How insurance companies determine which drugs they’ll cover – and how much their customers will pay.
If you take medication to manage arthritis or any other medical condition, you may be puzzled by how insurance providers decide what portion of the tab you must pay for your pills and other medicines. You might also have been shocked by the bill you received for a much-needed treatment.
Almost all Americans who have health insurance pay only a portion of the cost for prescription medications. Most workers who are covered by employer-sponsored health plans have prescription drug benefits. Those over age 65 can get similar coverage through Medicare Part D. And insurance policies bought in the Health Insurance Marketplace under the Affordable Care Act (ACA) are required to offer prescription drug benefits. However, some arthritis patients are faced with huge costs for critical medications—even though they have insurance.
Most health insurance providers contract with third-party companies called pharmacy benefit managers (PBMs) to administer and process prescription drug claims. PBMs set the price a plan member must pay out of pocket for a prescription drug, a fee sometimes called “cost sharing.” One form of cost sharing is a copayment – a fixed price that represents a portion of the drug’s actual cost. However, the size of a copayment can vary significantly based on which tier the drug you take has been placed.
Eighty percent of covered employees are enrolled in employer-sponsored plans with three tiers, or levels. Although the terminology may vary from one plan to another, the typical three-tier copayment system looks like this:
- Tier one is made up of generic drugs, which have the lowest copayments.
Tier two includes “preferred drugs.” These brand-name medications are included in a PBM’s formulary, which is a list of drugs covered by the plan. Preferred drugs cost more than generic drugs and may also be called “approved” or “formulary” medications.
Tier three includes “non-preferred” drugs, which are brand-name medications not included in a PBM’s formulary. A non-preferred drug costs more than a similar preferred drug. Other names include “non-approved” or “non-formulary” drugs.
In 2014, the average drug copayments in the three-tier system were $11, $31, and $53, respectively. One cost-saving tip to keep in mind with regard tier one drugs is that prescription versions of certain drugs, such as ibuprofen (Motril, Advil) or omeprazole (Prilosec), may cost you less than the over-the-counter form. Some health plans offer low copays for generic prescription drugs but don’t cover over-the-counter drugs at all. It will vary by drug and insurance company, but it’s worth asking your pharmacist about!
Why do consumers pay more for non-preferred drugs? PBM expert committees identify which medications should be the first choice for each medical condition based on their demonstrated safety and effectiveness, explains Enrique Seoane-Vazquez, PhD, director of the International Center for Pharmaceutical Economics and Policy at Massachusetts College of Pharmacy and Health Sciences. But economics play a critical role, too. Within a given category of drug, there may be several similar brand-name medications. A PBM can negotiate lower prices with certain manufacturers by agreeing to add their drugs to its formulary. Those savings pass to consumers when their doctors prescribe preferred drugs. “Formularies are a critical tool for controlling costs,” says Seoane-Vazquez.
Specialty Drug Costs
In recent years, a number of PBMs have added a fourth tier of so-called “specialty drugs” to their cost-sharing plans (many Medicare plans now have five tiers), driving out-of-pocket costs even higher. Instead of charging a fixed copayment for specialty drugs, many PBMs require consumers pay a percentage of the overall medication cost. With some commercial private plans, a patient has to cover 20 percent to 50 percent of a drug’s cost. People with Medicare Part D can end up handling 25 percent to 33 percent of the expense.
That’s especially problematic for people with autoimmune and inflammatory forms of arthritis. Some plans include in their specialty tiers biologic drugs such as etanercept (Enbrel) and infliximab (Remicade), which have transformed treatment of several rheumatic conditions. Biologics can cost $50,000 or more per year, and much of the financial burden falls on patients. People on Medicare who take just one biologic drug can wind up paying more than $2,700 out of pocket each year before catastrophic coverage kicks in.
Unfortunately, choosing a cheaper generic version of these drugs isn’t an option, since there are none. Researchers are working to develop biosimilar drugs, which mirror the original biologic drugs in safety and effectiveness, but at a lower cost. The first biosimilar drug (to treat cancer) was approved for use in the US in March 2015. A biosimilar to infliximab was approved for use in India, but not yet in the US. Other biosimilars are being developed, and could ease the financial burden on patients in the future.
Rising Drug Costs
For now, insurance industry representatives say they’re stuck between pharmaceutical companies – who can charge what they wish for medications – and medical consumers. “The real underlying issue is the cost of these drugs, which continues to escalate,” says Susan Pisano, a spokeswoman for America’s Health Insurance Plans. Modest increases in health insurance premiums across the board might allow PBMs to reduce the cost burden on patients who use biologics. But, says Pisano, “any increase in premiums today represents a difficulty. We’re hearing from consumers and employers that they can’t afford any more.”
The Arthritis Foundation has joined a number of other organizations to support the Patients’ Access to Treatments Act, which would essentially prohibit private commercial insurers from using specialty-drug tiers. New York was the first state to ban specialty tiers, and four other states have since enacted laws capping monthly copays.
For now, people who can’t afford their prescription drugs may be eligible for financial help from patient-assistance programs offered by some pharmaceutical companies. Likewise, certain nonprofit organizations offer financial aid to people struggling with high medication costs.