Prescription Drugs Cheaper Without Insurance? Here’s Why

Have you ever gone to fill a prescription at the pharmacy, only to find out that not using your insurance would actually save you money? It seems counterintuitive, but it happens more often than you might think. Pharmacy benefit managers, or PBMs, are the middlemen between pharmacies, drug manufacturers, and health insurance companies. PBMs negotiate drug prices with manufacturers and determine how much insurers will reimburse for a medication. Sometimes they are able to get a lower price for a drug than the list price you would pay without insurance. But other times, they fail to get a good deal, and you end up paying more by using your insurance. It’s a frustrating situation, but by understanding how PBMs operate and why this price discrepancy happens, you can make sure you always get the best price on your prescription drugs.

How Drug Prescription Costs Work

Have you ever noticed that sometimes your prescription drugs are cheaper when you pay for them outright instead of using your insurance? It can be confusing, but here’s the deal.

Drug companies set the initial list prices for medications, and they’re often way higher than the actual cost of making the drug. Your insurance company then negotiates discounts and rebates with the drug companies to get a lower price. The price you end up paying depends on your insurance plan and coverage.

Prices Are based on Perceived Market Value

When it comes to prescription drugs, insurance companies negotiate the lowest prices they can with pharmacies and drug manufacturers based on the volume of business they can provide. But without that insurance leverage, pharmacies and drug companies can charge you whatever they think the retail market can bear for your medication.

So how do drug companies determine a drug’s retail price? It really comes down to perceived value. If it’s a drug that treats a chronic or life-threatening condition, companies know people will pay more for it, so they hike up the price. The more unique the drug and the higher the demand, the steeper the price tag.

When Your Prescription is More Expensive with Insurance

Name Brand vs. Generic

Sometimes a name brand prescription drug is actually more expensive with insurance compared to paying out of pocket for a generic version. Name brand drugs are often priced higher, even after insurance discounts. The insurance company and pharmacy benefit manager (PBM) have deals in place with drug manufacturers to provide rebates on name brands. Although you may get a lower copay at the pharmacy counter, your insurance company is actually paying a lot more for that name brand drug behind the scenes.

Drug Tiers

Most insurance plans place prescription drugs into tiers, with each tier having a different level of coverage. Name brand drugs are usually placed in higher tiers (Tier 2, Tier 3) with higher copays, while generics tend to be in Tier 1 with the lowest copays. If your specific prescription drug is in a higher tier, you’ll end up paying more for it even after your insurance discount. Check with your insurance to see which tier your prescription falls under and if a generic alternative is available in a lower tier.

Prescription Drug Costs Are Anything But Transparent

Prescription drugs are big business, and pharmaceutical companies work hard to keep their pricing strategies opaque. Here are a few reasons why your medication may sometimes be cheaper without using your insurance.

Secret Discounts and Rebates

Drug companies often negotiate discounts and rebates with insurance companies and benefit managers to get their drugs on preferred drug lists. But those savings aren’t always passed on to you. By paying cash instead of using your insurance, you may be able to get the drug for the same lower price the insurer pays. Some pharmacies like Costco offer generic drugs for very low cash prices.

The Dark Side of Paying Cash

Higher Costs Down the Road

Paying cash for prescription drugs may seem like an easy way to save money in the short term. However, there are some potential downsides to be aware of. Without insurance, you typically won’t benefit from discounted rates that many benefit plans negotiate with pharmacies and drug companies. Over time, paying the full retail price for medications can really add up and end up costing you more overall.

No Safety Net

If you have a medical emergency or unexpected illness and need expensive prescription drugs to treat it, paying out of pocket could be financially devastating. Health insurance helps ensure you have coverage for catastrophic situations. Even if you’re generally healthy, unforeseen accidents and health issues can arise at any time. Insurance provides a safety net so you don’t have to drain your bank account to pay for essential care and medications should something unforeseen happen.

Difficulty Affording New Treatments

New, cutting-edge prescription drugs are often very pricey, sometimes astronomically so. Without insurance, these innovative treatments are likely to be completely unaffordable for most people paying cash. Although new drugs may seem tempting, insurance helps make leading-edge treatments accessible by negotiating lower costs over time. Until prices drop, paying cash for the latest and greatest medications just isn’t practical or sustainable for the average person.

Work With A Benefits Provider For The Best Advice

When your prescription drugs seem cheaper without using your insurance, it can be confusing and frustrating. The reasons for this aren’t always clear, but with some investigation you may be able to find ways to save.

Contact us today to learn more about your options. 

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