Specialty Drugs

What are specialty drugs?

Specialty drugs sometimes need special handling and are given by injection or infusion.

You may get them through a pharmacy if you take them yourself, or in a clinic if they need to be injected and monitored. They often need special approval before they can be ordered. In some cases you may have to get them through a specialty pharmacy.

In 2021, $301 billion was spent on specialty drugs. That was 50% of all drug spending, even though less than 2% of the population uses specialty drugs.

The costs are often high, but these drugs can be life-changing. They can be very effective at treating or managing serious conditions.

♦ Specialty drugs are used to treat complex, chronic conditions like cancer, rheumatoid arthritis and multiple sclerosis.

It's not uncommon to see costs of $2,000 or more per month.

♦ The AARP Public Policy Institute reported that in 2020 the average yearly cost of one specialty drug was $84,442. The median U.S. household income that year was $67,521.

Does insurance cover specialty drugs?

Specialty drugs may be covered by insurance under either your pharmacy benefit or your medical benefit. It depends on how the drug is given and how your health plan handles it.

→ On average, about 65% are paid under pharmacy benefits.

♦ The distinction mostly comes down to where you get the drug.

• If you take the drug at home (self-administered), it's normally covered under your plan's prescription benefits. If you have to go to a doctor's office or outpatient clinic for an injection or infusion, it will most likely be covered as a medical benefit.

♦ More than 80 percent of cancer medication costs are billed through the medical benefit.

• Spending is growing faster for specialty drugs covered under the pharmacy benefit. That's because there are more and more pills and self-injected specialty drugs on the market.

♦ Not all specialty drugs are covered by every health plan. If the drug is self-administered and not on your plan's formulary, you have to pay all the costs. You can request an exception. But if the cost is very high, your insurer will be reluctant to approve it.

Plans that do cover specialty drugs often charge hefty coinsurance. Many Marketplace plans put specialty drugs on their highest tier, with coinsurance of 40% or more.

Medicare

Medicare finally has a ceiling. Starting in 2025, the Inflation Reduction Act capped what Part D members pay out of pocket for covered drugs. The infamous "donut hole" is gone.

The cap was $2,000 in 2025, $2,100 in 2026, and rises to $2,400 in 2027. Once you hit it, you pay nothing for covered drugs the rest of the year. For someone on an $84,000-a-year specialty drug, that's life-changing.

♦ You can also spread those costs out over the year with the Medicare Prescription Payment Plan, instead of getting hit with a huge bill in January.

♦ Several of the first drugs Medicare negotiated prices on are specialty drugs, like Enbrel, Stelara and Imbruvica. Those lower prices took effect in January 2026.

Obamacare and specialty drugs

♦ Since 2014, thanks to the Affordable Care Act, all non-grandfathered plans have to count what you pay for covered prescription drugs toward your out-of-pocket maximum.

What this means: if you have very high copays for specialty drugs, you get some relief once you hit your out-of-pocket maximum, as long as that maximum isn't sky-high.

• The Affordable Care Act in 2010 also created a path for a new class of drugs called biosimilars, cheaper copies of biological drugs. The idea was that they would cut costs the same way generics do.

Biologics are used to treat a range of diseases, including cancer, rheumatoid arthritis, diabetes and anemia.

It took a while, but biosimilars are here. Humira, one of the best-selling drugs of all time, got biosimilar competition starting in 2023. The savings haven't been as big as with generics, but prices are coming down.

Assistance paying for expensive drugs

Appeal. If your plan doesn't cover your drug, ask for an exception. If it's denied, don't give up. You have the right to appeal.

A high percentage of appeals are successful. Good documentation, especially showing why you need the drug, is the key. Learn more about appeals.

♦ If you're taking an expensive drug, even if it isn't a specialty drug, check with the drug manufacturer to see if they have any programs to help.

Some drug companies have Patient Assistance Programs (PAPs) that offer low-cost or free drugs to people with low incomes.

• Manufacturer copay coupons are now common for expensive brand-name drugs. They can knock your copay down to almost nothing.

But there are catches. Coupons can't be used if you have Medicare or Medicaid. And some insurance plans use "copay accumulator" programs, where the coupon money doesn't count toward your deductible. You can burn through the coupon and then get hit with the full deductible mid-year. Check with your plan.

♦ A number of organizations and charities may be able to help. Many focus on specific illnesses such as leukemia and other cancers. NeedyMeds.org, a long-running nonprofit, is a good place to start. It lists patient assistance programs and disease-specific charities.

There are plenty of other websites promising to help pay for prescriptions. Approach them with extreme caution.

• We have not been able to verify which ones really help and which ones just collect your personal information.

Medicaid and the Children's Health Insurance Program (CHIP)

These programs provide free or low-cost health coverage to millions of Americans.

Medicaid pays for medical care for people and families with low incomes and few assets. It is funded jointly by the states and the federal government, and run by the states.

Prescription coverage is technically optional under federal Medicaid law, but every state currently covers outpatient prescription drugs.

Each state has its own rules about who qualifies and how to apply. How prescriptions are handled depends on your state, so contact your state Medicaid agency.

CHIP provides low-cost health coverage to children in families that earn too much to qualify for Medicaid. It's also funded jointly by the states and the federal government.

Each state's CHIP program has its own rules about who qualifies. You can apply any time during the year. If you apply for Medicaid through your state, you'll also find out if your children qualify for CHIP.

To find your state's Medicaid agency, go to Medicaid.gov. For CHIP, try InsureKidsNow.gov or call 1-877-KIDS-NOW. You can also apply for either one through HealthCare.gov.