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How Is My Copay Determined at the Pharmacy?

Brandon is a community pharmacist working in Minnesota with over 10 years of experience in pharmacy. He welcomes comments and questions.

How is your insurance copay determined?

How is your insurance copay determined?

The Scenario

After being released from the hospital following a surprise heart attack, a 48-year-old man went to the pharmacy to pick up his new medications. He didn't realize the cost was going to be over $300, and when he found out, he asked his pharmacist, "How can this medicine be so expensive!"

The Short Answer

In most cases, the price of a prescription is affected by a combination of a few things, but is ultimately set by your insurance. Because it's your insurance setting the price, it will be the same at any pharmacy. The price will be higher if you have a deductible, are in the Medicare coverage gap, are using non-formulary drugs, or you're paying a percentage instead of a flat copay.

Sometimes, the pharmacy can see the specifics of why your insurance determined the cost to be what it is, but for the most detailed information, have the pharmacy keep the prescription billed to your insurance and give the insurance company a call.

The Long Answer

Understanding how much you have to pay for your prescriptions can be very complicated. Sometimes, people choose a particular insurance plan based on copays, but then they are surprised when the prices are higher than expected.

To understand why your prescription is what it is, it is helpful to follow the cost from the beginning to the end. The first place where a price is attached to a drug is at the manufacturer. Then, it gets modified by various companies, including the distributor, the pharmacy, and the insurance company. Lastly, your insurance applies the rules of your plan to the cost, and you get a copay.

  • The manufacturer starts the price off based on the cost of the ingredients and the difficulty of creating the drug. They then apply a mark-up based on how much they need to make back from inventing the drug in the first place. They also need to make it up to pay for advertising. There are not many rules on how much a manufacturer can decide to charge.
  • The manufacturer then sells the drug to a wholesaler. These companies store and distribute the drug to pharmacies across the country. They may be able to make deals with manufacturers to lower the amount they pay. They might get bulk discounts. They don't get to just mark the price up before selling to a pharmacy, though. The amount they charge a pharmacy is heavily regulated by law and determined base on the fair market value of each drug on any given day. These market prices can change weekly or even daily.
  • After the pharmacy purchases the drug from the wholesaler, they add some mark-ups, too. There is usually a small percentage increase, in addition to a dispensing fee that covers the expertise of the pharmacist. The mark-up from the pharmacy is been steadily shrinking over the years, which has played a strong role in "mom and pop" pharmacies closing.
  • If you don't have insurance, then the final amount, after the pharmacy mark-ups, is what you will pay. It is usually exaggerated because it is the same amount that the pharmacy will attempt to bill an insurance company for.
  • In most cases, the pharmacy will send their final pricing to your insurance company. Then, the insurance company determines exactly how much that drug is worth. Although the price is loosely based on what the pharmacy asks for, in the end, the insurance company makes an offer, and the pharmacy can "take it or leave it." For large pharmacy companies, the prices are negotiated between the two companies ahead of time behind closed doors.
  • Once the insurance determines the price of the medication, they apply the rules of your plan to that price. See the chart below for common plan variables that will change the price of your medication.
  • After all the calculations have been completed, you get the cost of your medication.

Insurance Factors That Affect Costs

What is it?How does it affect cost?What does it mean?


Increases cost at the start

This is the dollar amount you need to pay before your insurance really "kicks in."

Medicare Coverage Gap

Increases cost

After your insurance pays a certain amount, your costs will significantly increase until you pay a certain amount


Might increase or decrease

Your insurance keeps a tiered list of drugs that they want you to use based on cost. If you use their choices, you will pay less. Otherwise, you will pay more.

Prior Authorization

Insurance won't pay anything

Your physician will need to convince your insurance that the medicine is necessary for you before they will pay

Step Therapy

Insurance won't pay yet

Your insurance requires you to try a different, cheaper drug first in hopes that it will be effective

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Specific Events That Affect Drug Prices

EventHow does this affect price?How much does this affect the price?

Drug shortage

The manufacturer will increase the price to make up for lost sales

Usually small, but can be large

A drug goes generic

There is now competition and the wholeseller can choose the cheapest option

This is the number one cause of lowered prices

A drug is rarely use

The manufacturer will set the price high to make the most of each sale

Prices are usually very high on these medications

Insurance/pharmacy deals

You will pay less because your insurance and pharmacy have signed a contract.

Not a lot, but usually enough to use one pharmacy over another.

Work With the Professionals

As you have learned, the price of your prescription is based on a lot of things. Perhaps the most important thing to understand is that, in the end, there is very little that anyone can do to affect the price you pay. Manufacturers get to set the price at whatever they want, and insurance companies have similar freedom. The best thing you can do is work with your physician and pharmacist to find a therapy that suits you best and is affordable.

Changing Pharmacies Usually Won't Help

  • Remember, the price of your prescription is usually set by your insurance, not by the pharmacy.
  • There are cases where your insurance has signed a deal with a certain pharmacy company. Ask your insurance if that is the case.
  • If your are not saving money, changing pharmacies can be dangerous. Sticking with one pharmacy allows that pharmacy team to get to know you and your drug therapy. They will be able to help you the best.
  • Instead of changing, work with your pharmacist to find more cost-effective alternatives.

When Might Changing Pharmacies Make a Difference?

  • You don't have insurance.
  • Your insurance doesn't pay for a particular medicine.
  • Your insurance has a deal with a certain pharmacy company.
  • You pay a percentage of the total cost instead of a copay. This is not very common.
  • You are in the medicare coverage gap. There may be small differences in the price.

I’m Not Happy With My Costs! What Else Can I Do?

  • Work with your physician and pharmacist to find cost-effective alternatives.
  • Try a generic or a similar but different medication.
  • Ask your insurance if they are alternatives they would charge you less for.
  • Choose and insurance plan with a low deductible.
  • Choose an insurance plan that has the medications you take on a low tier (formulary).
  • See if there is a coupon available for your medication (check online, or ask your pharmacist).
  • Remember, sometimes there isn't a way to reduce the price. In those cases, you will have to work with your healthcare team to determine if it is worth the cost.

This content is for informational purposes only and does not substitute for formal and individualized diagnosis, prognosis, treatment, prescription, and/or dietary advice from a licensed medical professional. Do not stop or alter your current course of treatment. If pregnant or nursing, consult with a qualified provider on an individual basis. Seek immediate help if you are experiencing a medical emergency.

© 2015 Brandon Young


Brandon Young (author) from Minnestoa on July 06, 2015:

I'm glad you found it helpful, Leslie. I think understanding things makes them easier to accept. Let me know if there are any other specific topics you'd like to hear about!

Leslie Ramos from Denver, Colorado on July 06, 2015:

Thank you for writing! Like most people, I feel like my prescriptions are way too high, but at least now I have a better idea of why.

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