Have you ever been told your insurance doesn’t cover a new medication the doctor prescribed to you? Or have you ever taken a prescription medication that was covered but then found out the following year your plan no longer covers it?
Why does this happen? Well, the answer boils down to the practice of using a prescription drug formulary.
I remember the shock I had when, after using a specific medication for years, I went to pick up my refill and it was four times more than my usual copay. I couldn’t afford to pick up the prescription. All I was told by the pharmacy was that the medication was no longer on formulary. I had never heard of a formulary before. After a call to the doctor’s office resulting in having to leave a message, a few tears of frustration and some time spent researching formularies online, I had my answer.
You see insurance carriers are in the business of helping you regulate risk. You share the burden of your financial risk of routine or substantial healthcare expenses with the insurance carrier. You pay an annual or monthly premium along with copays or coinsurance (the amount you pay when you get your services) and they pick up the rest of the tab. For the insurance carrier, they take the risk of assuming your expenses along with millions of other people in the hope that enough people are paying their premiums to offset the expense of paying for those healthcare services.
To help manage their risk they take measures to make sure the services you receive under the plan are the most cost effective they can be. Requiring a referral from your primary care doctor, requiring a Prior Authorization to be approved before allowing certain services and implementing a drug formulary are all means the insurance carrier takes to do this. This is simply taking mitigation steps to reduce their risk.
How the Formulary Works
Unfortunately, these mitigation steps can feel more like stumbling blocks to the consumer. Learning how this process works can help you navigate around those blocks. A formulary is simply a list of generic and non-generic medications that the insurance carrier will cover. Medications are categorized into tiers. The tiers each have an associated cost share amount the beneficiary is responsible for.
Usually, a team of doctors and pharmacists review plan formularies. They select and approve the formulary by looking at the safety, quality and cost-effectiveness of the medications. The formulary will cover at least two medications in each prescription category. The exception to this is for medications in protected classes: antidepressants, anticonvulsants, immunosuppressants, cancer medications, etc. These protected classes generally have all available medication on the formulary.
If a medication is not approved on the formulary, it is usually because:
- There is a generic version available.
- The medication is considered less effective than other similar drugs.
- Or the medication is as effective but costs more than other similar drugs.
Medicare Part D plans typically have 5 tiers.
Tier One (Preferred Generics) has the most inexpensive generic medications.
Tier Two (Generics) has higher cost generics.
Tier Three (Preferred Brands) includes brand-name medications that are lower in cost and usually do not have a generic version available.
Tier Four (Non-Preferred Drugs) covers higher cost generic and brand-name medications that have lower cost alternative on the formulary.
Tier Five (Specialty Drugs) includes unique or very high-cost generic and brand-name medications.
What is my cost?
Each plan is different in how they calculate the beneficiaries’ cost share portion. Some will use copay, which are flat fees for the prescription filled. The copay is based on the tier and quantity or days supply. Others will have coinsurance amounts which are percentages of the total cost the beneficiary is responsible for. Most plans will have a combination of both copays and coinsurance determined by the formulary tiers.
How Does this Impact You?
Picking the right plan requires more than knowing the monthly premium and whether your pharmacy is in network. Costs can greatly vary between plans depending on how your medications appear on that plan’s formulary. Even plans from the same insurance carrier can have different formularies.
Plan formularies can change year to year and even during the plan year. Changes made during the plan year are allowed so insurance carriers can adjust the formulary in certain cases such as: a medication is pulled from the market for safety reasons, a new brand-name or generic medication comes to market, or the FDA approves a medication for a new usage.
Changes to your formulary will usually be preceded by a notice from your insurance carrier. In the case of safety concerns this notice may be after the change due to the emergency nature of the situation.
Having a good insurance agent on your team is essential to knowing what your medication costs will be throughout the year. Paying attention to notices from your insurance carrier is important to keep abreast of any changes.
Consulting with your insurance agent when potentially starting a new medication will help you avoid surprise charges at the pharmacy. And last but not least, reviewing your current plan for next year’s formulary before the Annual Enrollment Period ends is key to maximizing your insurance coverage.