You have probably seen a commercial for a new prescription drug and thought, "Maybe I should ask my doctor about that." Or maybe your doctor has already prescribed something new, and you were shocked by the price of it when you got to the pharmacy counter. Prescription drugs are a critical part of healthcare, but the way they are paid for can feel confusing.
And the out of pocket costs seem to get higher every year.
If you have ever felt frustrated by the cost of a prescription or confused by the steps required to fill one, you are not alone. Here is how the process works, and what your health insurance provider is doing behind the scenes to make your medications more affordable.
The Prescription Drug Cost Problem
Americans pay more for prescription drugs than anywhere else in the world. In 2024 alone, the United States spent a staggering $805 billion on prescription drugs, according to a report from the American Society of Health-System Pharmacists. That was more than 24 cents of every premium dollar according to America’s Health Insurance Plans, and those costs are only expected to accelerate in 2026— driven by rising prices, including costly new gene and cell therapies, and growing demand for other expensive drugs like GLP-1 weight-loss medications.
Part of what drives these high prices is direct-to-consumer advertising. Drugmakers spend billions on TV and online ads to boost demand for their most expensive products — and those campaigns are even tax deductible in the US, meaning taxpayers subsidize the marketing that arguably drives up prices for patients and families. The price of a drug should reflect how well it works, not how much was spent advertising it.
A fun fact – just the United States and apparently, New Zealand, allow this type of advertising. It’s supposed to be regulated. Maybe easier to regulate in New Zealand, where they have a centralized public body that negotiates and controls the price of drugs using evidence based standards. and a population of slightly more than 5 million. Everywhere else, including in the EU where people live longer than they do in the US, direct-to-consumer tv advertising is not allowed.
The cost of development of a drug is not cheap. Direct-to-consumer advertising can also speed the return on investment for the drug manufacturer. This has been especially important with GLP-1’s.
How Your Prescription Benefit Works
Whether you get insurance through your employer, the marketplace, Medicare Advantage, or Medicaid, your health plan includes a pharmacy benefit that determines which drugs are covered, how much you pay, and what steps may be required before a prescription is filled.
Most plans organize drugs into a formulary grouped by tiers. Tier 1 typically includes the lowest-cost options, like generics. Higher tiers include brand-name and specialty medications. The tier your drug falls on directly affects your co-pay at the pharmacy.
Generics are not lesser versions of brand-name drugs. They contain the same active ingredients and go through the same FDA approval process. The only difference is the price. Choosing a generic when one is available is one of the easiest ways to save money on your prescriptions.
How Your Health Care Coverage Protects You
Your health insurance provider uses several common-sense tools to make sure you get the right medication at an affordable price. One is prior authorization — a review step before certain prescriptions are approved. It serves two purposes.
First, it is a safety check. Not every medication is right for every patient. A drug that works well for one person may interact dangerously with another person's existing medications or conditions. This review confirms a drug is safe and appropriate for your situation.
Second, it identifies more affordable alternatives that work just as well. Older, well-established medications often have years of real-world evidence and deliver the same results at a significantly lower price. Your plan may ask that you try a proven option first — a common practice called step therapy. This is not about limiting your care. It is about connecting you with medications that deliver the best health outcomes at a price that works for your family.
These steps matter more than ever. Drugmakers are setting higher launch prices and sometimes raising those prices multiple times a year, often outpacing inflation. Without formulary management, tiered pricing, and review processes like prior authorization, prescription drugs would be even less affordable for families across the country.
What You Can Do to Save Money
There are simple steps you can take right now to make your prescriptions more affordable.
Ask about generics or biosimilars. A quick conversation with your doctor can move you to a lower tier and save real money.
Use your plan's preferred pharmacy. Many plans offer preferred networks, including mail-order options, with lower co-pays — especially for 90-day supplies of medications you take regularly.
Review your formulary before open enrollment. Check whether your medications are covered, and on which tier, before choosing or renewing a plan.
Check for savings programs. Many drugmakers offer copay cards or patient assistance programs. Your pharmacist or plan's customer service line can help.
Talk to your pharmacist. Pharmacists can flag more affordable alternatives, check for interactions, and coordinate with your doctor if a switch makes sense.
The Bottom Line
With drug costs climbing and pharmaceutical companies spending billions to drive demand for their most expensive products, the steps your doctor and your health insurance provider take to support your pharmacy benefit by using evidence-based prescribing guidelines are more important than ever. From formulary design to safety reviews, these common-sense protections exist to support your health and your household budget. That is something worth understanding.
