Table of ContentsView AllTable of ContentsHealthcare ReformInsurance CoverageA Note About Medicare and Out-Of-Pocket Drug CostsFormulariesMedicareMedicaidOther OptionsSummary
Table of ContentsView All
View All
Table of Contents
Healthcare Reform
Insurance Coverage
A Note About Medicare and Out-Of-Pocket Drug Costs
Formularies
Medicare
Medicaid
Other Options
Summary
The cost of prescriptions and their widespread use make pharmacy insurance—also called prescription drug coverage—a significant part of a comprehensive health insurance plan.
Understanding prescription drug coverage will help you optimize your benefits and save money at the pharmacy.Tom Werner / Getty Images
Tom Werner / Getty Images
According to the CDC, between 2015 and 2018, 48.6% of adults used at least one prescription drug in the prior 30 days, 24% used three or more, and 12.8% used five or more.
But as drug prices rise, many insurance companies have put more restrictions on what they will and will not cover, andout-of-pocket caps continue to rise.
This article explains the types of prescription drug coverage available, as well as the rules and regulations that apply to drug coverage.
Prior to theAffordable Care Act(ACA), close to 20% of individual/family health insurance plans did not cover prescription medications, according to a 2013 HealthPocket analysis.
The ACA set a standard ofessential health benefits, which includes prescription drug coverage on all individual and small group health plans with effective dates of 2014 or later.
Plans that took effect before 2014 are considered grandmothered (plans in effect before the end of 2013) or grandfathered (plans already in effect when the ACA was signed into law on March 23, 2010).These plans are also referred to as “non-enforcement policies” because most ACA rules are not enforced for them.
Large group plans andself-insured plansare not required to cover the ACA’s essential health benefits other thanpreventive care. However, the vast majority of these plans do provide prescription drug coverage. (In most states, “large group” means an employer that has at least 51 employees, although there are a few states that set the threshold for a large group at 101 employees.)
Prescription drug spending in the United States grew to nearly $406 billion in 2022 (an 8.4% increase from the year before), accounting for more than 9% of total health expenditures.
How Insurance Covers Prescriptions
There’s wide variation in terms of how health plans cover prescription drugs and rules can vary from state to state. There are various benefit designs that health plans can use to cover prescription drugs:
Original Medicaredoes not have a cap on out-of-pocket costs, so most beneficiaries have supplemental coverage from an employer-sponsored plan,Medigap, or Medicaid. And unless they have drug coverage under an employer-sponsored plan, most Original Medicare beneficiaries must obtainPart D prescription drug coverage.
But Part D coverage (which can be obtained on its own or as part of a Medicare Advantage plan) historically did not have a cap on out-of-pocket costs.
Fortunately, for millions of Medicare beneficiaries, Part D coverage rules changed as of 2024, under theInflation Reduction Act. As of 2024, there is no longer a 5% coinsurance for prescription drugs once the “catastrophic” coverage level is reached. And starting in 2025, there will be a $2,000 cap on Part D out-of-pocket costs (inflation-adjusted in future years).
However, the Inflation Reduction Act’s limits on Part D out-of-pocket costs (described above) are applicable regardless of whether the Part D coverage is obtained as a stand-alone plan or as part of a Medicare Advantage plan.
Theformularyis the list of drugs that your health plan will cover. Health insurers are allowed to develop their own formularies and adjust them as necessary, although they must comply with various state and federal rules.
Within the formulary,drugs are divided into tiers, with the least-expensive drugs typically being in Tier 1 and the most expensive drugs listed in a higher tier, usually 4, 5, or 6.
Top-tier drugs tend to be specialty drugs, including injectables andbiologics. For these drugs, the consumer will usually have to pay a coinsurance. Some states have restrictions on how much a health plan can require members to pay for specialty drugs in an effort to keep medications affordable.
Requirements
Under the ACA, the formularies for plans sold in the individual and small group markets are required to cover:
A pharmacy and therapeutic (P&T) committee must also ensure that the formulary is comprehensive and compliant.
One example is insulin. Every plan must cover rapid-acting insulin. However, a plan may cover its preferred brand, such as Novo Nordisk’s NovoLog (insulin aspart), but not Lilly’s Humalog (insulin lispro).
The same concept applies to contraception. Although the ACA requires health plans to fully cover (meaning without copays, coinsurance, or deductibles)all types of FDA-approved contraception for women, each health plan can decide which specific contraception they’ll cover within each type.For other versions of that type of contraception, the plan can require cost-sharing—or not cover them at all.
If your medication is not covered and you and your healthcare provider believe it is an essential medication for your health, you can file an appeal.
Restrictions
Most formularies have procedures to limit or restrict certain medications. Common restrictions include:
Unlike private health insurance plans,Original Medicare(Medicare Parts A and B) does not cover prescription drugs. Medicare Part D was established in 2003 to provide prescription coverage for Medicare enrollees and requires buying a private prescription plan.
There are a few avenues for obtaining prescription coverage once you’re eligible for Medicare, which is typically age 65 (or younger if you meet disability qualifications). The options are:
As discussed above, Medicare Part D coverage no longer has unlimited out-of-pocket exposure as of 2024. And out-of-pocket exposure under Part D will be further reduced starting in 2025. These changes are a result of the Inflation Reduction Act, which was enacted in 2022.
However, people who are dual-eligible for Medicaid and Medicare receive prescription drug coverage through Medicare Part D.
Medicare beneficiaries who meet certain financial qualifications can enroll in an Extra Help program (low-income subsidy), which pays the premium and most of the cost-sharing for the prescription plan. As of 2024, full Extra Help is available to more people, as a result of theInflation Reduction Act(before 2024, some people qualified for partial Extra Help, but those beneficiaries now qualify for full Extra Help).
If you have a grandmothered orgrandfatheredplan that doesn’t cover prescription drugs or limits your coverage to only generic drugs, or if you’re uninsured, stand-alone prescription drug insurance plans and discount plans are available.
Insurance companies, pharmacies, drug manufacturers, or advocacy/membership organizations such as AARP can offer these plans.
Drug manufacturers sometimes offer patient assistance programs and coupons that can significantly reduce the cost of medications for people whose health plans don’t cover the medication.
Stand-Alone Drug Coverage
Prescription drug insurance is available as a stand-alone plan. It works similarly to medical insurance: You pay an annual premium and then have a copay or coinsurance cost at the pharmacy.
The most well-known type of stand-alone plan is Medicare Part D, though privately-run plans do exist. If you’re considering this sort of plan, read the fine print very carefully so you know what is covered.
With the exception of Medicare Part D, most of the stand-alone drug plans that are marketed to consumers are actually drug discount plans, which is different than drug insurance.
Drug Discount Plan
While not insurance, drug discount plans are worth knowing about in this context, as they can help you bridge the gap when it comes to out-of-pocket costs.
If you need a prescription that is expensive, check the manufacturer’s website for a drug discount plan. Some coupons are only available for usewithoutinsurance, while others may cover the copay or coinsurance cost.
Most health plans in the U.S. have integrated prescription drug coverage. However, Original Medicare does not; beneficiaries need to obtain Medicaid Part D prescription drug coverage if they don’t have prescription drug coverage from an employer.
In the individual and small group markets, all health plans with effective dates of 2014 or later are required to include comprehensive prescription drug coverage. The formulary (covered drug list) must be developed according to regulations that are designed to protect consumers and ensure that their coverage is adequate.
Medicaid also includes prescription drug coverage. Large group health plans are not specifically required to include drug coverage, but virtually all of them do, in order to keep their benefits package competitive.
24 SourcesVerywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.Centers for Disease Control and Prevention.Therapeutic drug use.HealthPocket.Almost no existing health plans meet new ACA essential health benefit standards.Whitmore H, Gabel JR, Satorius JL, Green M.Grandfathered, grandmothered, and ACA-compliant health plans have equivalent premiums.Health Aff (Millwood). 2017;36(2):306-310. doi:10.1377/hlthaff.2016.0895Centers for Medicare and Medicaid Services. The Center for Consumer Information & Insurance Oversight.Market rating reforms. state specific rating variations.Centers for Medicare and Medicaid Services.NHE factsheet, 2022.Centers for Medicare and Medicaid Services.Premium adjustment percentage, maximum annual limitation on cost sharing, reduced maximum annual limitation on cost sharing, and required contribution percentage for the 2024 benefit year.Centers for Medicare and Medicaid Services.Premium adjustment percentage, maximum annual limitation on cost sharing, reduced maximum annual limitation on cost sharing, and required contribution percentage for the 2025 benefit year.Peterson-KFF Health System Tracker.What are the recent and forecasted trends in prescription drug spending?Statista.Pharmaceutical spending per capita in selected countries as of 2019, in US dollars.Centers for Medicare and Medicaid Services.Final contract year (CY) 2024 standards for Part C benefits, bid review, and evaluation.Patient Advocate Foundation.Understanding drug tiers.American Society of Health-System Pharmacists.ASHP specialty pharmacy resource guide.Centers for Medicare and Medicaid Services.Information on essential health benefits (EHB) benchmark plans.U.S. Department of the Treasury and U.S. Centers for Medicare & Medicaid Services.Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2025; Updating Section 1332 Waiver Public Notice Procedures; Medicaid; Consumer Operated and Oriented Plan (CO-OP) Program; and Basic Health Program (Page 82600). November 24, 2023.AMCP Partnership Forum: Principles for Sound Pharmacy and Therapeutics (P&T) Committee Practices: What’s Next?.J Manag Care Spec Pharm. 2020;26(1):48-53. doi:10.18553/jmcp.2020.26.1.48Centers for Medicare and Medicaid Services.Birth control benefits.Center for Medicare Advocacy.Part D/prescription drug benefits.Centers for Medicare and Medicaid Services.Drug coverage (part D).Centers for Medicare and Medicaid Services.What Medicare Part D drug plans cover.Freed, Meredith; Damico, Anthony; Neuman, Tricia. Kaiser Family Foundation.Medicare Advantage 2022 Spotlight: First Look.Centers for Medicare and Medicaid Services.Prescription drugs.Centers for Medicare and Medicaid Services.Dual eligible beneficiaries under Medicare and Medicaid.Healthinsurance.org.What’s the difference between prescription discount plans and prescription drug insurance.Refill Wise.Affordable prescriptions start now.
24 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.Centers for Disease Control and Prevention.Therapeutic drug use.HealthPocket.Almost no existing health plans meet new ACA essential health benefit standards.Whitmore H, Gabel JR, Satorius JL, Green M.Grandfathered, grandmothered, and ACA-compliant health plans have equivalent premiums.Health Aff (Millwood). 2017;36(2):306-310. doi:10.1377/hlthaff.2016.0895Centers for Medicare and Medicaid Services. The Center for Consumer Information & Insurance Oversight.Market rating reforms. state specific rating variations.Centers for Medicare and Medicaid Services.NHE factsheet, 2022.Centers for Medicare and Medicaid Services.Premium adjustment percentage, maximum annual limitation on cost sharing, reduced maximum annual limitation on cost sharing, and required contribution percentage for the 2024 benefit year.Centers for Medicare and Medicaid Services.Premium adjustment percentage, maximum annual limitation on cost sharing, reduced maximum annual limitation on cost sharing, and required contribution percentage for the 2025 benefit year.Peterson-KFF Health System Tracker.What are the recent and forecasted trends in prescription drug spending?Statista.Pharmaceutical spending per capita in selected countries as of 2019, in US dollars.Centers for Medicare and Medicaid Services.Final contract year (CY) 2024 standards for Part C benefits, bid review, and evaluation.Patient Advocate Foundation.Understanding drug tiers.American Society of Health-System Pharmacists.ASHP specialty pharmacy resource guide.Centers for Medicare and Medicaid Services.Information on essential health benefits (EHB) benchmark plans.U.S. Department of the Treasury and U.S. Centers for Medicare & Medicaid Services.Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2025; Updating Section 1332 Waiver Public Notice Procedures; Medicaid; Consumer Operated and Oriented Plan (CO-OP) Program; and Basic Health Program (Page 82600). November 24, 2023.AMCP Partnership Forum: Principles for Sound Pharmacy and Therapeutics (P&T) Committee Practices: What’s Next?.J Manag Care Spec Pharm. 2020;26(1):48-53. doi:10.18553/jmcp.2020.26.1.48Centers for Medicare and Medicaid Services.Birth control benefits.Center for Medicare Advocacy.Part D/prescription drug benefits.Centers for Medicare and Medicaid Services.Drug coverage (part D).Centers for Medicare and Medicaid Services.What Medicare Part D drug plans cover.Freed, Meredith; Damico, Anthony; Neuman, Tricia. Kaiser Family Foundation.Medicare Advantage 2022 Spotlight: First Look.Centers for Medicare and Medicaid Services.Prescription drugs.Centers for Medicare and Medicaid Services.Dual eligible beneficiaries under Medicare and Medicaid.Healthinsurance.org.What’s the difference between prescription discount plans and prescription drug insurance.Refill Wise.Affordable prescriptions start now.
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Centers for Disease Control and Prevention.Therapeutic drug use.HealthPocket.Almost no existing health plans meet new ACA essential health benefit standards.Whitmore H, Gabel JR, Satorius JL, Green M.Grandfathered, grandmothered, and ACA-compliant health plans have equivalent premiums.Health Aff (Millwood). 2017;36(2):306-310. doi:10.1377/hlthaff.2016.0895Centers for Medicare and Medicaid Services. The Center for Consumer Information & Insurance Oversight.Market rating reforms. state specific rating variations.Centers for Medicare and Medicaid Services.NHE factsheet, 2022.Centers for Medicare and Medicaid Services.Premium adjustment percentage, maximum annual limitation on cost sharing, reduced maximum annual limitation on cost sharing, and required contribution percentage for the 2024 benefit year.Centers for Medicare and Medicaid Services.Premium adjustment percentage, maximum annual limitation on cost sharing, reduced maximum annual limitation on cost sharing, and required contribution percentage for the 2025 benefit year.Peterson-KFF Health System Tracker.What are the recent and forecasted trends in prescription drug spending?Statista.Pharmaceutical spending per capita in selected countries as of 2019, in US dollars.Centers for Medicare and Medicaid Services.Final contract year (CY) 2024 standards for Part C benefits, bid review, and evaluation.Patient Advocate Foundation.Understanding drug tiers.American Society of Health-System Pharmacists.ASHP specialty pharmacy resource guide.Centers for Medicare and Medicaid Services.Information on essential health benefits (EHB) benchmark plans.U.S. Department of the Treasury and U.S. Centers for Medicare & Medicaid Services.Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2025; Updating Section 1332 Waiver Public Notice Procedures; Medicaid; Consumer Operated and Oriented Plan (CO-OP) Program; and Basic Health Program (Page 82600). November 24, 2023.AMCP Partnership Forum: Principles for Sound Pharmacy and Therapeutics (P&T) Committee Practices: What’s Next?.J Manag Care Spec Pharm. 2020;26(1):48-53. doi:10.18553/jmcp.2020.26.1.48Centers for Medicare and Medicaid Services.Birth control benefits.Center for Medicare Advocacy.Part D/prescription drug benefits.Centers for Medicare and Medicaid Services.Drug coverage (part D).Centers for Medicare and Medicaid Services.What Medicare Part D drug plans cover.Freed, Meredith; Damico, Anthony; Neuman, Tricia. Kaiser Family Foundation.Medicare Advantage 2022 Spotlight: First Look.Centers for Medicare and Medicaid Services.Prescription drugs.Centers for Medicare and Medicaid Services.Dual eligible beneficiaries under Medicare and Medicaid.Healthinsurance.org.What’s the difference between prescription discount plans and prescription drug insurance.Refill Wise.Affordable prescriptions start now.
Centers for Disease Control and Prevention.Therapeutic drug use.
HealthPocket.Almost no existing health plans meet new ACA essential health benefit standards.
Whitmore H, Gabel JR, Satorius JL, Green M.Grandfathered, grandmothered, and ACA-compliant health plans have equivalent premiums.Health Aff (Millwood). 2017;36(2):306-310. doi:10.1377/hlthaff.2016.0895
Centers for Medicare and Medicaid Services. The Center for Consumer Information & Insurance Oversight.Market rating reforms. state specific rating variations.
Centers for Medicare and Medicaid Services.NHE factsheet, 2022.
Centers for Medicare and Medicaid Services.Premium adjustment percentage, maximum annual limitation on cost sharing, reduced maximum annual limitation on cost sharing, and required contribution percentage for the 2024 benefit year.
Centers for Medicare and Medicaid Services.Premium adjustment percentage, maximum annual limitation on cost sharing, reduced maximum annual limitation on cost sharing, and required contribution percentage for the 2025 benefit year.
Peterson-KFF Health System Tracker.What are the recent and forecasted trends in prescription drug spending?
Statista.Pharmaceutical spending per capita in selected countries as of 2019, in US dollars.
Centers for Medicare and Medicaid Services.Final contract year (CY) 2024 standards for Part C benefits, bid review, and evaluation.
Patient Advocate Foundation.Understanding drug tiers.
American Society of Health-System Pharmacists.ASHP specialty pharmacy resource guide.
Centers for Medicare and Medicaid Services.Information on essential health benefits (EHB) benchmark plans.
U.S. Department of the Treasury and U.S. Centers for Medicare & Medicaid Services.Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2025; Updating Section 1332 Waiver Public Notice Procedures; Medicaid; Consumer Operated and Oriented Plan (CO-OP) Program; and Basic Health Program (Page 82600). November 24, 2023.
AMCP Partnership Forum: Principles for Sound Pharmacy and Therapeutics (P&T) Committee Practices: What’s Next?.J Manag Care Spec Pharm. 2020;26(1):48-53. doi:10.18553/jmcp.2020.26.1.48
Centers for Medicare and Medicaid Services.Birth control benefits.
Center for Medicare Advocacy.Part D/prescription drug benefits.
Centers for Medicare and Medicaid Services.Drug coverage (part D).
Centers for Medicare and Medicaid Services.What Medicare Part D drug plans cover.
Freed, Meredith; Damico, Anthony; Neuman, Tricia. Kaiser Family Foundation.Medicare Advantage 2022 Spotlight: First Look.
Centers for Medicare and Medicaid Services.Prescription drugs.
Centers for Medicare and Medicaid Services.Dual eligible beneficiaries under Medicare and Medicaid.
Healthinsurance.org.What’s the difference between prescription discount plans and prescription drug insurance.
Refill Wise.Affordable prescriptions start now.
Meet Our Medical Expert Board
Share Feedback
Was this page helpful?Thanks for your feedback!What is your feedback?OtherHelpfulReport an ErrorSubmit
Was this page helpful?
Thanks for your feedback!
What is your feedback?OtherHelpfulReport an ErrorSubmit
What is your feedback?
