Insurance Companies and Prescription Drugs

Today’s question, why do some drugs costs more than others? The simple answer is it’s about choice.

Gary has a sinus infection. He goes to the doctor and gets a prescription decongestant and an antibiotic. Now, he has a choice to make. See, prescription drug manufacturers are allowed to set their own prices and they often build large profit margins in the name brand drugs to recoup the cost of researching, manufacturing and advertising those drugs. To help consumers get the most bang for their buck, Gary’s heath insurer analyzes each drug on the market and decides which ones offer the most clinical benefit per dollar.

Gary can also talk to his doctor to learn the differences and effectiveness between medications. Health insurers divide all drugs into categories or tiers based on costs and use. For example if a plan has 4-tiers it might breakdown like this.

Tier one drugs also known as generics are just that. Generic versions of name brand medicines. They offer the same clinical benefits as name brand drugs but cost less because they aren’t advertised or marketed.

Tier two drugs also known as preferred drugs are often name brands with no generic equivalent. So, they cost a little more.

Drugs on tier three cost the most because they are usually cheaper alternatives found on Tier two or Tier one.

The fourth tier includes specialty drugs which could be high class medications that are often used to treat complex clinical conditions. These drugs could also have the highest co pay.

If Gary is on any medication he takes on a regular schedule, he also has the option of purchasing his medicine from any Tier via mail order sometimes known as home delivery. If he does, he will receive a monthly supply of his medicines in the mail every 90 days. He’ll usually pay less too because the economy of scale often makes mail-ordered drugs cheaper than a visit to the pharmacy and a lot more convenient.

So now you know. Until next time, stay smart and stay healthy.

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