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Understanding Prescription Plans and the Drug Formulary

Although Original Medicare does not cover prescription drugs, beneficiaries can get this coverage through Part D. Available as a standalone plan or through many Medicare Advantage plans, Part D helps cover the costs of prescription drugs. However, to understand how your prescription plan works, you need to understand your drug formulary. This post covers the basics of Medicare Part D and explains the formulary, including drug tiers.

What Does Medicare Part D Cover?

Medicare Part D plans are provided by private insurers (which are approved by Medicare). Coverage details vary by plan and insurer, but the basics are the same. A prescription drug plan helps pay the costs of doctor-prescribed medications. Each plan uses a drug formulary, which is simply a list of medications covered by your insurer.

The formulary includes tiers, numbered from lowest to highest. Typically, you find between three and six tiers to a drug formulary. As you make your way up the tiers, your costs rise.

In addition, Medicare Part D offers Medication Therapy Management programs to help you manage your medications. They’re available for all Part D beneficiaries taking medications to treat multiple conditions. The goal is ensuring your medications work well while reducing side effects, drug interactions, and costs.

What Is a Drug Formulary?

Your plan’s drug formulary is its list of covered prescription drugs. It includes both brand name and generic alternatives. Typically, your insurer uses the input from a committee of healthcare professionals to determine which medications to include in the formulary. Members evaluate each drug for effectiveness, safety, and value. As new information comes in, the committee may update the formulary as well as your overall Part D plan.

Not all formularies use a tiered system, but most Medicare drug plans do. It’s an easy way for beneficiaries to determine whether their prescriptions are covered and at what cost.

What Are the Drug Formulary Tiers?

The tiers of your formulary indicate your out-of-pocket costs. Not all plans have the same number of tiers, but most have at least three. The more tiers there are, the more the formulary “breaks up” different types of medications. For example, a 5-tier system may separate generic drugs into preferred generic (Tier 1) and non-preferred generic (Tier 2). The typical 3-tier formulary lists all generics on the first tier.

drug formulary

Preferred brand name drugs are also included in your formulary. Non-preferred brand name drugs are typically not included on the drug list, or they may be listed on the highest tiers. As you make your way up the tiers of the formulary, your co-pay costs rise.

What Happens if the Drug Formulary Changes?

Your insurance company may make changes to the formulary outside of Open Enrollment. Its decisions are based on the input of healthcare professionals, such as physicians and pharmacists. The committee may also include nurse practitioners and physician assistants.

The committee bases its decisions, at least in part, on research and reference materials. If new information comes in about a particular drug, the committee may change that drug’s position on the tiers or remove it from the formulary altogether. If this happens with a prescription you take, your plan must notify you of the change at least 60 days before it takes effect. And, when you request a refill, it must provide a 60-day supply of the medication under the same guidelines as before the change.

Medicare Part D Coverage and Limitations

Specifics vary from plan to plan, but the following are common rules and limitations to Medicare Part D coverage.

  • Mail-order refills: Previously, beneficiaries could choose automatic refills for mail-order prescriptions. Plans now must get approval before refilling a mail-order prescription (the change is to reduce waste and expense). How often they ask for this approval varies by plan, ranging from yearly to each delivery.
  • Quantity limitations: Some plans limit the amount you can receive on certain types of medications (e.g. opioids).
  • Require prior authorization: Your plan may require notification that certain prescriptions are medically necessary before it covers them.
  • Step therapy: Your plan may require you to at least try an option on a lower tier before it covers a medication from a higher tier.

drug formulary

How Part D Works with Part B

Medicare Part B covers certain medications in very specific circumstances. This includes some vaccinations (flu, hepatitis B, pneumococcal, and Tdap vaccines) and drugs administered in a hospital setting that must be given by a healthcare professional (in other words, not medications you would take yourself at home).

All Part D plans must cover vaccines considered medically necessary to prevent disease.

Requesting an Exception

Beneficiaries may request an exception to tiering as well as the formulary. You would request a tier exception to have a non-preferred drug placed in a lower tier (and therefore at a lower out-of-pocket cost to you). A formulary exception may include requesting a drug not currently covered by your plan or to have a particular restriction lifted, such as step therapy or prior authorization.

For an exception request to be granted, you must include a statement from the prescriber supporting it. Essentially, this supporting statement must make clear that the exception is medically necessary.

Finding the Right Medicare Part D Plan

Start by reading our Ultimate Guide to Medicare Part D. It walks you through everything you need to know about coverage, costs, late enrollment penalties, and more. If you are looking for a Part D plan, our licensed agents can help you find one in your area. Call us toll-free at 855-350-8101.

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