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.
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.
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.
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.
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.