I have insurance.
Why are my prescription out-of-pocket costs so high?

Your prescription drug plan includes a list of the medications it covers; this is called a formulary. Many of the prescription drug plans group the formulary medications into categories called tiers. The amount you pay for your prescription drug depends on which tier the insurance company chooses to place your medication. Generally, plans group medications – both generics and brand-name medications – into three tiers. See figure 1.1 below for a formulary tier example.

Some prescription drug plans have a specialty tier, which is a fourth category of medications that requires you to pay co-insurance, or a percentage of the entire drug price.1 For example, a medicine that costs $1,000 a month on a specialty tier with 10 percent co-insurance requirement means you would spend $100 out of pocket each month on the medication. It is up to each health insurance plan to determine if a drug is placed on a specialty tier and what the co-insurance requirement will be for the specialty tier.2

Often, newer, more expensive medicines are placed on specialty tiers. Specialty tier medications may include treatments for cancer, multiple sclerosis, psoriasis, kidney disease and other life-threatening or debilitating diseases. These medications, like oral medicines for cancer, may cost a patient between 25 to 50 percent of the total cost of the drug3 and depending on the cost of the drug, patients could potentially be required to pay thousands of dollars each year for their medication.

For patients who have Medicare Part D coverage, this high cap for out-of-pocket payments is beginning to be reduced under the Affordable Health Care Act, and by 2020 the out-of-pocket costs will be capped at 25 percent of a drug’s price until the out-of-pocket spending limit is reached. Those who have private insurance through an employer or with the healthcare exchanges in 2014 will have an out-of-pocket cap of $6,350 a year for individuals and $12,700 for families in total healthcare costs due to the Affordable Care Act.

Figure 1.1

Tier Patient Payment Coverage
1 Lowest co-payment Most generic prescription drugs
2 Higher co-payment Brand-name prescription drugs categorized as preferred by an insurance company
3 Higher co-payment than the first or second tier co-payments Brand-name prescription drugs categorized as “Non-preferred” by an insurance company
4 Highest copayment or coinsurance (patients pay a percentage of the drug’s cost). Medicare defines specialty-tier medicines by an individual, per-month cost that exceeds $600 per medicine. Unique, high-cost prescription drugs

Resource Center

  • Ask your doctor or the company that makes your medicine if there are prescription drug assistance programs available.
  • Contact your State Health Insurance Assistance Program (SHIP) if you or a family member receives benefits from Medicare. Use the SHIPtalk State Health Insurance Assistance Program Locator for more information.
  • If you’re covered by Medicare Part D, call 1-800-MEDICARE.
  • Determine with your medical professional if there are alternative treatment options available.

Find out if there is proposed legislation in your state and take action.