Glossary Section 5-Understanding Your Prescription Drug Coverage

Navigating the healthcare system can feel like learning a new language. Knowing the right terms matters. It can help you understand what your insurance will and won't cover.

• Know what questions to ask about your health insurance, financial assistance, or income.
• Avoid unexpected costs.
• Get financial help.
• Advocate for yourself or your patients when insurance companies deny coverage or when bills don't add up.

This glossary is a tool you can use whenever you aren't sure about a word or term. It covers health insurance basics, prescription drug coverage, billing, the approvals and appeals process, financial assistance, and income support.

Remember, health policy, program eligibility, and insurance rules change all the time. It is a good idea to check with your insurance company, job, healthcare providers or other federal/state agencies about your specific needs or questions about your coverage.

Key Terms

Brand-name medication: A medication sold under the name given to it by the company that made it. They may be the first version of a drug approved by the FDA under a patent. Once the patent ends, other companies can make a generic version of the same drug. Brand-name medications are usually more expensive than generic medications.

Formulary: A list of medications covered by your prescription drug plan. They can also be called a drug list. Drugs on formularies are often grouped into tiers. The tier of a medication can determine the cost, as well as if prior authorization is required for the medication. Your provider can prescribe you any medication, but if it isn’t on your formulary, you may have to pay the full cost of the medication. It is important to check your formulary every year when you re-enroll and any time your provider prescribes a new medication.

Generic medication: a medication with the same active ingredients, dosage, and potential side effects as a brand-name drug. Generics are usually available at a lower cost. They are approved by the FDA and are thought to be just as safe and effective as their brand-name counterpart. Because they may be available on a lower formulary tier, they may also cost you less.

Medication Tiers: how prescription plans organize covered drugs into groups based on cost. Each tier may have a different out-of-pocket cost (copay) for you. Drugs in lower tiers are usually less expensive. Generic drugs are usually in the lowest tier, while brand-name and newer medications are usually in higher tiers. You may have to start treatment with a drug on a lower tier before a drug on a higher tier is approved. Specialty medications, like many oral cancer treatments, are often in the highest tier. Be sure to check your plan formulary when given a new prescription, as formularies can change when medications have new uses or formulations.

Non-formulary: a prescription medication that is not on your insurance plan’s covered drug list (formulary). They may not be covered by your plan or may cost much more out-of-pocket than formulary medications. In some cases, your provider can request an exception to get the medication covered. This is called a formulary exception request.

Pharmacy Benefits Manager (PBM): a company that manages prescription drug benefits for health plans, employers, and government programs (like Medicare/Medicaid). PBMs decide which drugs are covered, negotiate drug prices with drug manufacturers, and process pharmacy claims. They also manage which pharmacies you can use with your plan. They have a large role in deciding what you will pay for your medication. It isn’t always clear who your PBM is, so ask your pharmacist if you need help identifying your PBM.

Prior Authorization: A requirement from your health insurance plan that your provider must get approval before you can fill certain prescriptions. Prior authorization is your insurance plan's way of making sure a medication is medically necessary before they will cover it. If your provider doesn’t get prior authorization, your plan may deny coverage or make you pay the full cost. Your provider usually handles the prior authorization request, but it can take time. If your prior authorization is denied, you have the right to appeal.

Quantity Limits: a guideline set up by your prescription drug plan or PBM of how much medication you can get at one time or over a certain time period. They are used to manage costs. If you need more medication than your plan approves, your provider can request an exception. You can also request a “vacation override” if you need more medication before you travel. Quantity limits on certain medications, like narcotic pain medications, are also used as a safety measure to support safe usage and prescribing practices.

Specialty Medication: A type of medication used to treat complex or chronic conditions, like cancer, autoimmune diseases, and rare disorders. Specialty medications are often newer, expensive, and may require special handling or storage. They are usually the most expensive medications covered by insurance plans and are typically placed in the highest formulary tier. Many specialty medications require prior authorization before your plan will cover them. Examples of specialty medications include oral chemotherapy, immunotherapy, GLP-1s, and biologics.

Specialty Pharmacy: A type of pharmacy that supplies certain high-cost medications. Specialty pharmacies may provide additional services, including patient education, medication management support, and coordination with your insurance plan. Many specialty medications, including oral chemotherapy, can only be filled through a specialty pharmacy. Your insurance plan may require you to use a specific specialty pharmacy to access these medications. Many specialty pharmacies deliver medications to your home.

Step Therapy: a method used by insurance plans that requires you to try one or more lower-cost medications before they will approve coverage for a more expensive medication. You may have to show that the drug wasn’t effective before the next step medication will be approved. Your provider can request an exception to step therapy based on medical necessity.