Brooke Thai, PharmD Student
Welcome back to the topic of medication coverage and insurance plans. In part 1, we discussed some background information about the difference between insurance companies and plan adjudicators, direct billing and manual submissions, and different sources of coverage. Today in part 2, we’ll be going through some more definitions and finally, discuss common reasons why a prescription may not be covered.
Since there are many terms used by insurance companies that can be quite confusing, we’ll first go over some common definitions to get a better understanding.
Formulary refers to a list of medications that a specific drug insurance plan has decided to cover. These lists are formed via a number of different methods, and every insurance plan has their own formulary. Most of the time, medications that are for chronic conditions and/or have been proven in clinical trials to work well and improve health outcomes are listed in the formulary.
Brand vs. Generic
In case you missed it, we’ve already covered the difference between brand and generic. Here, I will provide a link to that article as it gives a very clear and concise explanation.
Lowest Cost Alternative
Also abbreviated as LCA, can have multiple definitions but the general idea is that it refers to a medication that is effective and associated with the lowest cost among medications of its kind.
- Sometimes it means the generic version: As outlined previously, generic medications are sold at a lower price than their brand name counterpart. Since most plans cover “X% of the LCA,” you’ll often see that your generic medications will be covered to a greater extent than brand medications. Let’s say an insurance plan covers 70% of the LCA, and the price of a medication is $10 and $100 for generic and brand name, respectively. In this scenario, the insurance plan will cover a maximum of $7 whether you choose to go with generic or brand. So, if you choose generic, you’ll end up paying $3, whereas if you choose the brand, you’ll end up paying $93 (without considering the dispensing fee of the pharmacy, which we will talk more about later on).
- Sometimes it means the least costly medication within a class: For example, there is a class of medications called proton pump inhibitors (PPIs). They’re primarily used to help treat symptoms of heartburn and reflux, among other things. Within the class, there are a number of medications called lansoprazole, dexlansoprazole, pantoprazole magnesium, pantoprazole sodium, omeprazole, and rabeprazole. Pantoprazole magnesium is the least costly and therefore it is the LCA of all PPIs. Sometimes an insurance company can apply a rule called “MAC (maximum allowable cost) pricing”. In this scheme, if a patient were to take a PPI other than the LCA (pantoprazole magnesium), let’s say omeprazole, the insurance company will only cover X% of the cost of pantoprazole magnesium, and the patient will be responsible to pay for the remaining cost of omeprazole.
- Sometimes it means the least costly medication between classes: There are times where multiple classes of medications can be used for similar purposes, but some are newer on the market than others, which usually means it’ll be more expensive. So in cases like this, insurance companies will cover whatever is the cheapest and not cover more expensive alternatives without special authorization (see below).
Co-pay refers to a set dollar amount or percentage portion of the overall prescription cost that the patient is responsible to pay for.
- Dollar amount co-pay is when you pay a flat fee on all of your medications regardless of the overall cost.
- Percentage co-pay is when your co-pay is based on the percentage of the overall cost of the medication. So if your co-pay was 30%, you would pay $30 on a prescription that costs $100 to fill.
This term is commonly confused with co-pay, and refers to a dollar amount of how much you have to pay first on prescriptions before any coverage kicks in. For instance, if you have a $200 annual deductible, you’ll have to pay for the full amount of your prescriptions until you have paid a total of $200, then your insurance plan will begin to work. This deductible will reset every year, so at the beginning of each new policy year, you will have to pay the deductible again.
Up-charges and dispensing fees
Did you know that when you get a prescription, you aren’t paying solely for the cost of the drug? There are up-charges and a dispensing fee added to the cost of the drug to arrive to the final cost presented to you. This is one of the ways pharmacies can make prescription-filling financially sustainable. If they sold medications to patients for exactly how much the pharmacy bought it for, they could be losing money, and would not be able to pay for the resources required to fill a prescription (labour time, vials, prescription labels, printers and computers). Right now, there are two up-charges (the amounts of which do vary) and the maximum dispensing fee that can be charged per prescription ($12.15 in Alberta).
Reasons for No (or Less than Expected) Coverage
#1 Direct billing problems
This could be because the name you have on your pharmacy profile doesn’t match the name you have provided your insurance. This can happen when people get married, change their maiden name to their married name on their pharmacy profile, but forget to update the insurance. So what happens is, the claim gets submitted under the married name when the insurance plan only knows the person by their maiden name. The same thing can happen if people have a legal first name that is on their official documents (like their insurance plan), but go informally by a nickname or by their middle name and do not mention these things to the pharmacy.
Sometimes, this could be due to wrong input of the date of birth on the pharmacy profile, and the most common mistake is switching the days and months around.
Another common direct billing problem is when an individual’s insurance also provides coverage for their children/spouse/dependents, but these children/spouse/dependents have not been registered on the plan yet OR they have their own “patient tags.” Patient tags are usually a two-digit number at the end of their client ID number that differentiates them from other members of the plan. So, it’s important to have this number when giving it to the pharmacy for direct billing.
#2 Choosing to get brand name (as outlined above).
#3 There is a LCA available (as outlined above).
#4 Formulary exclusions
This means that the insurance company is not willing to pay for a drug. This often applies to “lifestyle drugs” like Viagra or other medications for erectile dysfunction.
#5 Too early to fill
Most insurance plans require for their claimants to have completed a certain percentage of the medication before they’ll cover the next refill. This percentage ranges from 70-90%. What this means is when the pharmacy calculates your day supply provided from your last refill, the insurance plan will flag a certain date after which they’ll cover your medications when you refill them again. The plan won’t cover your next refill if it is still too early. For example, if your insurance policy has chosen 70% as their mandated portion completed before coverage of the next refill and if you fill a 100-day supply of a medication, you can get your next refill covered 70 (or more) days later. The purpose of this is to prevent people from stockpiling their medications, which can lead to medication errors and wastage.
#6 Special authorization required
Sometimes, there are certain medications that usually aren’t covered, but can be in exceptional circumstances if the prescriber can justify their prescription to the insurance company. In order to gain coverage for medications that require special authorization, the prescriber (not the pharmacy) must fill out a special authorization form and send it to the insurance company for review, where they’ll decide whether or not to approve and grant this special authorization for coverage. Usually special authorization is granted when a trial of an initial first-line medication didn’t work for the patient, therefore requiring other alternatives. This is called step therapy, which I’ll describe in the next point.
#7 Step therapy/step drug
From clinical trials and clinical observations, there are guidelines formed on how to treat each medical condition in terms of which medications are the most efficacious and have the least amount of side effects. Such medications are considered first-line, and anything that is less effective or has more side effects gets placed as second- or third-line options for treatment. This is how step therapy is formed from the insurance perspective: the first-line medications are the first step, and will almost always be covered, and second- and third- line options are usually not covered if that’s the first thing the patient is trying. However, if they have tried the first-line medication that is covered and either it doesn’t work well for the patient or they had intolerable side effects, they can prove they have already taken the “steps” required and their prescriber can apply for special authorization for the second-line treatments to be covered.
#8 Dispensing fee caps
The caps on dispensing fees can be based on frequency or maximum dollar amount of dispensing fees covered per year.
- Frequency: If it’s based on frequency, the insurance company will have a maximum number of dispensing fees covered per year. How does this work? Let’s say the insurance company caps it to 5 dispensing fees per drug per year. If a person was to fill all their medications approximately 3 months at a time, they would not meet this dispensing fee cap and have them covered all year long. But, if they chose to fill one month at a time, in 5 months they will reach the cap and would find themselves having to pay for the full cost of their prescriptions for the remainder of the year.
- Maximum dollar amount: This is the same concept as outlined in the previous point, but instead of frequency of dispensing fees, it’s the dollar amount of dispensing fees that the insurance plan is willing to cover before the cost is shifted to the patient.
#8 Day supply cutback
For medications that don’t typically need to be used continuously long-term, like allergy medications (only to be used when allergy symptoms come up during spring); the insurance plan will only cover the prescription if the patient fills a quantity equal to or less than a certain amount (for example, one month). If the patient tries to fill for more than one month, they’ll have to pay a greater portion of the prescription cost. The reason for doing this is to limit the potential for drug wastage. Imagine filling a 3-month supply of a medication, only to use 1/3 of it and have to throw away the rest!
The Bottom Line
There are many rules that can prevent your medications from getting covered to the extent to which you’re accustomed. Therefore, it’s important to understand the rules and policies that apply to your insurance plan for you to make the most out of it. While this can be inconvenient and frustrating, it’s also important to remember that these restrictions are set by insurance companies and that pharmacy staff members are there to assist and help guide you when the insurance policies become confusing!