How Do Prescription Drug Costs Impact a Financial Plan?
February 7, 2024
If you’ve read any of our previous blogs, you know we talk a lot about including healthcare planning into your clients’ financial plans. A major component of successful healthcare planning is to include prescription drug costs. And we don’t mean just “how much do your prescriptions cost annually?” but also understanding how certain prescriptions might affect which health plan choice is best for your client annually, what resources you can use to help your clients save money on prescription costs, and even how to respond if your client asks you for help in financially planning for their prescription costs.
Common scenarios you might run into.
More and more clients of financial advisors are reporting that they want their advisors to help them financially plan for healthcare costs. A big part of healthcare costs are prescription drug costs. Don’t be surprised if a client near retirement comes to you and asks, “Will all my current medications be covered under Medicare?” Or if a client looking to cut down on healthcare costs asks you for advice on how to do so.
Another common scenario you might run into revolves around your client needing to switch health plans. We had one financial advisor whose client was entering early retirement and needed to select a health plan that would keep her prescription drug costs low. She nearly chose a plan that would’ve cost her $40,000 a year out-of-pocket in prescription costs, but luckily her financial advisor knew to keep looking and use HealthPlanner to find a more affordable health insurance plan. And they did! $35,000 more affordable, to be exact.
Clients switching health plans is likely the most common scenario you’ll see. Whether it’s changing because of retirement, a job change, a relocation, a change in health status, or any other reason, switching health plans can substantially impact your clients' prescription costs.
How health coverage affects prescription drug costs.
Clients that take prescription drugs want a health plan that 1. Keeps any and all out-of-pocket drug costs low and 2. Provides coverage for their current prescription list.
Unfortunately, that can be easier said than done. If your client is on a health plan that doesn’t cover their medication, they could potentially pay thousands of dollars out-of-pocket every year for it. For example, there are many high-deductible health plans that don’t cover drug costs until the deductible is met. But because the deductible is so high, your client will have a very hard time meeting it before the year is over. So they’ll spend quite a bit of money out of their own pocket to cover prescription drug costs and other medical services.
If your client has a plan that requires they pay a copayment for prescription drugs, they may still be paying more than needed for that medication. This is known as a “clawback”. Essentially, the copayment amount set by a health plan doesn’t change, no matter the cost of the medication. So sometimes, clients’ copayment can be more expensive than the medication itself.
Situations like this are why it’s so important to conduct annual reviews of clients’ health plans. If your client spends a lot on medications, they likely need to switch health plans. No matter what health plan a client has though, there are ways to save money on prescription drug costs.
How to help clients save on their prescription drug costs.
Generic prescription drugs are much more affordable than their “name brand” versions. Contrary to popular belief, generic drugs are not less effective or of poorer quality than name brands. The only difference is the cost and the manufacturer. So, if your client is going to be paying an out-of-pocket cost for their prescription drug, they might as well choose to purchase the most affordable version of their medication.
GoodRx is a great, free website where you can search and compare prescription costs. Before switching to a generic version of a drug, it is always recommended to first speak with the prescribing physician.
First and foremost, make sure clients are going to an in-network pharmacy. If they’re going to a pharmacy that’s not in their health plan’s network, they may be paying significantly more than they need to for prescription medications. Clients should be able to see on their health plan’s website or their member dashboard which pharmacies near them are in-network. If your client lives in a “pharmacy desert” or simply doesn’t have an in-network pharmacy near them, their next best option is to utilize coupons and discounts. They could also look into the possibility of online pharmacies.
Review their health plan
We touched on this earlier, but annually reviewing your client’s health plan is another way to keep prescription drug costs low. What was a great plan for them a year ago may not be the best plan anymore. As your clients’ medical needs change, their coverage may need to change too. Engaging in regular healthcare planning will help you and your clients find different cost-saving opportunities that adjust with their needs that current year. If you’re interested in including healthcare planning as part of your comprehensive financial plan, a back-office healthcare planning tool can help.
Whether your client has been using prescription medication for years or has recently been prescribed a new medication, it’s imperative to their financial plan, and overall well-being, that they have a health plan that’s compatible with their prescription drug needs. This will also ensure they have ways to reduce their out-of-pocket costs. Conducting a HealthPlanning Analysis, using generic versions of prescription drugs, and finding the right pharmacy are all significant ways to not only support your clients' financial needs, but their health needs too.