CHAPTER 5

PRESCRIPTION INSURANCE
Author: Carriann Smith, BS, PharmD

When patients are choosing health insurance, pharmacy or outpatient prescription benefits
are usually part of the health insurance package. Medicare Part D is the exception that focuses
only on outpatient pharmacy benefits. In this chapter, more detail will be provided on
prescription benefits. While prescription benefits are only part of a health insurance package,
they may be the most used component of a person’s plan and careful consideration should be
given to what they cover.

PHARMACY BENEFIT MANAGERS

Functioning as a third-party administrator of prescription drug programs, pharmacy benefit

managers (PBMs) are companies (not individuals) often hired to help design, manage, and
maintain formularies for insurance companies.1,2 However, PBMs may also be utilized to
form contracts with pharmacies, negotiate discounts and rebates with medication
manufacturers, and process payment for prescription medication claims. PBMs can help
maintain or reduce pharmacy costs of insurance plans, while providing value and flexibility
to patients. Some PBMs may offer additional resources that provide patients with
information, such as lower-cost therapeutic alternatives, medication therapy management,
and mail order services.1,2

Pharmacists are often employed by PBMs to provide high quality medication therapy
management for members within an insurance plan while considering the
pharmacoeconomic implications as well.1,2 Managed care pharmacists perform a variety of
roles including medication distribution and dispensing, patient safety monitoring, clinical
program development, business operations, analysis of therapeutic outcomes, and formulary
management.1,2

FORMULARIES

Most health insurance plans utilize a formulary, which is a list of particular medications that
ensures drug products are used in a rational, safe, and cost-effective manner. Formularies can
be either open or closed.3 Insurance plans with open formularies pay for all medications, even
those not on the formulary. Closed formularies only provide coverage for medications that are
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listed on the health insurance plan’s formulary.3

Formularies are typically developed by pharmacy and therapeutics (P&T) committees, which
are made up of primary care and specialty physicians, pharmacists, nurses, legal experts, and
other health care professionals.3 As mentioned previously, the goal of this committee is to
provide a formulary that represents the optimal therapy for patients based on evidence-based
efficacy and safety information. Additionally, elements such as cost and ease of delivery are
considered when determining which medications should be on a formulary, which are
discussed further in Chapter 6.4

PRIOR AUTHORIZATIONS

Health insurance plans have implemented prior authorizations (PAs) to ensure efficacious
and safe medications are being covered, optimizing patient outcomes. A PA requires
physicians to provide explanations and/or documentations to justify the use of specific
medications for a patient.4 Insurances use this information to determine whether they will
approve or deny coverage of the medication. This helps ensure medications are administered
according to recommended therapeutic guidelines and provides better control over costs for
health insurance plans.4 PAs may also be used to limit the use of high risk medications or
institute other quality measures set by different quality organizations.4

For example, a patient presents a prescription for Crestor® to their community pharmacy,
which submits a claim to the patient’s health insurance plan. Unfortunately, the brand name
medication is not covered by their insurance plan and the claim is rejected or unpaid. Since
brand name medications are not on the formulary, the patient may choose to have their
prescriber submit a PA to their insurance plan. The prescriber may then do one of two things:

1. Deem the generic medication for Crestor® (rosuvastatin) equally effective for the
patient’s condition
2. Deem the generic medication to be non-equivalent and not effective for the patient’s
condition

Should the prescriber choose option 2, they must request pre-approval from the insurance
plan to cover the brand medication. Thus, the provider submits the appropriate
documentation and/or explanation (to the insurance plan) that Crestor® is medically
necessary and more beneficial/effective, than the generic medication, for their patient. The
patient’s insurance will then review the prescriber’s request for pre-approval and will
determine whether or not the medication will qualify for coverage under the patient’s health
insurance plan.
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In this example, the brand name medication was deemed medically necessary by the patient’s
insurance, and a PA for medication coverage was granted. It is important to note that had the
patient’s insurance found no medical need for the brand name medication, the patient would
then face several options:

1. Try the generic medication under physician approval

2. Try a different medication under physician approval
3. Pay cash for the full cost of the brand name medication not covered by their insurance
plan
Other options may exist based upon the particular situation and patient factors.

Guidelines and administrative policies for PA’s may vary between insurance plans and
companies. Although prior authorizations may be time consuming and frustrating for
consumers and health providers, they can help minimize overall health care costs by helping
avoid inappropriate medication use and promote utilization of evidence-based medication
therapy.4

Prior authorizations can be implemented in a variety of ways. Some prior authorizations

require additional clinical patient information, such as diagnosis and laboratory results,
before a providers is allowed to prescribe that medication.4 Figure 5-1, identifies common
types of prior authorizations that may be utilized.4,5

Types of Prior Authorization

• Off-label
Indication
• One indication vs. another
Prescriber Coverage for
• Specialist vs. Primary Care Physican
Particular Medication
• Duration of therapy
Quantities outside FDA-
• Days supply
Approval
• Maximum daily dose limits
• Utilizing second-line, more complex, and/or more
Non-step Therapy
expensive options/alternatives before first line options
Medications outside of patient’s health insurance plan’s formulary
High misuse or abuse potential medications

Figure 5-1. Types of prior authorizations

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In another example, a patient presents a prescription to their community pharmacist for a
migraine medication, which they have been prescribed to take four times daily. However,
their insurance company rejects the submitted claim. According to their formulary, the
insurance plan will only cover (or pay) for the migraine medication to be taken three times
daily. The patient may then choose to have their prescriber submit a PA to their insurance
plan. Should the prescriber provide appropriate documentation and/or explanation that
proves taking the migraine medication four times daily is medically necessary, the insurance
plan may issue a PA for coverage of medication costs.

EXCEPTION AND APPEALS PROCESS

Prior authorizations may also be referred to as exceptions. Insurance plans can evaluate
coverage based on individual patient cases to determine whether or not coverage exceptions
will be made.4 Patients may also request an exception when an insurance plan executes a
change to their formulary and their medication is no longer covered.16

Insurance plans differ on the amount of time it takes them to review an exception. Some
plans, such as Medicare Part D, offer expedited requests based on prescriber
recommendations for the patient’s overall health.5 In the event that coverage exceptions or
PAs are denied, patients may complete an appeal to request further evaluation or re-
evaluation of their original exception.5 Because certain exceptions must be initiated by the
payer, completed by the prescriber, and reviewed by the payer, the response time can vary. If
possible, pharmacists can assist patients by suggesting an alternative medication to avoid this
lengthy process.

HOW TO READ AN INSURANCE CARD

Although insurance cards may look different, they often contain similar information needed
to complete claim submissions for payment. In order to submit a claim to an insurance plan,
a patient’s member identification, BIN, Group, and PCN number are necessary. Should a
member’s coverage be expired or not active until a later date, submitted claims will not be
reviewed for coverage. Help phone numbers are typically found on the back of an insurance
card and may be utilized for various issues, such as when insurance card components are
missing or claims are rejected. Figure 5-2 defines common components of an insurance card,
whereas Figures 5-3 and 5-4 are examples of what an insurance card may look like.6,7

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 Components of an Insurance Card
• Used to identify the individual covered or “holding” the
Member
insurance
Identification
• Numbers may be similar for other covered under the original
Number
card holder
• Used to track specific benefits of the insurance plan
Group Number • Helps identify the individual covered under the insurance
plan
• Unique six digit number that identifies the third party
processor
BIN Number
• Third party processors may contract with multiple companies,
which utilize the same BIN number
• Help identify different plans via utilization of numbers or
PCN Number
letters
• May have either HMO, PPO, HAS, Open, or other
Plan Type words/labels to describe the type of network the insurance
plan maintains
Phone Numbers • Help lines, information, questions, etc.
Effective Date • Date the coverage became active

Figure 5-2. Components of an insurance card

Figure 5-3. Sample insurance card6

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Figure 5-4. Sample insurance card7

SUBMITTING CLAIMS

Pharmacy claims are generally transmitted at the point of sale. Generally, when a patient
brings a prescription to the pharmacy, a pharmacist, technician, or intern will either access
their insurance information stored within their pharmacy computer (entered from prior
transactions) or enter/update their insurance card information. The pharmacy’s computer
system will transmit the patient’s claim electronically to the insurance company or pharmacy
benefit manager. This digital information will be processed electronically and information
will be sent back to the pharmacy to determine whether or not the patient is currently
enrolled under the entered insurance plan, if the prescription is covered under the plan, what
amount the patient owes for the prescription, and what amount of reimbursement the
pharmacy can expect to receive for the prescription. Although the information can be viewed
within the pharmacy’s computer system, the amount owed by the patient and saved by the
insurance is typically printed along with the patient prescription label, which are packaged
with the medication and distributed to the patient.

If a prescription is not covered, the pharmacy staff can communicate with the patient and
prescriber to help determine what steps should be taken. Patients may decide to pay cash or a
discount price (using eligible discount cards or coupons), but most often patients will choose

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to work with the physician and/or pharmacist to determine alternative therapies which may
be covered through the insurance or available at cheaper costs for the patient. If a prior
authorization process is required, the pharmacy staff will communicate that to the
prescriber’s office and/or staff electronically. At this point, the prescriber will need to
complete the prior authorization process with the patient’s insurance company before the
pharmacy can re-submit a claim. Most prior authorizations are completed within 72 hours.

LOWER COST SUPPORT/ASSISTANCE

Inability to afford medications is a major cause of non-adherence.8 Uninsured patients

lacking prescription and/or health insurance entirely and in need of assistance paying for
their medications have several options. Many pharmacies offer free or discounted
prescriptions for products such as vitamins, antidiabetic agents, antihypertensive
medications, and antibiotics. Underserved medical clinics may also provide limited
medications at no cost.

Patient assistance programs are available for certain medications. Individuals who qualify
can receive free or discounted medications for a particular period of time. Websites such as
[Link], [Link], and [Link] can be used to determine if an assistance
program is available for a given medication and what that programs’ eligibility criteria might
be. Patients who qualify may even apply for a program using these websites.

Patients can also lower costs with discount cards. Although most discount cards have similar
formatting and claims information, discount cards are not insurance cards. Offered by a
number of companies, discount cards offer savings on a variety of medications.
Unfortunately, most discount cards cannot be combined with insurance coverage. Discount
cards may hold the most utility for consumers when a particular medication is not covered by
their insurance. In this situation, a discount card may be used in place of the insurance card.
Most online medication coupons work the same way as a discount card and hold the same
limitations, but resemble a regular merchandise coupon. Medication coupons are often
specific to one medication, whereas discount cards can be applied to a variety of medications.
Advertising claims for discount cards and medication coupons can be misleading, as most
consumers do not understand the implications regarding their use.

Manufacturer assistance cards, also known as co-pay assistance cards, can be found on
manufacturer websites. Unlike discount cards or coupons, most manufacturer assistance
cards can be used with an individual’s health insurance coverage. Although benefits vary
between medication manufacturers, most manufacturer assistance cards offer a one time or

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twelve-month savings program. However, manufacturers will often set a maximum annual
savings limit and most manufacturer assistance cards must be pre-ordered or downloaded,
printed, and brought into community pharmacies by the patient. This may create some
barriers for individuals lacking access to online resources. Unfortunately, most pharmacies
do not have access to manufacturer assistance cards, but some physicians’ offices may
provide them or are willing to help patients locate them.

Uninsured patients are not the only patients who may need assistance. Underinsured
patients, who have minimal health and/or prescription insurance coverage, also may have
just as much difficulty affording medications.9,10 There are various resources available for
such patients. Families with children can go to [Link] to check if their child is
eligible for Children’s Health Insurance Program (CHIP).11 CHIP is jointly funded by the state
and federal government and provides health and prescription coverage to low-income
children and, in some states, pregnant women who do not qualify for Medicaid.11

Patients with Medicare Part D may qualify for low-income subsidy or “Extra Help” and can
apply online at [Link]/extrahelp.17 Both full and partial help is available through
the federal government, but states often offer additional programs as well. State based
programs are usually referred to as State Pharmaceutical Assistance Programs (SPAPs).5,9,10
Finally, patients can also be referred to a local State Health Insurance Assistance Program
(SHIP) office when they are in need of advice about prescription and/or health insurance or
extra assistance.

MEDICARE PART D PLAN SELECTION

One way to practice the terminology used in the previous chapter and this chapter is to look
at the Medicare plan finder. This tool helps Medicare beneficiaries compare plans and
demonstrates some of the differences between types of payer-provider relationships and
types of prescription coverage. Medicare Part D is the prescription drug benefit for all
Medicare beneficiaries. Even for patients with Medicare and Medicaid, Medicare Part D is
the first payer. This section will discuss specifically how to assist patients with comparing
options.

The Centers for Medicare and Medicaid Services (CMS) hosts a website to allow consumers
to compare Medicare Part D plans. The online tool is referred to as the “Plan Finder” and is
accessed at [Link]/find-a-plan. Information is maintained in this tool by CMS based
on information they receive from the insurance companies offering Medicare Part D plans.
Patients, caregivers, and advocates can search for details on different insurance plans by

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entering information about the patient. The tool will bring up a list of plans sorted in
ascending order by price, like airline flights or rental cars.

Let’s assume a male pharmacy student, Doug, is helping his Medicare-aged grandmother,
Rita. When Doug pulls up the Medicare website at [Link], he first has to decide
whether to do a general search or a personalized search. If the person entering information
has access to a patient’s Medicare card and their location, as Doug does, then it is best to do a
personalized search. This personalized search will allow Doug to verify Medicare’s records
regarding Rita’s coverage and any federal low income assistance benefits she receives. If you
do not have access to the information needed for a personal search, a general search can be
performed by answering as many guided questions as possible to focus the search to reflect
the patient’s current coverage.

Doug selects the personalized search option and enters: Rita’s zip code, Medicare number
(from her red, white and blue Medicare card), last name, effective date for Part A (also found
on her card), and her date of birth. When done, he selects “Find Plans.” Because her zip code
spans multiple counties, it will ask him which county she resides in. If her zip code did not
include multiple counties, then it would not show a county selection. This is because
insurance companies offering Medicare plans make network arrangements with pharmacies,
doctors and hospitals. The county a person resides in will likely impact which plans and
pharmacies are available for them.

Once this is complete, it is time to enter the patient’s medication list. At the “Enter Your
Drugs” screen you will see a review of the patient zip code and current coverage in the upper
right corner. It should look similar to Figure 5-5.

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Figure 5-5. Zip code and current coverage listing for MedicareRx Preferred

Rita has Original Medicare A and B and a Part D plan and AARP MedicareRx Preferred, a
stand-alone prescription drug plan (PDP). She does not have a low income subsidy from the
federal government (referred to as Extra Help).

If Rita had Medicare Advantage, her profile box would look like Figure 5-6. Medicare
Advantage is also referred to as “Medicare health plans,” which combines Medicare Part D
with private coverage for Medicare Parts A and B.

Figure 5-6. Zip code and current coverage listing for Medicare Complete

This patient has an AARP MedicareComplete plan, an HMO plan as indicated in parentheses

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after the name. If you were unsure if this plan had prescription drug coverage included, you
could double check by calling the company, checking their website, or by looking in the annual
CMS publication Medicare and You. This book is mailed to all Medicare beneficiaries each
year and is specific to the state they live in. Patients should be encouraged to retain this
volume each year.

Now Doug is ready to enter Rita’s medications, careful to enter the medications exactly as
brand or generic and the correct dosing. Once that is complete, he will select her preferred
pharmacy. The tool will ask which type of Medicare Part D plans are of interest.

Doug can compare three options: stand-alone prescription drug plans with Original
Medicare, Medicare health plans with drug coverage, or Medicare health plans (Medicare
Advantage) without drug coverage. An easy way to remember is that health plan means
medical benefits, like doctors and hospitals, as opposed to a drug benefit or Part D alone. Since
Rita already has Original Medicare and a prescription drug plan, that is what she wants to
compare. If Doug were to compare Medicare Advantage plans, he would need to pay attention
to the medical benefits and their network coverage, such as in-network physicians as well as
the prescription coverage details. In this search he will focus on prescription benefits.

A list of all the available plans will show up in the next screen in order of lowest estimated
annual cost, though this can be changed. The lowest estimated annual cost is an estimate of
the total cost the patient will pay for their Part D coverage. This includes premiums, the
monthly fee to maintain coverage, and the costs of their medications. The medication costs
include the amount the patient has to pay before they meet their deductibles and any co-pay
or co-insurance amounts paid until they reach their out-of-pocket maximum. Doug selects
two plans to compare with Rita’s current plan in a side-by-side comparison.

The results of this comparison are provided in Figure 5-7. The first column lists her current
plan. Please note the current plan may not always be in the same place and may change on
future searches.

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 A B C

Figure 5-7. Plan comparison

Doug reviews this screen with Rita. He explains that the first row is the monthly drug plan
premium she will pay for her stand-alone prescription drug coverage. In the next row,
monthly health plan premium is N/A because Rita does not have Medicare Advantage.
Therefore, there is no health plan premium listed because Medicare does not list the original
Medicare premium here. The third row is the annual deductible which will take effect at the
beginning of her coverage for that year. Some plans charge a deductible and others don’t. This
amount can also vary. Plans are structured as basic or enhanced plans, which is why the plans
are not standardized.

Below the first three rows in Figure 5-7 are the estimated annual costs for Rita’s drug
premium and drug costs (taking the deductible into consideration). This image shows the cost
at two community pharmacies and the cost at the mail order pharmacy. Different pharmacies
may have significantly different costs if a pharmacy is not in network. Ensure you are looking
at the pricing for the pharmacy the patient wants to use and/or you consider the pharmacy
location in making your recommendation. A discussion of networks can be found in Chapter

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6.

Figure 5-8 shows the summary of the prescription coverage by the three plans Doug is
comparing on the “Plan Finder.” First, Doug notices that plans A and B do not have all of Rita’s
medications on the plans’ formularies. He may want to check with Rita’s doctor to see if she
can take a generic and whether generic would be covered. If he already knows she must have
brand name, then he may want to consider the overall cost of the plans in Figure 5-10. The
estimated cost will factor in the full cost of the medication not on formulary.

Next, Doug checks to see what types of restrictions exist on the medications that Rita takes.
He sees that plan B has quantity limits on the escitalopram oxalate, so she may be limited on
the number of pills she can get each month. He checks in the plan finder and sees that she is
allowed 30 in 30 days, which is the frequency that she uses the medication. He also notices
that the physician will have to complete a prior authorization for the Namenda for all three
plan options, so he will need to follow up on that when she begins her coverage. Finally, he
notices that the zolpidem tartrate requires step therapy for plan B. He makes a note to contact
the insurance company to identify what therapy must be tried first.

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 A B C

Figure 5.8. Summary of prescription drug coverage

Now that Doug has a better understanding of the pricing and coverage of these three plans, he
looks at the two factors together. Plan B has the most restrictions but would allow her to use
her favorite pharmacists at Blackburn Health Center or cheaply at a CVS pharmacy. Plan C
does not have a deductible, which would be nice since Rita has costly heat bills in the winter.
However, it has significantly higher premiums than the other plans. Mail order is more
expensive than retail pharmacy for all three plans so there is no incentive for her to use mail
order at this time.

Doug and Rita discuss her preferences for prioritizing premiums, deductibles, pharmacies,
and restrictions. Doug remembers that there is one additional piece of information they might
find helpful: each plan receives a star rating to give consumers a quality perspective on the
plans they are selecting. Doug finds the star ratings on the Plan Finder: plan A is 2.5 stars, plan
B is 4 stars, and plan C is 3 stars.

CONCLUSION

In order to compare medical and prescription insurance coverage it is helpful to first consider
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the type of payer-provider relationship. Then understanding the details of the coverage can
allow beneficiaries to select the best coverage for them. Pharmacists can help patients and
caregivers compare prescription drug coverage and educate them about the different
insurance terms.

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 GLOSSARY
Benefits
Items, services, or payments covered in full or part by the insurance company for the
beneficiary

Co-insurance
A percentage fee paid by an individual for health care services

Co-payment/Co-pay
Flat fees that must be paid by an individual for particular services, like a visit to a primary care
physician

Deductibles
A set amount that one must pay each year before the insurance company will begin to pay on
healthcare costs for an individual

Formulary
List of particular medications available for coverage by insurance companies that have been
demonstrated as safe, effective, and providing the highest cost-benefits for patients

Health Literacy
The degree to which individuals have the capacity to obtain, process, and understand basic
health information and services needed to make appropriate health decisions

Member
Individual enrolled under a particular health insurance plan

Network
Group of healthcare providers who provide services that are eligible for coverage under an
insurance plan

Out-of-Pocket Limits/Maximum
Maximum amounts a patient, also known as a beneficiary, has to pay out of their own pocket
for covered health care expenses

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Pharmacoeconomic
A branch of economics that compares pharmaceutical products and treatment strategies
through analysis of cost-benefit, cost-effectiveness, cost-of-illness, cost-minimization, and
cost-utility

Premium
What one must pay in order to have insurance coverage

Prior Authorization
Insurance requirement that physicians provide explanation and/or documentations to
support the use of a specific medication therapy in order to determine medical necessity and
appropriate therapy

Step Therapy
A treatment approach that utilizes the most cost-effective medication therapy and then
progresses to alternative therapies, which may be more expensive or lack comprehensive
research evaluating efficacy, to better control costs for insurance providers

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[Link] . Accessed May 28, 2018.
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Concepts in Managed Care Pharmacy: Prior authorization. [Link]:
[Link] . Published April 2012. Accessed May 28, 2018.
5. U.S. Center for Medicare & Medicaid Services. Appeals if you have Medicare
prescription drug coverage. [Link]: [Link] . Accessed
May 28, 2018
6. Centers for Medicare and Medicaid Services Product No. 11818. Sample Insurance
card. [Link] Published June 2014. Accessed May 28, 2018.
7. Providence Health & Services. Sample insurance card. Providence Health Services:
[Link] . Accessed May 28, 2018.
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outcomes: a systematic review of the literature. J Gen Intern Med. 2004; 19(12): 1228-
39. [Link]
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for you. [Link]: [Link] . Accessed: May 28, 2018.
10. Glossary at [Link]. [Link] . Accessed May 28, 2018.
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