Prescription Drug Cards: What and Why?

Mar 17, 2014

Prescription drugs is one of the most widely used benefits in an employee benefit plan. It typically makes up 60-70% of total health care claims and thus, having a drug card or not having one is something that highly impacts an employee. To clarify, there are three drug plan options:

Pay-Direct – Drug card that submits automatic payment to the pharmacist at point of sale and no further action is required of the plan member.

Deferred – Members have to pay at the pharmacy but the insurance company will reimburse the employee automatically once a certain dollar limit or time amount has been reached (ie. earlier of $75 or 15 days).

Reimbursement – Members have to pay at the pharmacy and submit claims online or paper claim forms for reimbursement.

Plan sponsors currently with reimbursement plans will find that moving to a drug card could increase their premium rates in the short term because of “point of purchase convenience” and the “shoebox” effect.  “Point of purchase convenience” occurs when someone gets a prescription when potentially not needed because they are not out of pocket any money.  “Shoebox” occurs as some members hold onto receipts and forget to submit them, resulting in reduced claims. However, with the perpetuation of online claims submission, much of the “shoebox” effect has been reduced or eliminated. The short term increase in drug claims will be more than offset over the longer term as the plan sponsor gains control of their drug management.

With the increasing complexity of drug plans and escalating drug costs, it is our recommendation for plan sponsors to consider a drug card (pay-direct or deferred) as there are benefits for both employees and employers:

Employers Employees
  • Control dispensing fee and pharmacy mark-up
  • Great choice of drug formularies which will provide the opportunity for the plan sponsor to control drug costs
  • Enhanced drug reports which will provide the plan sponsor macro information – the employer can then put targeted health initiatives in place.
  • Limited out of pocket expense (pay-direct)
  • No paperwork


Having a well-developed plan that meets both your employees and your organization’s needs is imperative as prescription drugs is one of the most costly and visible parts of your benefit plan.

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