perscription drug coverageAs our population ages, the amount of money spent on prescription drugs is increasing rapidly, more so than any other aspect of health care. For more than a decade, these costs have risen at double digit rates every year. While these increases have recently slipped to single digit increases, costs are still on the rise.

Part of the reason cost increases have slowed slightly is because health insurance companies have changed their prescription drug coverage. Many plans exclude high cost drugs from coverage, reduced the amount of refills allowed, and increased the co-pays. All insurance plans based their prescription drugs benefits on their formulary, which is a list of every drug the insurance company is willing to cover.

drugsFormularies can be used in different ways depending on your health insurance plan. Some plans cover drugs that are listed on the formulary (”preferred” drugs), including generic drugs, and also “non-preferred drugs that are not listed on the formulary. However, for employees who choose non-preferred drugs, they will be charged a higher price. Other health insurance plans may only those drugs on the formulary and deny payment for any other drugs.

The majority of formularies fall in between these two types of plans, offering a “tiered” formulary. With these plans, each drug is assigned to a tier, with each tier requiring a different co-pay amount. In a three tier plan, generic drugs will be in Tier One, which is the cheapest option with the lowest co-pay. Tier Two covers brand name drugs for which generics are not available, with a higher co-pay requirement than Tier One. Tier Three includes drugs that are not listed in the formulary, and they are charged an even higher co-pay.

For any of these tiers, the co-payment can be either a flat amount, a percentage, or a combination. For example, co-pays could be $10 for Tier One, $25 for Tier Two, and 50% for Tier Three, or Tier Three could be a flat $75 co-pay. The exact amounts will vary with each specific health insurance plan.

If the doctor prescribes a drug that is not included on the health insurance plan’s formulary, most plans will offer a pre-approval process, where the drug can be reviewed, and approved or denied, on a case-by-case basis. These situations usually require that you have tried other approved treatments without success or have experienced an adverse reaction from approved medications on the formulary. There is usually an appeal process if your prescription drug coverage is still denied.