When Prescription Coverage Is Not Good!

Author: Dick Hartzen

Many insureds receive an increase in benefits when a health insurance policy adds prescription coverage to the benefits that had already been granted. Other insureds may be surprised to find that the addition causes an increase in their out of pocket expenses rather than an increase in coverage. For example....

Mr. & Mrs. Richards have a standard major medical policy with a $500.00 per person yearly deductible and an 80/20% co-insurance. There is a $5,000.00 out of pocket limit in the policy. They are notified that there is a new option available that will allow them to pay a small co-payment on each prescription. An analysis may prove surprising.

They both have health problems and encounter the following bills in 2009.

Mr. Richards:

Hospital bill: $7,500.00 *
Doctors bills: $3,000.00
Prescriptions: $1,308.00

1 at $360.00 yearly.....................$30.00 a month
1 at $204.00 yearly.....................$17.00 a month
1 at $264.00 yearly.....................$22.00 a month
1 at $480.00 yearly.....................$40.00 a month

* Deductible is applied to hospital bill.

His share is: $500.00 + $2,261.60 (20% of $7,000.00 + $3,000.00 + $1,308.00) = $2,761.60.

Coverage for prescriptions would be changed and would be provided at a cost of $7.00 per prescription. His new yearly expenditure would be:

Deductible: $500.00
20% of hospital bill: $1,400.00
20% of doctor bills: $600.00
$7.00 per month X 4 X 12 = $336.00 (prescription costs)
New yearly share is $2,836.00.

Mrs. Richards:

Hospital bill: $9,500.00 *
Doctors bills: $3,500.00
Prescriptions: $1,308.00

1 at $360.00 yearly..................$30.00 a month
1 at $204.00 yearly..................$17.00 a month
1 at $264.00 yearly..................$22.00 a month
1 at $300.00 yearly..................$25.00 a month
1 at $180.00 yearly..................$15.00 a month

* Deductible is applied to hospital bill.

Her share is: $500.00 + $2,761.00 (20% of $9,000.00 + $3,500.00 + $1,308.00) = $3,261.60.

Under the new program, her new yearly expenditure would be:

Deductible: $500.00
20% of hospital bill: $1,800.00
20% of doctors bills: $700.00
$7.00 per month X 5 X 12 = $420.00 (prescription costs)
New yearly share is $3,420.00.

The family would now pay $6,256.00 ($2,836.00 + $3,420.00) compared to $6,032.20 ($2,761.60 + $3,261.60) under the original program. Their out of pocket costs would have increased by $224.00. This is an increase of 3.71%.

A problem may also arise when "brand name drugs" are required. "Brand name drugs" (versus "generic") usually contain a higher co-pay. Each individual situation must be carefully reviewed. A decision made today may turn out to be wrong tomorrow. The individuals future circumstances will dictate whether or not the choice was a correct one.