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Prescription Plans

If your doctor has prescribed medication for you recently, you may be well aware of the rising costs of prescription drugs. These costs can eat up a large portion of your budget, especially if you develop an illness (like diabetes) that requires regular medication.

Fortunately, most health insurance plans have provisions for prescription drugs. But many of them don't go far enough to protect you when you become ill and need medications. Prescription drug plans are insurance policies that cover the costs of prescription medications. If your current health insurance policy provides insufficient prescription drug coverage or none at all, you may want to consider a prescription drug plan.

Traditional prescription drug plans

Traditionally, prescription drug plans were a benefit found in your health insurance policy, whether offered through an employer-sponsored group health insurance plan or through a private policy. The benefit typically reimbursed a percentage of your costs for certain prescription drugs after an annual deductible had been paid. This type of coverage had a number of flaws, including:

  • Patients had to pay 100 percent of the deductible before any of their costs were covered
  • Patients had to pay for prescriptions out of pocket, then wait weeks or even months for reimbursement
  • Patients still had to pay as much as 20 to 50 percent of their prescription costs, even after the deductible was met
  • Many drugs, such as contraceptive prescriptions, were not covered at all
  • Patients had to cope with cumbersome paperwork to submit claims
  • The system was unmanaged and led to rising health-care costs

The insurance industry responded by developing a more managed approach to prescription drug plans that would minimize costs while satisfying consumers.

Managed prescription drug plans

In response to the needs of consumers and rising health-care costs, the insurance industry instituted many management controls, including:

  • Computerized claims processing
  • Use of prescription drug card programs
  • Networks of prescription drug providers
  • Mail prescription programs
  • Cost-control methods through the use of generic drugs
  • Education of doctors and patients about health care
  • Computerized drug-use control and reporting

As a result of these changes, more prescription drug plans have moved to the use of a co-payment system where the patient pays a fixed fee for each prescription filled (e.g., $10), has no deductible, and handles no claim forms (claims are submitted electronically at the point of sale).

To decrease the cost of drugs, many health plans implemented a formulary, which is a list of preferred drugs that the plan has decided are the most effective and least costly pharmaceuticals to treat specific conditions. If your physician orders a nonformulary drug, there is usually a medical review process to determine if there is a comparable drug on the plan's formulary. If your physician agrees to the change, a generic or less expensive drug in the same class may be substituted.

Another result is that patient information (including details regarding potential drug interactions) is readily available through a computer database to pharmacists who are networked. There are some tradeoffs to this system, such as the inability of some patients to obtain more than a 30-day supply of a medication or take a high-priced brand-name drug. But overall, the managed approach to prescription drug plans has been effective.

Prescription drug plan as a separate insurance policy

To many, the term prescription drug plan refers to the coverage provided by your typical health maintenance organization or other health-care plan. But a prescription drug plan can also be a completely separate and distinct insurance policy. You might purchase such a plan if you had no prescription drug coverage at all, or if you wanted to supplement your current health-care plan. You might seek an individual prescription drug plan, or in some cases, your employer might offer a separate prescription drug plan. Here are some advantages of these plans:

  • Prescription drug card programs are easy for employees to use
  • Employees may get no benefit from their primary health plan if they never reach the deductible
  • Processing claims is easier for the insurer, making coverage less expensive for enrollees
  • Prescription drug plans may cover certain types of drugs not covered under the employer's primary health plan

It's important to understand what your health insurance plan covers. You can then decide whether you need a separate prescription drug plan to supplement your coverage.