National Consumers League

Health

NCL Health Issues

Speak the language of your drug coverage plan

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If you're facing the opportunity to choose a new drug coverage plan for you and your family, you need to speak the language in order to weigh the costs and benefits.

 

Brand name (drug): A one-of-a-kind drug that is still protected by a patent.

Co-pay (or co-payment): A fixed amount, for example $10, that an insured individual pays for health services, regardless of the actual cost of that service.

Co-insurance: A percentage of the cost of a health service, usually 20%, paid by the insured individual.

Deductible: An amount an insured individual must pay for health services before their insurance plan begins to pay any benefits. For example, the individual may be required to pay the first $500 before the insurance company will pay for subsequent services.

Formulary: A list established by a health plan or PBM to indicate which drugs they cover or which tier drugs are in.

Generic drug: A drug that is no longer patent protected, so that many companies can copy and manufacture the drug with the same active ingredient as the original inventor.

Mail Order: Prescriptions that are received in the mail.

Out-of-Pocket Maximum: An upper limit on how much an individual or family must pay in a year for health services. Once the limit is reached, co-insurance and sometimes co-payments do not have to be paid.

OTC Drugs: Over-the-counter (OTC) drugs can be purchased without a prescription and are generally not covered by insurance.

Pharmacy Benefit Manager (PBM): A company that administers a pharmacy benefit plan. They aren’t insurance companies; but are often subcontracted by health insurers or employers to manage the prescription drug portion of the health plan.

Prior authorization: A requirement that a physician obtains approval from the health plan or PBM in order to get the medicine covered.

Step therapy: A requirement of the health plan or PBM to try a less expensive drug first. If that drug fails to work on the patient, the health plan or PBM will then approve the use of a more expensive drug.

Therapeutic substitution: The process of switching an existing prescription to one that is less expensive and chemically different, but has the same expected clinical effect.

Tiered co-pay (co-payments): A co-payment that is determined by which tier the drug is assigned to by the health plan or PBM. There may be a few tiers, each with a different co-payment amount. This design is intended to encourage the use of drugs that are in the less expensive tiers.