Understanding Prescription Drug Coverage
For many, the costs of prescription coverage are significant. As we anticipate post-election changes in the Patient Protection and Affordable Care Act (“PPACA”), a review of key principles surrounding prescription drug coverage is timely.
Insurance assistance for costs of prescription drug coverage will typically come through a commercial insurance policy, through Medicare or AHCCCS, or through some other government insurance plan such as military or Indian Health benefits. General concepts for most prescription plans include:
• deductible – the amount you have to pay before any insurance coverage kicks in
• co-payment – a set amount you pay for each prescription, may vary depending on generic or brand classification
• co-insurance – a percentage (for example 25%) that you pay as your share of cost for a prescription
• coverage restrictions – add an approval process to get coverage for a prescription – examples include quantity limits or step therapy
• annual open enrollment period – the time period that your benefit plan allows you to renew or change your health benefits
• special enrollment period – a limited time period (typically about 30 days) after a qualifying event that allows you to change your health benefits (examples include: birth of a child, death of a spouse, and job changes)
• formulary – a listing, by insurance provider, of prescription drugs (generic and brand name) that have been reviewed by some sort of committee and been determined to offer the biggest overall value
• brand name drug – medication that is still protected by a patent allowing the pharmaceutical company exclusive rights to sell the medication – typically meaning that the costs remain high because competition is limited
• generic drug – drugs that are comparable to brand name drugs in dosage, strength, intended use, and performance characteristics
• preferred drugs or pharmacies – the insurance plan negotiates pricing with drug manufacturers or pharmacy companies and will prefer those that offer the most value (aka best pricing)
• tiered plans/charges – different levels of co-pays or co-insurance costs depending on the drug classification by the insurance plan
• creditable coverage – is defined as coverage that meets a minimum set of qualifications
• quantity limits – a coverage restriction limiting the dosage or quantity of the drug prescribed, requiring additional steps for your physician to justify why the dosage or quantity is necessary to treat your medical condition
• step therapy – a coverage restriction requiring that you first try a less expensive drug before it will cover the more expensive one, including physician documentation to support why the less expensive drug was not effective (e.g. did not manage the symptoms, had side effects, etc.)
• out-of-pocket limit/maximum – the most you pay in deductibles, co-pays, and co-insurance before your health plan pays all the costs. Premium payments and out-of-plan costs do not count toward this calculation.
Understanding what type of prescription drug coverage comes with a given insurance plan is more important than ever. Those that may have skipped educational sessions during open enrollment in years past may now be best served to come to a session with a list of questions to better understand the impact of plan choices on prescription drug coverage. Drug formularies change with regularity. Don’t assume that your prescription continues to be on the formulary just because it was covered during the prior plan period.
For Medicare recipients, there are two ways to secure prescription drug coverage: (1) through a Medicare Prescription Drug Plan (typically thought of as Medicare Part D); or, (2) through a Medicare Advantage Plan (HMO or PPO) or other Medicare health plan offering prescription drug coverage (Medicare Advantage plans are also referred to as Medicare Part C). Not surprisingly, you must live in the service area of the drug plan you are interested in joining. For “snow birds,” this consideration is quite important. In addition to the monthly premiums, Medicare recipients with higher annual incomes (above $85,000 for an individual return and $170,000 for a joint return) are also charged an additional income related monthly adjustment amount or IMRAA. That monthly amount ranges from $13.30 to $76.20 in 2017.
Medicare recipients are also familiar with the infamous “doughnut hole” – the gap between initial coverage limits (coverage after the deductible is paid) and catastrophic coverage. In 2017, the gap will lie between $3,700 and $4,950 of prescription spending. A part of the PPACA was a plan to dramatically close this gap by 2020 by steadily decreasing the percentage amount seniors pay for prescriptions while in the coverage gap. In 2017, recipients are scheduled to pay no more than 40% of the price for brand drugs and 51% for generic. Additionally, the manufacturer discount payment on brand prescriptions (55% in 2017) also counts toward the out-of-pocket calculation.