How does prescription insurance work?

Dr. Michael Roizen, MD
Internal Medicine
Many health insurance plans cover your prescription drugs as part of the deal. There’s usually a co-pay that may vary a bit depending on the specific drug and the plan. If you’re on Medicare, Part D helps pay for your prescriptions or provides discounts on prescriptions once you’ve spent a certain amount. If you don’t have health insurance or if your plan doesn’t cover drugs, you can look into separate prescription drug insurance. The coverage in these plans is often very limited and varies between plans. It requires a great deal of time to determine which plan is best for you if you are taking six or more medications. A better approach to help with your prescription drugs may be to look into the patient assistance programs sponsored by states and pharmaceutical companies. These programs help those most in need get drugs at a very reduced cost.
Spending on prescription drugs is increasing faster than on other aspects of health care, thanks to the aging of the large baby boom generation. Prescription drug spending is rising each year, although at less than the double-digit rate experienced from 1994 to 2003. The change is due, in part, to insurers' increase in co-payments, decrease in the number of refills, and exclusion of high-cost drugs from coverage. 
The basis of any insurance plan's drug benefits is a formulary-a list of all the meds the insurer is willing to pay for. Coverage differs by insurer and by situation. While some plans cover only drugs listed on the formulary, others cover both formulary medications ("preferred" drugs, usually including generics) and non-formulary meds ("nonpreferred" drugs, usually including brand names). In such cases, nonpreferred drugs cost more and carry higher co-pays. However, most plans have "tiered" formularies, in which drugs are assigned to a tier, with each tier increasing the co-pay amount. Typically, the tiers are generics (tier one), brand-name drugs in which generics are not available (tier two), and non-preferred drugs (tier three).
For prescribed drugs that aren't included on an insurer's formulary, most plans have a process in which a drug may be approved on a case-by-case basis. If all attempts at coverage are denied, an appeals process is usually available.

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Important: This content reflects information from various individuals and organizations and may offer alternative or opposing points of view. It should not be used for medical advice, diagnosis or treatment. As always, you should consult with your healthcare provider about your specific health needs.