Understanding Commercial Prescription Drug Insurance


One area of healthcare that can be the most expensive for consumers, but which we don’t really think about, is the price of prescription drugs.

Last year when my father-in-law was diagnosed with a form of leukemia.

The type of leukemia that he had is very treatable with daily medication, which was great news.

Then he found out that his prescription for his illness would cost $5000 per month. No matter how bad you need medicine, few of us can afford a $60,000 yearly price tag for our prescriptions.

In fact, according to a 2018 Consumer Reports survey of 1,200 adults taking prescription drugs, many Americans report that in order to afford their prescriptions, they have to cut back in other areas of the budget, like groceries.

Some people even decide to delay their retirement plans because of the cost of the prescriptions.

The Consumer Report survey found that many others change the use and amounts of their prescriptions to save money. The report found that:

30% did not fill a prescription

20% switched to a supplement, over-the-counter medication, or an alternative treatment

18% took expired medication

16% did not take the drug as scheduled

15% cut pills in half without a doctor’s approval

You never want to be in a position where you have to compromise your health because of your budget concerns. The best way to prepare for these kinds of unexpected bills related to prescription drug costs is to have a commercial prescription drug insurance policy.

Because commercial prescription drug insurance is often combined within your health insurance policy we will address everything you need to know about health insurance in general before talking specially about prescription drug coverage.

In this article, we will talk help you understand the components of commercial health insurance and the options that are available to you, as well as discuss the role of the prescription drug insurance portion of that policy and how to protect yourself and your family from large healthcare costs and prescription drug bills.


Private insurance companies offer commercial health insurance policies that offset the out-of-pocket costs that consumers have to pay for healthcare services, which include hospital costs and doctor visits, treatment, tests and labs, and in many cases, prescription drugs as well.

Policyholders pay a monthly premium that funds these policies.

After a consumer pays a premium they will pay an agreed portion of their healthcare costs and the insurance company will provide coverage for the rest.

Often employers will offer group health insurance policies as a benefit to their employees. Employers often cover part of the premium’s cost for their employees. Nearly 50% of Americans get their health insurance through an employer.

However, you can also purchase health insurance as an individual if you do not receive a health insurance benefit through your employer or you do not qualify for government insurance benefits.

Insurance carriers are regulated by federal and state laws and requirements. This means that commercial health insurance providers and policies will vary by state.

Some providers will only work in certain states, and keep in mind that the policies offered by national companies tend to vary by state to meet to each state’s particular requirements.


When you buy a commercial health insurance policy, the idea is to protect yourself from exorbitant or catastrophic health costs. You want to choose a plan which covers the services you need and has a monthly premium you can afford.

Keep in mind that in addition to your monthly premium, many plans also have a deductible.

This is the amount of money your have to pay first towards you healthcare costs in that calendar year before the insurance will pay its share.

When choosing a plan, consider both the premium and the deductible amounts.

A lower premium is typically offset by a higher yearly deductible, and vice versa. The amount of your annual deductible will usually be listed on your insurance card.

The exact healthcare services and costs covered by your commercial health insurance will vary depending on the policy you choose, but in general, commercial health insurance pays for a significant portion of the covered person’s medical expenses.

Most qualifying expenses include routine doctor visits and medical care, inpatient hospital stays, emergency services, mental and behavioral health, substance abuse treatment, and preventive care.

Preventive care is performed regularly to detect or prevent health issues early, so they can be avoided or treated before they become more serious. Most commercial health insurance policies cover these preventive services at no cost to the patient.

Preventive care is performed regularly to detect or prevent health issues early, so they can be avoided or treated before they become more serious. Most commercial health insurance policies cover these preventive services at no cost to the patient.

Elective procedures that are not deemed “medically necessary” by the carrier or a physician, generally are not covered.

When you have a commercial healthcare insurance policy and you see a doctor, the office will submit a claim for the care provided to the insurance company.

The insurance company will directly reimburse the doctor for their work and pay the covered amount of the bill. If a balance remains after the insurance company has paid its portion, you will be billed for it.

Most insurance carriers have contracts with specific providers, so the insurance policy will generally cover a larger portion of the overall cost if you visit a doctor who is within your insurance provider’s network


There are several different types of commercial health insurance available.

We will talk about each one in turn so that you have all the information about your options, how each type works and the major distinctive difference between each one.

Here are some of the most common types of commercial health insurance:

Health Maintenance Organization (HMO):

HMOs require you to choose a primary care physician (PCP) within their network of contracted providers. You must see this PCP for any health issue except for emergencies.

The PCP can then refer you to a specialist (also in the HMO’s network) if they cannot treat the issue and resolve the health concern.

The exception is only to this is when you see an obstetrician/ gynecologist, with whom patients can make an appointment directly.

HMOs often have the lowest premiums and out-of-pocket costs, but they offer fewer choices in terms of where you can go to receive your care. If you want to see a doctor outside the network, it will not be covered. The amount you pay for a monthly premium, yearly deductible, and co-pay costs depends on your plan.

Preferred Provider Organization (PPO):

PPOs also have a network of physicians, but compared to HMOs, they tend to offer policyholders more flexibility and freedom. Just like an HMO, if you visit an in-network doctor, your co-pay will be lower and a larger portion of the services are covered.

With a PPO, you will get some coverage if you see a doctor that is not in your network, but a smaller portion of the cost will be covered and you will end up paying more out of pocket.

Also, if you want to see a specialist, you do not need a referral from your PCP.

As with HMOs, there is a monthly premium, a yearly deductive and co-pays to enroll in a PPO and the amounts of these fees will vary from policy to policy.

Exclusive Provider Organizations (EPO):

An EPO requires you to see in-network doctors, but you do not have to see a PCP for a referral before seeing a specialist.

EPOs do not provide any out-of-network coverage, so your choices are limited to in-network providers, but because of this EPO plans are less expensive than most HMO or PPO plans.

EPOs often best meet the needs of young, healthy individuals who do not expect to use many medical services in the coming year.

EPOs charge premiums, deductibles, and co-pays just like HMOs and PPOs.

Point-of-Service Plan (POS):

A POS combines elements of PPO and HMO plans. Under a POS plan, you will have a PCP and they will need to refer you to an in-network specialist if necessary.

Unlike other plans, when you choose a POS, many of your PCP’s services may not be subject to a deductible.

Like a PPO, you have the option of seeing an out-of-network doctor, but you can expect to pay higher out-of-pocket costs to see these doctors.

POS plans have monthly premiums, an annual deductible, and co-pays.

Flexible Spending Account:

Some employers who offer their employees a health insurance benefit may also add a flexible spending account as an optional supplement to the health benefits package.

With a flexible spending account, you will choose an amount to be taken from your salary during the year, tax-free, which will be withdrawn in equal increments from each paycheck.

You can then use this money to pay for any eligible out-of-pocket medical and dental expenses that you have during the year.

Money from a flexible spending account can be spent on many medical expenses not traditionally covered in a healthcare insurance policy, like deductibles, co-pays, eyeglasses, medical devices, over-the-counter medications, and various healthcare supplies.

High-Deductible Health Plan (HDHP):

HDHPs have a higher deductible than most other health plans. The threshold is defined as an annual deductible of at least $1,350 for an individual or $2,700 for a family, but because of this, the monthly premiums are usually lower than HMO or PPO plans.

We often see HDHPs paired with health savings accounts (which we will talk about next) to make the higher deductible more affordable.

HDHP is a great healthcare insurance option for healthy individuals who do not anticipate using many healthcare services and mostly want insurance for catastrophic healthcare issues or those that can afford to pay the large sum if a medical emergency arises.

Health Savings Account (HSA):

A health savings account is an account that allows you to put aside money to cover your deductible, co-pays, and other healthcare-related expenses.

Like a flexible spending account, you do not pay taxes on the money you put in an HSA.

These accounts can complement an HDHP to help offset the high deductible. Many health insurance companies that offer HDHPs also offer health savings accounts, but you can also open this type of account by yourself at most banks.

Private Fee-For-Service (PFFS):

A PFFS is a kind of Medicare Advantage (also known as Medicare Part C) plan that is administered by a private insurance company. You can only choose to enroll in a PFFS if you are enrolled in Medicare Parts A and B, which is only available to people age 65 or older.

A PFFS is a kind of Medicare Advantage (also known as Medicare Part C) plan that is administered by a private insurance company. You can only choose to enroll in a PFFS if you are enrolled in Medicare Parts A and B, which is only available to people age 65 or older.

Understand that with a PFFS, doctors have the right to choose which services will be covered on a case-by-case basis.

With a PFFS plan you will pay monthly Medicare premiums as well as any co-pays.


Commercial prescription drug insurance is a policy that is designed to cover part of the cost of medications prescribed by a doctor, and which are filled by a pharmacy.

Most commercial health insurance plans already include commercial prescription drug insurance as part of the policy.

However, there are plans which just cover prescriptions that can be purchased separately if your policy does not provide prescription coverage. These stand-alone prescription drug policies are offered by large commercial health insurance providers.

Just as with health insurance plans, the policyholder will pay a monthly premium for their commercial prescription drug insurance. Additionally, most plans also have an annual deductible, and a co-pay is charged based on the type of drug prescribed.

For your information, prescription drugs are categorized and organized in tiers, with the newest and most expensive drugs in the top tiers. In most cases, different drug tiers have different co-pay rates.

Insurance providers prefer to have prescriptions filled with generic drugs, which cost the least if they are available. When you opt for a prescription at a lower tier, your co-pay will be smaller. Name-brand drugs typically cost more, especially if a generic version is available.

It takes time for new drugs to appear on the insurance tiers, so specialty drugs require special handling and often require their own co-pay.

As you know, there are thousands of drugs available today and every day even more are researched, developed, and sold.

But not all drugs are created equal. There are cases where new drugs may cost more because of research and development yet offer no additional health benefits. Make sure you talk with your doctor about the why the prescribed medicine will work best and if a generic or alternative brand will be just as effective.

The medical advances in the pharmaceutical industry are phenomenal. A disease that would have killed my father-in-law a few years ago, is now easily managed with daily medication.

When situations like this arise in your life, you want to be prepared with adequate prescription drug coverage so that you can receive the enormous health benefits prescriptions can provide and avoid the financial costs they can require.


As you can see, there are lots of ways to meet your personal healthcare insurance needs. Not every policy will work for every consumer or every family. Your personal healthcare needs and conditions will play a factor in your decisions about your coverage.

Buying policies vary greatly in terms of premium price, deductible, and co-payments. A careful evaluation of all your options in terms of your personal situation is the best way to make sure you have the right commercial healthcare and prescription drug coverage.

When you consider buying a commercial healthcare insurance policy or a stand-alone prescription drug plan, talk to an experienced and knowledgeable insurance broker that can guide you and sift through the options to find what’s right for you.

At Insurance Professionals of Arizona, we have decades of experience in health insurance and we can assess your personal needs to get you the best policy at the best price. This is our specialty.

At IPA we are independent insurance brokers which means that rather than being confined to the insurance products of one company, we have access to the policies of dozens of companies.

This allows us to shop for exactly what you need, compare rates, and get you the most coverage with the best premiums and deductibles. We care about your budget, your health, and your lifestyle and we are confident that we can find a policy that takes care of all three.

There is an old saying that you don’t need insurance until you need it. Don’t wait to get the healthcare insurance and prescription drug insurance you need until after you receive a challenging diagnosis.

At IPA, we want you to be prepared for anything so that you can have the peace of mind and financial security you need to fully enjoy your life.

We’re here to help. Contact us today or fill out an interest form here on the website and we will get in touch with you. Let our expert brokers help you get properly protected today.

We’re here to help! Call us today.

Now It’s Your Turn

I hope Understanding Commercial Prescription Drug Insurance.

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