. Under the plan design above, they would pay $20 (deductible aside) for that drug. But, they may be able to go to Walmart and pay $3.50 for the exact same drug. So extending the example in the generic section above, if your clients are taking a tier 3 drug and can find a generic alternative that they can buy from Walmart for $3.50, they will save $66.50 every month. That’s a saving of 95 percent.

There are a number of companies helping individuals tap into the cash market. Some issue coupons, others give you a prescription card. These companies include GoodRx, RefillWise and LowestMed. Some of these cash services will help the individual compare the cost of their drug through their insurance against their cash price. In the absence of such capability, the individual either needs to really know their plan and drug tiers or get to the pharmacy and try it both ways.

A couple of points to note regarding the cash market. First, any cash drug purchases using these services do not accrue towards any deductibles that apply. Second, these programs may not be available at your client’s pharmacy of choice. And third, prices can change regularly, so a smart shopper checks before each purchase.

Where is this going?

Given the complexities of plan choice and the large number of plans available in some areas, going through this process manually is nearly impossible. The good news is that technology companies are building tools and platforms to assist brokers with the analysis. Some include the ability to search plans by the client’s preferred doctors and facilities (another key element), and by the drugs the client takes. Others offer health care cost estimators that take into consideration drugs, conditions and plan premiums to arrive at total expected health care costs.

With enrollment now underway for both the under-65 and senior markets, this is as good a time as any to start tapping into technology that will enable you to help your clients make the insurance choice that’s best for them.

Michael Levin (luh-VIN) is the co-founder and chief executive officer of Vericred, a New York-based health care data services company.

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