Whether you have a current prescription you definitely want to maintain access to, or expect you'll need a prescription at some point in the future (something true of everyone living in a human body), understanding how a health insurance plan handles prescription drug coverage is important. But as with all a lot of things related to health insurance, prescription coverage can be complicated and confusing.
To help demystify how it all works, we've put together a guide on what small business owners and employees need to know about prescription drug coverage.
Prescription Drug Coverage: The Basics
Understanding the ins and outs of health insurance often starts with learning the language. When it comes to prescription drug coverage, there are a few main terms and definitions that are important to cover.
What is a drug formulary?
A drug formulary is the list of drugs your health insurance plan covers. Health insurance companies can create a formulary for each plan and have some discretion in choosing which drugs to include. But they have to make sure they follow all state and federal rules when doing so. For example, the ACA (Affordable Care Act) requires that all individual and small group plans cover certain drugs, like insulin and contraception.
What is a prescription tier?
Your insurance plan's formulary will be divided into tiers, based on how cost-effective different types of drugs are. The lowest tier (tier 1) will mostly include generic drugs, and your cost for them will be lower. As you move up the tiers, you'll see more brand name and specialty medications that will likely cost you more in copays or coinsurance. The number of tiers can vary across plans, but it's common for plans to have four tiers that work something like this:
- Tier 1: low-cost generic drugs
- Tier 2: Brand name drugs that aren't necessarily available in a generic form
- Tier 3: Brand name drugs that likely have a generic version available
- Tier 4: Specialty drugs with no generic equivalent, often for serious or rare illnesses
Paying for prescriptions: What are copays, coinsurance, and deductibles?
In addition to the formulary and tiers, there are a few more aspects of your health insurance plan that impact what you'll pay for a prescription:
- Deductible: A health insurance plan's deductible is the amount of money you'll have to pay for prescriptions and/or other health care services before the plan will start to pay them. For example, if you have a prescription deductible of $500, you'll have to spend $500 of your own money on prescriptions before your plan will start covering some or all of the cost. Some health insurance plans have an integrated deductible that includes both prescriptions and other health care services, while others have a specific prescription deductible.
- Copay: A copay is the straightforward cost of the prescription that you'll pay once you've met your deductible. The prescription tiers determine the copay amount. For instance, a plan might have copays of $5 for drugs in tier 1, $10 for tier 2, and $20 for tier 3.
- Coinsurance: Not all insurance plans use copays for prescriptions. Some use a coinsurance model, where you pay a percentage of the total cost. If your coinsurance rate is 20%, the insurance company will pay 80% of what your drug costs, and you'll cover the rest. Some plans have coinsurance rates that kick in after the deductible is met (you pay full price until then). In other cases, the coinsurance rate is what you pay before the deductible is met, and the insurance company covers the full cost after.
We know, this all sounds a bit confusing. Important to know is that your health plan MUST include information about your drug benefit in the summary of health benefit info.
Understanding Your Carrier's Prescription Drug Coverage
As these various terms and concepts make clear, learning the cost of a medication you need is far from straightforward. Knowing how to find your plan's formulary, and understanding the basics of how your deductible and copay or coinsurance works is valuable. But ultimately, the most important information you need is what your medications will cost and how to make sure you get them for the best price.
How to check if medications are covered
For existing health plans
For your current health insurance plan, a straightforward way to find out if a prescription you need is covered is to contact them and ask. If you’re worried about long hold times, you can also look up the plan's formulary on the insurance company's website. It may show up under a different name like "medication list" or "preferred drug list." Some health insurance companies will also offer a tool that lets you search for a specific medication to get a cost estimate.
If shopping for a new health plan
If you’re researching health plans and using an online shopping tool (like the one StretchDollar offers), you’ll often see an option to add your medicine to check if it’s covered. This makes it easy to filter for plans that include your medicine and get a sense of the cost structure. You might notice it refers to a “tier” sometimes. To get a clearer idea of the exact cost for that tier, it’s a good idea to reach out to the health carrier you’re interested in.
In-network vs. out-of-network pharmacies
If your medication is covered, it’s crucial to get your prescription filled at an in-network pharmacy. If you go out of network, you'll generally be stuck paying the full price out of pocket, and what you spend won't count toward your deductible. You can use your insurance company's directory to search for in-network pharmacies in your area. Or if you have a favorite pharmacy in mind, you can start by calling them directly to ask if they take your insurance.
What if my prescription isn't covered?
With how much money you (or your employer) spend on insurance, learning that a medication you need isn't covered is a big letdown. But even if your prescription isn't on the formulary, it doesn't mean you're out of luck. If your doctor confirms that you definitely need this drug and none of the medications covered will do the trick, you can request an exception. Each company will have their own exceptions process, so you'll have to look up how your insurance company handles it—it may require printing out paperwork to send in or filling out an online form. If they deny your request the first time, you can appeal their decision. If they still say no, you may still be able to get a hold of the drug with one of the strategies below.
Cost-Saving Prescription Medicine Strategies for Small Businesses and Employees
For many people, prescription drugs are a necessity. Yet KFF research finds that 28% of people in the U.S. struggle to afford their medicine, and over a fifth report going without a prescription because of the cost. Small business employees are at risk of being one of those people—the high costs of small group plans mean only 56% of small businesses offer health insurance. For employees that don't have insurance at all, or who have a limited plan that makes their meds hard to afford, there are a few cost-saving strategies that can help.
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- Choose the right plan.
The first step is to consider your prescriptions before signing up for a plan. You can review an insurance plan's formulary before selecting it. If you use a shopping platform (like StretchDollar’s or a state or federal marketplace), look for their prescription lookup tool to check if your medication is covered. And be sure to also make note of the deductible and copay or coinsurance terms so you know what cost to expect.
- When possible, aim for a lower tier.
In some cases, your doctor may recommend a medication that has more affordable alternatives. Ask if your prescription has a generic version available that costs less, or if there's a similar medication worth trying that falls in a lower tier. This won't always be an option, sometimes only the high-tier medication will work. But if you can find a more accessible medication that works just as well, you’ll save money.
- Look for a prescription discount plan.
There are a number of prescription discount plans available in the U.S. These plans can potentially offer big savings on prescriptions—several promise up to 80%—and are accepted at many major pharmacy chains in the country. They can be useful for those without any insurance, but can also sometimes get you a price lower than what you would pay with insurance.
- Look into manufacturer's coupons and patient assistance programs.
For some high-cost medications, the drug company will offer coupons that bring the cost down. If a prescription you need is expensive, even with insurance, research whether the company offers a manufacturer's coupon for it. In some cases, this can even bring the cost down to $0. If a coupon isn't available, ask your doctor or pharmacist if they know about any patient assistance programs (PAPs). PAPs can be offered by drug companies, nonprofit organizations, or state agencies and can often help patients who qualify access drugs at a more affordable rate.
- Compare pharmacy prices and use discount apps.
Prices for the same medication can vary widely between pharmacies, even within the same area. Use tools like GoodRx, RxSaver, or other discount apps to find the best deal. These apps often provide coupons that can significantly lower your out-of-pocket costs, sometimes making cash prices cheaper than using insurance. Don’t forget to check your grocery retailers, too. Costco and local grocers such as HEB in Texas and Publix in Florida are known for offering competitive medicine pricing.
How StretchDollar Helps Employees Save on Prescriptions (And More)
Small business owners don't want employees going without needed medications—that could mean increased stress, a worse quality of life, more sick days, and scary health outcomes. But with how expensive and difficult the small business health insurance market is, you may feel hopeless to help. Offering a small group plan may feel outside of your abilities (and simply too complicated to manage). You can still help your employees access the coverate they need with ICHRA (Individual Coverage Health Reimbursement Arrangement).
ICHRA allows you to offer employees tax-free money to put towards health insurance they choose themselves. The StretchDollar platform makes it easy for you to distribute money to your employees, and for them to choose the right plan with it. They can pick a plan that covers their prescriptions, and you get the benefit of happier, healthier employees. Everybody wins.
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