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Pharmacy benefit tiers explained – Essential insights for employers

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Key Takeaways

  • Tiers group medications by cost to balance affordability and access, with most employers using three or four levels.
  • Tiers help manage pharmacy expenses, which make up a large portion of healthcare costs, with PBMs negotiating prices.
  • Tiers offer cost-saving options, but higher tiers can lead to significant out-of-pocket expenses for employees.

When it comes to keeping employees healthy and happy, pharmacy benefits play a big role. But for employers and members, managing these benefits can get a little complex, especially with pharmacy benefit tiers.

These tiers—think levels that separate generic drugs, preferred brands, and specialty medications—are essentially a way of organizing prescription coverage to balance cost and care.

For employers, understanding these tiers isn’t just about saving money; it’s about offering a benefit that can directly impact employee satisfaction and well-being.

 

What are pharmacy benefit tiers?

Pharmacy benefit tiers are essentially levels that group medications based on their cost and type, designed to make both prescribing and payment smoother. For example, Tier 1 usually includes generic drugs, which are the most affordable option for employees. Moving up, Tier 2 often covers preferred brand-name drugs that might cost a bit more, while Tier 3 or Tier 4 might include non-preferred or specialty drugs, typically with higher out-of-pocket costs.

These tiers help manage expenses by giving employees options that match their needs and budgets. Around 85% of employers offer a three- or four-tier pharmacy plan, making it a popular strategy for balancing employee access and cost savings​.¹

 

Why pharmacy benefit tiers are important for employers?

Pharmacy benefit tiers are more than just a way to organize medications—they’re a key part of managing healthcare costs.

By creating different tiers for generic, brand-name, and specialty drugs, employers can better control spending on prescription benefits, which can otherwise add up quickly. In fact, pharmacy costs account for almost 30% of an employer’s total healthcare expenses

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This is where Pharmacy Benefit Solution come in. They work with employers to set up these tiered plans, negotiate drug prices, and manage which medications fall into each category. Their goal? To make sure that both the company and its employees can access necessary medications without breaking the bank.

By carefully managing these tiers, PBMs help keep pharmacy spending in check while ensuring employees have access to a wide range of treatment options.

 

How tiers impact employees

Pharmacy benefit tiers directly shape employees’ experience with their prescription coverage. With a tiered system, medications are grouped by cost, so employees often pay the least for Tier 1 drugs (usually generics) and more for higher-tier options, like brand-name or specialty drugs.

This setup allows employees to save on lower-tier medications, but when a specific, higher-cost drug is essential, they may face higher out-of-pocket expenses.

For many, these costs are significant; over 40% of employees report that prescription drug prices impact their ability to afford care.³ The tiered system gives employees choices that fit their budgets, yet it’s a delicate balance between accessing essential medications and managing costs.

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Strategies for optimizing pharmacy benefit tiers

Employers looking to manage healthcare costs while keeping coverage robust can adjust their pharmacy benefit tiers to get the best of both worlds. By carefully structuring these tiers, they can prioritize cost-effective options like generics in the lower tiers, while still allowing access to necessary brand-name or specialty drugs in higher tiers. This setup helps keep spending under control without sacrificing employee access to essential medications.

A pharmacy solution, like Intercept Rx, plays a critical role in this process. Intercept Rx focuses on structuring tiered formularies strategically to ensure better cost management and clearer options for employees. Employers who partner with us often save significantly—up to 25% on pharmacy costs through improved management and cost-effective solutions.

 

Conclusion

Pharmacy benefit tiers are a powerful tool for employers, allowing them to balance cost savings with comprehensive coverage. By structuring benefit tiers thoughtfully, employers can provide affordable options for employees while keeping prescription expenses manageable.

Working with a transparent PBM like Intercept Rx maximizes the impact of a tiered approach, benefiting both the business and its employees.

For a deeper dive into why Intercept Rx stands out as a trusted partner, check out this article on how Intercept Rx leads in transparency, cost control, and innovative pharmacy solutions.

To learn more about how Intercept Rx’s Rx Optimization Program can streamline pharmacy costs and enhance benefit offerings, request a Free Savings Analysis to find the best strategy for your company.