Access to pharmaceuticals: Key concepts for patients and practice staff


Research your plan

All insurers impose exclusions, limitations, and/or restrictions to policies. Take time to research your plan before you sign up for it. The plan will have a link to its formulary, which is a list of the drugs covered by the plan. If you are not able to find the formulary, contact the plan and have it locate and/or send the formulary to you. Look up the medications you are currently taking and see:

  1. Is it on the formulary, and if, so which tier is the drug on?
  2. Does it require step therapy or a prior authorization?

Often times a drug that requires a prior authorization will have a "Pa" or "Par" next to it and a drug that requires step therapy will have a "St" next to it. Next, look at your explanation of benefits, or EOB, which should be provided to you by your health plan. The deductibles, co-pays, and/or coinsurance corresponding to different tier levels should be listed. Below, is an example of what your formulary may look like:

Drug name
Tier Requirements

Mid-year changes to your formulary

Be aware that a health plan can make changes to the formulary in the middle of your health plan year. If you are currently taking a drug that had its coverage modified, you may be forced to pay higher out of pocket costs due to an increased co-pay or co-insurance. It is not a requirement that all plans notify you of the change. It may take time for the plan to post the updated formulary or it may not even be updated. Contact your health plan to get the updated version.

Drug Tiers_Graphic Updated

Drug tiering

On your formulary the drugs will be divided up into anywhere from three to five tiers. The tiers incentivize lower-cost medications before turning to more expensive medications. The higher the tier, the higher the out-of pocket cost for the patient. Higher tiers can require a patient to pay as much as 50 percent of a drug’s cost, which can amount to a significant sum for a 30-day supply. Many higher tiers include a significant number and range of medications.

infographic_10_b.pngStep therapy

Step therapy requires use of lower-cost medications before turning to more expensive medications. Patients must try lower cost therapies first and fail the drug before they can try other costlier therapies. Step therapy requirements are different across health plans and states. When changing insurers, you may be required to retry a therapy despite being stable or already going through the step therapy process. It is important to review your formulary and see which medications require step therapy.


For your pharmacy benefits the deductible is the cost point at which your health plan will begin to help cover part of the costs of your medications. If your plan covers drugs prior to when the deductible is reached, then each drug will have cost-sharing in the form of co-payments or co-insurance.

Some plans do not cover the cost of drugs until the deductible has been met, so it is important to research this information. For example, if your deductible is $2,000 then you will pay the full cost of your prescriptions until you reach $2,000 in costs. At that time your insurance plan will begin to take on some of the costs by offering co-pays and co-insurance.

Your monthly insurance premium does not count towards your plan deductible. A high deductible plan may have lower premium payments, but overall you may pay more up front for your prescriptions.


One way a plan will share the cost of your medications will be with co-insurance. With co-insurance your plan pays a set percentage of the drug costs on a specific tier. The co-insurance percentage can vary based on the tier. For example, the plan may have one tier of the formulary where the plan pays for 70 percent of the drug cost and you pay the remaining 30 percent.

A co-insurance will typically apply more often to brand and specialty medications. Investigate your plan because a plan with a lower premium may have higher co-insurance percentages for your drug coverage. Based on your needs, it may be better to have a plan with a somewhat higher premium, but lower co-insurance for drugs you regularly use.


Another way your plan will help pay for the costs of your medications is called a co-pay. It is a flat fee that you pay for drugs on certain tiers of your plan formulary. For example, the generic drugs on a specific tier covered by your plan will likely have a set co-pay amount.

Research your drug formulary and explanation of benefits to see what the co-pays are for drugs covered by your plan. If you have a particular drug you regularly use you should research what the co-pay is for that drug. You may want to pick a plan with a slightly higher premium if it has a lower co-pay for drugs you need.

Out-of-pocket maximum

Out-of-pocket maximum is the set amount your plan has you pay for all healthcare services for that plan year. Typically your deductible, co-pays, and co-insurance will go towards your maximum, but always double check with your plan to know what items are counted towards the maximum. Sometimes the deductible and out-of-network services do not count towards the maximum.

Pharmacy benefit managers

A key factor in how the drug supply and pricing works is dependent on Pharmacy Benefit Managers (PBMs). By contracting with health insurance carriers PBMs help create and sustain the formulary for the insurer, secure a pharmacy network, and supply prescriptions ordered for mail delivery1. They serve as a direct supply link between the manufacturer and the patient2.

An example of how a PBM interacts with a pharmacy can be seen in the following example: The pharmacy first submits an online claim to the PBM for the prescription and then the PBM verifies eligibility and benefits of the patient. Once the PBM sends back the online response, the pharmacy fills the prescription and collects appropriate co-payment3.

To learn more about common health care coverage terminology, visit:


Download this information

1Follow the Pill: Understanding the U.S. Commercial Pharmaceutical Supply Chain. (2005). The Health Strategies Consultancy LLC. Retrieved from
2Follow the Pill: Understanding the U.S. Commercial Pharmaceutical Supply Chain. (2005). The Health Strategies Consultancy LLC. Retrieved from
3American Academy of Dermatology Association (August 21, 2015). Dialogues on Drug Pricing and Transparency Panel. Presented at 2015 Summer Academy Meeting. New York City, New York.