Prescription Drug Plan (Prescription Drug Benefit)


The term prescription drug plan refers to a benefit an employer may offer to both existing employees as well as retirees.  Prescription drug plans can be a valuable benefit to current employees, while plans offered to retirees that are age 65 and older may supplement what is available through Medicare Part D (drug coverage).


An employer-sponsored prescription drug plan is a valuable benefit if an employee, or a member of their family, has a pre-existing medical condition.  While the benefits offered under these plans are typically comprehensive, they normally do not provide coverage for medications the Food and Drug Administration (FDA) has not approved as well as those used for cosmetic purposes.

Copayments often apply, and the amount of cost sharing paid by the employee can vary with the type of drugs dispensed as well as how they're delivered:

  • Retail Pharmacy Network:  the employee may be asked to obtain their prescription medications through a network of pharmacies.  Employees obtaining prescriptions out-of-network will be responsible for a larger portion (or all) of the medicine's cost.
  • Incentive Formulary:  if the plan has this feature, the employee is asked to select from a list of drugs in each therapeutic class.   Incentive formularies are based on the overall value they provide to the employer.  For example, several pharmaceutical companies may offer cholesterol lowering drugs.  If the employee selects the drug offered in the incentive formulary group, their cost will be lower.
  • Generic Drugs:  lower copayments may apply if the employee works with their doctor to have the prescription written to a generic instead of a branded drug.
  • Mail Orders:  if the employee, or a member of their family, has a long-term need for a prescription medication, they may be able to receive the drug at a discount if it is delivered through the mail from the network's pharmacy.

Related Terms

401(k) plan, disability insuranceflexible benefits plan, flexplace, flextime, floating holiday, paid breaks, mandatory employee benefits, phased retirement, relocation services, vision care benefit, voting rights