Health Insurance 101

Coinsurance is a percentage of costs a patient is responsible for paying with his or her own money (out of pocket). Plans specify what this percentage will be for a variety of health-related services, such as a specialist visit, emergency room visit or prescription medications. Because coinsurance is a percentage of total costs, it can be difficult to estimate and plan for in advance.

A combined deductible is a detectible that includes both medical care and prescription medicines. This amount does not include premiums.

A copay is a fixed amount – or flat fee – a patient is responsible for paying with his or her own money (out of pocket) for certain services or medicines. Plans specify what this amount will be for a variety of health-related services, such as a visit to a doctor or specialist, emergency room visit or prescription medications. Copays are determined by health insurance plans and are often printed on health insurance cards.

Copay Accumulator Programs, when enacted, change the way an insurance company applies and accounts for payments from a drug manufacturer’s copay card. Normally, the contributions from the copay card go toward fulfilling your out-of-pocket obligations, including your deductible. However, if your insurance company implements an accumulator program, the copay card’s contributions, though still accepted at the pharmacy, will no longer go toward fulfilling your deductible and other out-of-pocket costs. Instead, all money paid through your copay card will go directly to the health insurance company, not making a dent in your deductible or going toward your out-of-pocket obligations.

Cost sharing is the amount insurance plans require patients to pay out of their own pocket. For example, copays, coinsurance and deductibles.

A deductible is the total amount a patient must pay out of pocket annually before the health plan will pay for any expenses. This amount does not include premiums. Sometimes plans exempt certain costs, such as some or all prescription drugs, from the deductible. In most cases, preventative services are covered with no cost sharing even if you have not reached your deductible.

The drug list or formulary is the list of prescription medicines covered by an insurance plan. A non-covered medicine is not included in the list of prescriptions recommended by an insurer. For non-covered drugs, patients must pay for the cost of the medicine or go through a process to get it covered.

While biopharmaceutical companies set the list price for a brand medicine, the list price for medicines is only a starting point and is ultimately reduced by discounts and rebates. In 2015, more than one-third of the list price was rebated back to health plans or the government or kept by other stakeholders.

The net price is the price reflected once all rebates, discounts and fees provided to insurers, pharmacy benefit managers and others are taken into account. This is the best measure to assess the rate at which pharmaceutical prices are increasing.

An out-of-pocket cost is an expense for medical care a patient is responsible for paying with his or her own money and is not reimbursed by insurance. Out-of-pocket costs can include deductibles, coinsurance and copayments for services. The Affordable Care Act requires that most health plans have an annual maximum on out-of-pocket costs for most health care services.

Pharmacy Benefit Managers, or PBMs, are third-party companies hired by insurers to manage drug benefit programs. PBMs act as middlemen between insurers, manufacturers, and pharmacies to handle everything from setting patient co-payment amounts to determining which drugs are covered by which health plans. PBMs were originally set-up to control drug utilization and cost working to negotiate discounts and rebates from manufactures.

A premium is an amount paid for health insurance coverage, usually paid monthly, quarterly or yearly. Premium payments vary based on the type of coverage and cost sharing a plan requires. Premiums do not count towards a deductible.

Biopharmaceutical manufacturers often pay significant rebates or discounts to pharmacy benefit managers (PBMs) or payers (including plan sponsors and health plans) on brand medications, reducing the cost of pharmacy benefits. Traditionally, pharmaceutical rebates provided to payers are not shared directly with a member; rather, payers use rebates to reduce their overall costs which often lowers member premium rates. Under this approach, a member using brand medications has the same out-of-pocket cost for the prescriptions whether a rebate was received.

The list of medicines covered by an insurance plan is often broken down into tiers – usually three, four or five. Lower tiers (Tier 1 or Tier 2) typically require copayments, or fixed dollar amounts of $10-$50. Higher tiers (Tier 3, Tier 4 or Tier 5) are more likely to require coinsurance, or a percentage of the cost of a medicine. This amount varies based on the cost of the medicine and as a result is harder to predict. Which tier a medicine falls on is included on a plan formulary.