There is no doubt prescription drug costs are increasing and remain a financial challenge for many Americans, including federal employees and retirees. To help make prescription drug costs more affordable, prescription discount programs have become popular as a way for individuals to access lower drug prices. While these programs can offer cost savings, it is important for federal employees and retirees (especially federal retirees enrolled in Medicare) to understand the implications of making use of a prescription drug discount program.
How Prescription Drug Discount Programs Work
Prescription drug discount programs (for example, the GoodRX prescription drug discount program) negotiate lower prescription drug prices with the drug companies. This allows individual insurers to purchase prescriptions at reduced rates. These discounts can sometimes result in significantly lower prices compared to what health insurance plans, including the Federal Employees Health Benefits (FEHB) program, pay for insurance covered prescriptions. Greater visibility into drug pricing can help individuals make more informed financial decisions.
For individuals paying out-of-pocket for their prescription drugs, the savings on using drug discount programs can be enormous. There are examples of prescription drugs that cost $11 cash using a prescription drug plan but cost $2,000 out-of-pocket if the prescription drug is covered on a health insurance plan.
Some Strategies for Federal Employees/Retirees for Managing Their Prescription Drug Expenses
Federal employees and retirees are encouraged to be proactive when it comes to financially managing their prescription drug coverage and to maximize their savings with respect to their prescription drug expenses. The following are some proactive steps they can take:
- Verifying coverage. Employees and retirees should check whether their medications and their family member medications are included in the FEHB program health plan formulary. A formulary is a list of prescription drugs covered by a health plan. A formulary is in fact a “drug list” that outlines which medications are included in a health insurance plan’s coverage.
- Consider generic alternatives. Asking a doctor about lower-cost alternatives can result in significant savings when it comes to prescription drug expenses. Asking the question: “Is there a generic drug that I can try first?” can perhaps result in a lower out-of-pocket prescription drug expense.
- Conduct annual FEHB program health plan review. It is important for employees and retirees to stay informed about their FEHB health plan changes from one year to the next. This can prevent overpaying from one year to the next.
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What Federal Retirees Enrolled in Medicare Part D Prescription Drug Plans Need to Consider
Starting in 2022, the Office of Personnel Management (OPM) allowed and encouraged FEHB health insurance plans to offer prescription drug plans (PDPs) through Medicare Part D (Prescription Drug plan) for federal retirees enrolled in Medicare Part A only, or Medicare Part A and Medicare Part B. Most plans automatically enrolled retirees in their PDPs. The plans gave retirees a certain amount of time to opt out of the PDP. If they opted out, a federal retiree would maintain their prescription drug coverage offered through their FEHB program health plan.
Those federal retirees who are enrolled in a PDP should be aware that while using prescription drug programs can lower their immediate prescription expenses, they do not count toward Medicare Part D out-of-pocket limits or deductibles. The new Medicare Part D $2,000 annual cap on out-of-pocket prescription drug expenses for 2025 is significant. Using prescription drug discount cards does not count towards the $2,000 cap on prescription drug expenses. This is a crucial factor for federal retirees enrolled in a FEHB program health plan PDP to consider in managing their prescription expenses over the long term.
Medicare Part D PDPs change annually, which impacts prescription drug coverage and costs. It is important for federal retirees enrolled in a Medicare Part PDP to review their plans each year during the annual FEHB program “open season” in order to avoid unexpected price increases for the new plan year. In short, a PDP can change its formulary significantly even if the PDP name stays the same. A $5 PDP out-of-pocket cost this year could increase to $50 next year. A federal retiree enrolled in a PDP needs to be vigilant in being aware of what they are paying out-of-pocket this year and what they will be paying out-of-pocket in future plan years.
Prescription drug discount programs can offer enrollees significant savings but not without trade-offs. It is important for federal employees and retirees, particularly retirees who are enrolled in Medicare, to understand the impact of prescription drug discount programs on their FEHB program health insurance prescription drug coverage. This is essential for employees and retirees in order to make better and informed decisions when it comes to their, and their family member’s, prescription drug needs.
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be dependable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.