March 31, 2016
I am betting plenty of you have noticed the steep rise in prescription drug costs. According to the non-profit Kaiser Family Foundation, drug prices jumped more than 11% in 2014 and are estimated to have risen another 9.6% last year. And there’s no relief in sight. The expectation is that prices will rise about 4% in 2016. All of that is during a stretch when annual inflation has averaged less than 2%.
There are a few different forces working against anyone who has ongoing prescription drug needs. Mergers of pharmaceutical companies has created less competition, and health insurance companies have been changing their payment levels for meds. It’s not just the high-cost cancer drugs, but also consumers using more common drugs are encountering new sticker shock as they refill prescriptions.
Here’s how to keep your prescription drug costs down.
1. Check the “Tier” for your drug in your health insurance plan. Most insurers now shuffle approved drugs (what is called the “formulary”) into three or more tiers. Tier 1 drugs are the least expensive, with the out-of-pocket cost rising for any medication in Tier 2 etc. And these tiers are always shifting; a drug that has been Tier 1 for many years may have just been assigned to a higher tier. If your costs just went up, check if it’s because of a tier change. If so, talk to your doctor about whether there may be a compatible substitution (especially a generic), and then see if that’s in fact in a lower tier.
2. Mail it in. Another reason the same prescription may cost you more today than a month or year ago is because the pharmacy you’ve used for eons is no longer considered “in-network” by your insurer. Again, time to check with your plan to see what pharmacies are in network. Even smarter, if you have a chronic condition with ongoing med needs look into the mail order prescription drug service offered through your insurer. Quite often the savings can be 20% or more than the cost through a retail pharmacy.
3. Shop around. If mail order isn’t the way you want to go, download the OneRx app (iOS and Android) and let the app do some local shopping on the best deals for you. It will also scour the online world for any applicable coupons that can be used to reduce your out of pocket cost.
4. Get flexible. The ever-rising cost of prescription medications is Exhibit A for why it is smart to use a Flexible Savings Account (FSA) if your employer offers one. You contribute money pre-tax through payroll deduction (the max in 2016 is $2,550) and can use the money in your FSA to pay for your prescription drug costs. So right there, if you happen to be in the 25% federal tax bracket, you’ve just effectively saved 25% by paying out of your FSA.
Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.