Orlando Harmon
Pharmacy insurance, also known as prescription drug coverage, is a significant component of a comprehensive health insurance plan. While it is common for medical and prescription benefits to be included in the same insurance plan, they can also be separate. The type of coverage depends on the insurance provider and the specific plan. For example, Medicare beneficiaries typically require a separate Part D prescription drug plan, while some private insurance plans may offer both medical and prescription benefits. It is important for individuals to understand their insurance coverage, as different plans have varying approved lists of prescription medications, also known as formularies, which outline the cost and coverage of specific drugs.
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What You'll Learn
Prescription drug coverage
With employer-based insurance, you typically receive both medical and prescription benefits on the same card. This means that your health insurance plan covers hospital, doctor, and other healthcare providers' bills, as well as bills for prescription drugs. However, this is not always the case, and sometimes you may need to carry a separate prescription drug insurance card. This is more likely if you have Medicare.
With Original Medicare, you will have Part A (hospital coverage) and Part B (medical coverage). Part B covers outpatient services, including most infused specialty medications. Medicare Part D covers prescription drugs, and you will need this if your Part B plan does not include prescription drug coverage. If you have a Medicare Advantage Plan (Part C), you usually get your drug coverage through that plan.
If you have private insurance, you may be able to keep your plan if you retire, but this depends on whether your former employer offers a retirement healthcare benefit that includes prescription drug coverage. If you are a federal retiree or receive retirement healthcare from the VA, you may not need Medicare Part D.
It's important to understand what your insurance plan covers, especially if you are taking specialty medications. These are typically covered under the pharmacy benefit if self-injected/self-administered and under the medical benefit when administered by a healthcare provider. However, there are exceptions, and some plans may cover self-injected medication under the medical benefit. This may be preferable for patients who want to choose their own pharmacy.
To find out which prescriptions are covered by your plan, you can review your insurer's website, see your Summary of Benefits and Coverage, or call your insurer directly. Some plans may also provide a one-time refill for your medication while you discuss next steps with your doctor. If your prescribed medication is not covered, you can follow your insurance company's drug exceptions process, but this usually requires confirmation from your doctor that the drug is appropriate for your condition.
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Vaccines
Medicare, for example, covers the costs of several vaccines and their administration, including those for the flu, hepatitis B, and pneumonia. Medicare Part B covers the cost of several vaccines, while Medicare Part D often covers the others. Medicare Part B (Medical Insurance) covers a limited number of outpatient prescription drugs under certain conditions. Medicare Part D plans make all adult vaccines recommended by the Advisory Committee on Immunization Practice available at no cost. Medicare Advantage (Part C) is required to offer the same coverage as Original Medicare, which includes Part B. However, not all Advantage plans include Part D. Medicare also covers COVID-19 vaccines 100%.
Private health plans are required to cover new vaccine recommendations in the next plan year, and some insurance plans may cover them in the current plan year. Most health plans must cover a set of preventive services, like shots and screening tests, at no cost. However, these services are free only when delivered by a doctor or other provider in the plan's network.
Under the Affordable Care Act, insurance plans that cover children allow parents to add or keep adult children on their health insurance policy until they turn 26. Additionally, as of 2020, coverage of vaccines is available under the pharmacy benefit. Customers can visit an in-network pharmacy, show their prescription ID card, and request a flu shot or other covered vaccines, such as tetanus/diphtheria/pertussis, hepatitis, human papillomavirus (HPV), meningitis, pneumonia, shingles/zoster, and childhood vaccines.
For those without health insurance, there are still options to get vaccinated. The CDC's Vaccines for Children (VFC) program provides vaccines at no cost to eligible children through healthcare providers enrolled in the program. Additionally, the government periodically offers free at-home COVID-19 tests to the public.
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Specialty medication
Understanding coverage for specialty medications can be challenging. Coverage depends on where the patient receives the drug. If the patient takes a pill or self-injects the drug at home, it is likely covered by their prescription drug benefit. In this case, the patient will have more control over how and when they access their medication. However, they may be subject to formulary restrictions, step-therapy, specialty pharmacy mandates, and copay accumulators. Lower-cost or generic drugs are typically classified as Tier I, while specialty medications mostly fall into Tier IV, the highest tier. The higher the tier, the greater the out-of-pocket expense for the patient.
If the patient receives the drug at a doctor's office or an outpatient clinic, it is more likely to be covered under the medical benefits portion of their health insurance. In this case, the provider often uses the "Buy and Bill" method, where the drug is purchased and kept by the provider, and the claim is billed to the insurance company after administration. The insurance company then reviews the claim and pays the provider later. Out-of-pocket expenses for specialty drugs processed under the medical benefit often include deductible, co-pay, and/or coinsurance.
For patients on Medicare, most infused specialty medications are covered under Medicare Part B, while Medicare Part D covers pharmacy benefits and prescription drug coverage. Additionally, some states have capped patients' out-of-pocket costs for specialty drugs, and drug manufacturers offer assistance programs to help people access specialty medications.
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Medicare Part D
Part D plans typically pay most of the cost for prescriptions filled by their enrollees. However, plans are later reimbursed for much of this cost through rebates paid by manufacturers and pharmacies. Enrollees cover a portion of their own drug expenses by paying cost-sharing. The amount of cost-sharing an enrollee pays depends on the retail cost of the filled drug, the rules of their plan, and whether they are eligible for additional Federal income-based subsidies.
The number of offered plans varies geographically, but a typical enrollee will have dozens of options to choose from. Among other factors, enrollees often compare premiums, covered drugs, and cost-sharing policies when selecting a plan. Medicare offers an interactive online tool that allows for a comparison of coverage and costs for all plans in a geographic area. The tool lets users input their list of medications and then calculates personalized projections of the enrollee's annual costs under each plan option.
In 2020, the average monthly Part D premium across all plans was $27. Premiums for stand-alone PDPs are three times higher than premiums for MA-PDs, as Medicare Advantage plans often use federal rebates to reduce premiums for drug coverage. Enrollees typically pay their premiums directly to plans, though they may opt to have their premiums automatically deducted from their Social Security checks. Plans offer competitive premiums to attract enrollees.
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Pharmacy benefit managers
PBMs operate at the center of a complex distribution chain for prescription drugs, connecting drug manufacturers, payers, pharmacies, and patients. They perform many functions within this chain, such as using their purchasing power to negotiate drug manufacturer rebates and other discounts on behalf of insurers and other payers. They also create and maintain lists, or formularies, of covered prescription drugs for the insurance companies and other payers that contract with them. The design of formularies influences which drugs people can get through their insurance, whether patients are subject to utilization management rules before they can access a drug, and what patient out-of-pocket costs are.
PBMs also contract with pharmacies to participate in networks managed by the PBMs, setting reimbursement terms for drugs dispensed to patients, and processing pharmacy claims for prescription drugs. PBMs regulate how much community pharmacies are reimbursed by drug companies and health insurance plans for the drugs they sell. PBMs are not required to share how these rebate rates are calculated, and this can result in local pharmacies being paid back less or the same as the sticker prices of the drugs themselves. This practice is known as "spread pricing".
In the United States, as of 2023, PBMs managed pharmacy benefits for 275 million Americans, and the three largest PBMs in the US, CVS Caremark, Cigna Express Scripts, and UnitedHealth Group’s Optum Rx, make up about 80% of the market share.
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Frequently asked questions
It depends on the insurance plan. Some insurance plans provide both medical and prescription benefits on the same card, while others have separate medical and prescription drug coverage.
Medical coverage typically includes hospital stays, doctor visits, and outpatient services. Prescription drug coverage, also known as pharmacy insurance, helps pay for the cost of prescription medications.
You can review a list of covered prescriptions on your insurer's website or in your Summary of Benefits and Coverage. You can also contact your insurer directly to find out what is covered.
You may be able to follow your insurance company's drug exceptions process to get a prescribed drug that is not normally covered by your plan. Additionally, some insurance companies provide a one-time refill for your medication after you first enroll.
