Are You Paying Too Much for Prescriptions? Here’s Why You Probably Are

A bottle of pills and money on top of a table explores the costly nature of prescriptions.
Most employers and consumers assume that having health insurance will save them money on prescription drug costs.

Yet, recent surveys and statistics have shown that insurance does not automatically mean lower prescription costs.

In fact, because of the way the system is built, pharmaceutical corruption has caused prescription drug prices to fluctuate from insurer to insurer.

Individual consumers are shocked to learn that they can receive better costs on prescription drugs by paying cash, instead of using their insurer.

The problem is when a consumer or patient goes to purchase their monthly medications, behind the scenes drug companies, insurers, pharmacy benefits managers, and pharmacies are pulling the strings of drug costs.

Consumers are left confused and overwhelmed by the prospect of paying for prescription medications without insurance.

But, how does this process work? What role do pharmacy benefits managers play in these price increases? Why are insurance covered prescription drugs often more expensive than the cash price? Is there a way to reduce your prescription drug costs without losing the benefits of your insurance?

At Primary Care Insurance Solutions, we take an in-depth look at these questions to see what our clients and their employees can expect from their drug benefits coverage.

The Role of Pharmacy Benefits Managers

Pharmacy Benefits Managers (PBMs) play a key role in the costs of prescription medications. They are companies that handle drug benefit programs for employers and health plans. They are responsible for updating your drug formulary plan and processing prescription drug claims.

Another aspect of what they do is purchasing medications in large batches right from drug companies. As a result, they extend discounts for mail order medications to plan beneficiaries. In essence, their job is to serve as a middleman between employers and prescription medications.

On paper, PMBs provide services that contain drug costs by influencing the behavior of physicians, members, and pharmacists. They do this by negotiating rebates, supervise patient compliance, maintain formularies, handle distribution among pharmacy networks, process claims, and offer specialty services.

However, despite their basic, and generally positive job attributes, PBMs know that some insurance’s discounted rate for prescription drug costs is more than the cash price. In fact, there is often an arrangement for kickbacks from a pharmacy to an insurance company when consumers pay the insurance ‘discounted rate’.

This behavior is clearly corrupt, but as of yet, no law exists prohibiting it. Where does this leave consumers? How can they navigate the world of prescription drugs when there is all but a complete blackout on the actual prices of these medications? PBMs, play a role in keeping things quiet, but there is more to the story than just their role.

The Truth About Insured Prescription Drug Costs

Where PBMs do play an important role is securing deals for better priced brand-name medications. However, the same cannot be said for many generic drugs. One large segment of clients for insurers is employers. These employers are supervising large networks of employees, and most of the time their number one focus is the overall costs, not the details of prescription drug costs.

When insurers are looking for deals on generic drugs, they do it in batches. This means they come to cost agreements based on different drugs instead of focusing on getting the lowest price on every drug.

For many years, pharmacists have been banned from providing their customers with information on how they can save money on pharmacists because of so-called ‘gag orders’ in their contracts, that is changing. Congress has ordered to ban the gag order on pharmacists, allowing customers to gain access to lower cash prices for their prescription drug costs.

Despite this new change of heart from Congress, the lobbying effort from drug makers and PBMs has far from slowed down. From 2006 to 2016, drug makers have spent over $2.3 billion lobbying Congress. It is no wonder that prescription drug costs haven’t gone anywhere but up.

However, depending on the type of drug a consumer needs, there are loopholes that allow them to get a better rate. For example, the company GoodRX offers coupons for certain prescriptions. Pharmaceutical companies do this for drugs like Humira, which ranges between $3-4K a month, because they know an individual cannot afford it even with insurance. Other specialty drugs are similar, and when an employee is forced to pay $2,000 with insurance a coupon that slashes that price down to $100 is extremely enticing.

Additionally, that employee will still get credit toward their maximum out of pocket costs. However, once the employee has met that maximum, the insurance company will then pay the full amount for the drug every month while the employee will get the medication for free. There is, then, no incentive for an insured individual to pay cash or use coupon discounts. This continues the cycle and increases prescription drug costs.

Why The Dramatic Price Difference?

Understanding these prices differences, particularly those offered with PBMs through mail-order options and cash purchases, comes down to understanding the drug pricing formulas PBMs use.

Some prescription drugs simply do not make it into the preferred funnel of drugs called “formularies” that an insurer is willing to foot the bill for.

Here’s where it gets interesting.

The decision to put certain drugs into these formularies and the subsequent pricing tier that a drug is placed under (tier 1,2,3, and 4), is negotiated case-by-case. This negotiation takes place between drug companies and PBMs.

Investigative reporting has revealed that PBMs get, what we can only assume are financial kickbacks from drug companies for specific medications. The PBMs then pocket a portion of that kickback before passing it on to the insurer and are technically called “rebates” by the industry.

The larger the rebate, the more likely a drug is to get listed as a Tier 1 drug. This makes it the cheapest priced drug when a person requests a prescription. This, in turn, puts the drug in reach of the greatest number of customers regardless of income.

The result is greater availability and more demand for that single drug, just because it is the ‘cheapest’ on the market. Tier 4 drugs are the most expensive non-preferred drugs.

But what about prescription drug coupons? Can’t they be a great way to save money on expensive medications?

Coupon Based Prescription Drug Costs—Getting a Discount

Individuals receive advertisements that contain coupons for drugs. They may also receive them from their physician. Once they go to fill out their prescription with a pharmacist their copayment is lowered based on the coupon.

Coupons are typically applied to branded drugs over cheaper generic brands, and their copay goal is under $25 with monthly savings up to $100 in most cases. The pharmacist then redeems the coupon at the manufacturer and the insurer will pay the rest of the costs. Often, insurers do not even know that a customer has used a coupon.

What’s even more interesting, is this process disrupts the incentives created by PBMs via their formulary tiered options. Patients are obviously more likely to take medications that come with a lower copayment, which means PBMs are NOT happy about coupons.

To counteract this, PBMs drive demand towards specific drugs by giving them the Tier 1 status. They use this a threat against manufacturers who are offering discounts and rebates to patients. What’s more, individuals on employer-sponsored health plans saw an increase in single coverage deductibles from $584 in 2006 to $1,505 in 2017. Also, about half of insured workers have an average copayment of $101 for specialty drugs or a coinsurance of about 27 percent.


So, to answer our original question, are you paying too much for prescription drugs? The answer is, probably so. Understanding your options and how to communicate those options to your employees, is a time-consuming process.

At Primary Care Insurance Solutions, we help you understand your prescription drug costs and how those affect your employees. Get in touch with us to learn more about this complex system.

Frequently Asked Questions

Why do recent surveys suggest that having health insurance may not necessarily lead to lower prescription drug costs?

Recent surveys and statistics indicate that prescription drug prices can vary between insurers, and insurance doesn’t always guarantee lower prescription costs. Pharmaceutical corruption and pricing fluctuations contribute to this issue.

How have prescription drug prices been affected by the way the system is built?

Pharmaceutical corruption has led to fluctuations in prescription drug prices between insurers, making it possible for consumers to find better prices by paying in cash instead of using insurance.

What role do pharmacy benefits managers (PBMs) play in prescription drug costs?

Pharmacy Benefits Managers (PBMs) handle drug benefit programs for employers and health plans, negotiating rebates, processing claims, and managing formularies. They play a role in influencing prescription drug costs.

Why do insurance-covered prescription drugs sometimes cost more than the cash price?

There are instances where insurance-covered prescription drugs can be more expensive than paying in cash. Some arrangements involve kickbacks from pharmacies to insurance companies when consumers pay the insurance “discounted rate.”

How do PBMs secure deals for better priced brand-name medications?

PBMs negotiate rebates and discounts for medications, including brand-name drugs, helping to secure cost-effective options.

What is the role of PBMs in keeping prescription drug prices quiet?

PBMs serve as intermediaries between employers and prescription medications, but they might also play a role in keeping actual drug prices less transparent.

Why have insurance-covered prescription drug costs increased despite PBMs?

While PBMs have a role in securing better priced brand-name medications, they might not always focus on getting the lowest price on every drug, leading to increased generic drug costs.

How has Congress addressed the issue of “gag orders” on pharmacists?

Congress has banned “gag orders” on pharmacists, allowing customers to access lower cash prices for prescription drug costs and receive information on saving money.

How have pharmaceutical companies and PBMs lobbied to influence drug prices?

Pharmaceutical companies and PBMs have engaged in lobbying efforts to influence drug prices, with drug makers spending over $2.3 billion lobbying Congress from 2006 to 2016.

Are there ways for consumers to reduce prescription drug costs?

Depending on the type of drug needed, there are options such as coupons and specialty drug programs that can help reduce prescription drug costs.

How do PBMs influence the pricing of prescription drugs within formularies?

PBMs negotiate with drug companies to place drugs into formularies and determine pricing tiers based on case-by-case negotiations, which can involve financial kickbacks or rebates.

How do coupons for prescription drugs affect the incentives created by PBMs?

Coupons for prescription drugs can disrupt the incentives created by PBMs by encouraging patients to opt for medications with lower copayments, even if they’re not preferred by PBMs.

How have individual patients been affected by prescription drug pricing?

Prescription drug pricing can be complex, with various factors affecting how patients pay for medications. Coupons and discounts can help patients save money, but the overall system remains intricate and sometimes opaque.

How can Primary Care Insurance Solutions help individuals navigate prescription drug costs?

Primary Care Insurance Solutions can assist individuals in understanding their prescription drug costs, exploring options to reduce expenses, and communicating these options to employees. Primary Care Insurance Solutions offers expertise in this area.

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