Prescription Insurance Terms Explained: A Pharmacist’s Glossary

Confused about the terminology on medication prescription and health insurance paperwork? You're not alone. Alexandria Yarbrough, Pharm D, draws on her decade of experience as a pharmacist to break it all down. 

Use her easy-to-use glossary the next time you need to get a prescription filled to help you get the best price when you get to the register at your pharmacy.

Coinsurance

The percentage amount you pay for healthcare services and prescriptions based on your plan. Oftentimes, you must reach your deductible to pay this amount and will do so until you reach out of pocket max. It is usually an 80/20 split with the patient paying 20%.

Co-pay

A set, flat fee you pay out of pocket for medication. It is a part of your health plan cost, and the rest of the cost is paid by your insurance company. Example, all generic cholesterol medications in the “statin” class are $4 for a 30 day supply or $10 for a 90 day supply.

Coverage Gap

This can refer to two different insurance coverage issues. The most common is the Medicare Part D coverage gap that is also known as the “doughnut hole”.  The gap is a temporary phase in prescription drug coverage where you’re required to pay a higher share of drug costs before hitting catastrophic coverage. As of right now, legislation has mandated that the amount include a $2000 cap. It doesn’t apply to every plan and doesn’t happen each year. It depends on your plan, your healthcare costs that particular year, your medications, etc. The coverage gap can also refer to the Medicaid Coverage Gap. This is present in 9 states where residents are unable to afford health insurance, meet the poverty level requirements for Medicaid, but are excluded for other reasons set by the state.

Deductible

The threshold that is set before your insurance coverage works. This is usually used for medical costs unless you are on government issued insurance such as Medicare Part D. Example: Your aunt is 67 and takes the medication Jardiance. Her cost is $300/month until June. Once she hits her deductible in June, the cost is only $47 for the rest of the year. Except when she reaches the coverage gap or “doughnut hole”.

Drug Tier

A pricing tier used by health insurance plans to organize prescription medications by cost, type, and usage. Lower tiers mean lower out-of-pocket costs, while higher tiers mean higher costs. Ex. Tier 1 includes generic medications such as amoxicillin whereas tier 3 consists of non-preferred brand name drugs.

Flexible Spending Account

An employer-sponsored pre-tax account used to pay for health care. Key features include tax savings on contributions, ownership by the employer, and a general "use-it-or-lose-it" rule for yearly balances.

Health Savings Account

A personal, tax-advantaged savings account used to pay for qualified medical expenses. A HSA requires enrollment in a High-Deductible Health Plan.

Manufacturer Coupon

A coupon offered by the company that makes the drug to bring the cost down. This is almost always exclusively for brand name drugs. Can not be used with government insurance such as Medicare Part D or Tricare. They are most beneficial when paired with commercial health insurance. They cannot be used along with discount cards, you must choose one.

Medicaid

A joint federal and state program providing free or low-cost health coverage to eligible low-income individuals, children, pregnant women, seniors, and people with disabilities. Medicaid names are different in each state. For example, in South Carolina it’s named Healthy Connections and in Connecticut it's referred to as Husky Care.

Medicare

Government health insurance for US citizens over 65. It includes Part A (hospital stays, hospice, inpatient facilities), Part B (preventative care such as immunizations, medical equipment, outpatient visits), Part C (a private alternative to Medicare that bundles Parts A and B, often with extra perks like dental or vision), and Part D (optional, standalone private insurance plans that help cover prescription drug costs).

Out of Pocket Max

The limit on the amount of money you have to pay out of your pocket for covered health care services in a plan year. This can be an individual limit or it can consist of a family limit if you have a spouse or dependents on your plan. Once the limit is met, all subsequent health care costs are covered. Most times that means 100% covered but not always.

Premium

The payments the insured person pays to have health insurance. If you get health insurance through an employer, they will often cover part of the premium but it depends on the plan you choose and your employment contract. Most are monthly or biweekly payments. If you want a lower premium, you often have a higher deductible.

Prior Authorization (PA)

A health insurance approval process requiring advanced permission from an insurer before a medical service, treatment, or prescription is covered. It involves collaboration between pharmacies, doctors, and insurers. The purpose is to check for medical necessity, safety, and cost control. Can be required monthly-annually depending on the medication and plan. Just because they are completed, it does not guarantee approval.

Step Therapy

An insurance coverage rule requiring patients to try an alternative lower-cost medication before the plan will pay for a more expensive or newer drug prescribed by their doctor. This is usually part of a Prior Authorization.

Tricare

Government health insurance that covers active duty members, veterans, and their family members. Excellent coverage but only accepted at certain pharmacies. Pharmacy choice can vary year to year.

About the Author of this Glossary

Alexandria Yarborough, PharmD, is a Community Pharmacist and Pharmacist in Charge at Sam’s Club in South Carolina. She has almost a decade of experience in the field of pharmacy.

Want to hear more from Brandy? Check out the YMyHealth Podcast on our on your favorite streaming platform!