Prescription Drug Copays, Coinsurances, and Deductibles: Know the Difference
MEDS
We’ve all been there—you go to pay for your prescription, and suddenly you’re faced with costs that you didn’t expect or don’t understand. You’re told you haven’t met your deductible, or that you’re responsible for your copay. But what exactly do those terms mean?
When it comes to prescription health insurance, even the basics can be hard to grasp. But learning the lingo can be an important first step in understanding health insurance—and your payments. We’ll try to make it a little bit easier by explaining some common terms every patient should know.
What is a prescription drug deductible?
A prescription drug deductible is the amount of money you must pay out of your own pocket before your health insurance pays for anything it covers.
A deductible can be combined for your medical and prescription costs, or you can have separate medical and prescription drug deductibles. If the deductibles are separate, the prescription drug deductible is usually very low.
That said, the total amount of your deductible and whether or not it is combined varies based on your plan.
What is a prescription drug copay?
A prescription drug copay is a set payment for every medication on a certain tier in your plan’s formulary.
Your plan’s formulary is the list of prescription drugs they cover. Not all plans cover all drugs, so it’s highly advisable to check your plan’s formulary against the list of medications you take.
The formulary is divided into tiers, sometimes called groups, which is how the insurance company organizes the drugs they cover into different price points. Each tier indicates the amount you’ll pay for a covered drug. For example, Tier 1 drugs on your formulary might be $10, while Tier 2 drugs might be $50, and Tier 3 might be $75.
Drugs from higher tiers usually cost more out-of-pocket than drugs from lower tiers. The higher-tier drugs are often preferred brand-name, non-preferred brand-name, or “specialty” drugs that are expensive and used for serious and rare conditions. You can always check with your plan to see how many tiers your health plan’s formulary has before filling a prescription.
A copay often, but not always, kicks in after you have met your plan’s deductible. Until you have met your plan’s deductible, you will usually have to pay full price at the pharmacy. Some plans, of course, do not have a deductible.
What is a prescription drug coinsurance?
A prescription drug coinsurance is a form of cost-sharing with the insurance company. Rather than a set copay, you pay a percentage of that drug’s cost. While an inexpensive generic drug may be subject to a minimal copay, a rare brand-name drug may be subject to, for example, a 40% coinsurance. This coinsurance is usually applicable after your deductible is met.
Understanding how insurance companies cost-share with their clients to provide prescription drug coverage is an important part of predicting the price of your medications. You can also use your knowledge of these terms to compare insurance plans and decide which is the best plan for you.
Sources
- Yearly deductible for drug plans. (n.d.). Medicare.Gov.
- Copayment/coinsurance in drug plans. (n.d.). Medicare.Gov.