What is a Prescription Drug Formulary?
Key Takeaways
- A drug formulary is a list of generic and name-brand drugs covered by your health insurance policy.
- A drug formulary is divided into three or four different categories called “tiers.” Each tier is made up of certain drugs based on type: generic, brand name, preferred brand name, and specialty drugs.
- Sometimes health plans choose not to cover a prescription drug. Health plans update their formularies every year, but they also make changes throughout the year.
A drug formulary lists medications approved for use and covered by an insurance company, hospital, or other healthcare organization. Formularies include the medication name, dosage forms, therapeutic category, and restrictions (if any).
Formularies also organize medications by tier to determine how the plan will cover them. Generic drugs are the cheapest at Tier 1, while specialty medications are the most expensive at the highest tier. Knowing how your Medicare Advantage or Medicare Part D plan organizes your medications will help you anticipate the cost of your prescriptions.
Medicare Drug Coverage at a Glance
Medicare beneficiaries have two options for prescription drug coverage: enroll in a Medicare Advantage Prescription Drug plan or a Medicare Part D plan. Both are offered by private insurance companies that contract with Medicare to provide prescription drug coverage, as Original Medicare does not cover medications you pick up at a pharmacy.
Medicare Advantage and Part D plans help cover the cost of prescription medications, including brand-name and generic drugs. Without this, you would pay out of pocket for the full cost of your medicines. These plans also cover all commercially available vaccines for illness prevention, including the shingles, RSV, and Tdap vaccines.
Aside from vaccines, specific drug coverage varies by plan. Know your plan’s formulary to ensure your medicines are covered in the most cost-effective way possible.
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How Formularies Work
Beneficiaries can use the formulary to help identify which medications are covered and understand potential out-of-pocket costs. When reviewing your plan’s formulary, pay attention to the following:
- Medication tiers: Lower-tier medications are less expensive overall for beneficiaries. The lower your medication’s tier, the lower your copay to fill the prescription.
- Exclusion list: This list contains the drugs not covered by the plan’s formulary. You pay the full cost for any medication on this list.
- Clinical notes: Formularies often include notes on preferred use, maximum dosages, and potential restrictions. When discussing your medications with your doctor, ensure your prescriptions align as much as possible with the plan’s clinical notes for the most effective coverage.
Formularies help insurance carriers and Medicare beneficiaries alike save money by prioritizing low-cost generic medication whenever possible. Some insurers also require beneficiaries to undergo step therapy if they are prescribed a more expensive brand-name drug. In step therapy, beneficiaries must try lower-cost medications before the insurer agrees to cover the more costly medication.
Drug Tiers for Medicare Part D
All Medicare Advantage or Part D plans organize their covered drugs into the following tiers:
- Tier 1, generic drugs: This is the lowest-cost tier. Generic drugs are substitutes for brand-name medicines. To be considered a generic drug, the medication must perform the same as the brand-name version and contain the same active ingredients.
- Tier 2, preferred brand name drugs: Medicines in this tier have a moderate cost. Preferred brand-name drugs are medicines offered by manufacturers with which your insurance company has an agreement. Drugs in this category may also not have a generic equivalent.
- Tier 3, non-preferred brand name drugs: Drugs in this tier are expensive. Your plan covers these brand-name medicines but at a higher cost to you. They may or may not have a generic equivalent.
- Tier 4, specialty drugs: Drugs in this tier cost the most. These are drugs that require special handling or specialty pharmacies to fill.
Note that some insurance plans may have more or fewer tiers, though they will always range from lowest to highest cost. The formulary will also provide information on your out-of-pocket expenses for the tiered medications.
See It In Action
To understand how a formulary works, imagine that you see your doctor for a follow-up appointment about your high blood pressure. Your doctor decides to prescribe medication to lower your blood pressure. The following may be the tiered medication options provided by your insurance carrier’s formulary:
- Tier 1: Generic lisinopril: $5
- Tier 2: Brand name lisinopril (Zestril): $30
- Tier 3: Expensive brand name (Cozaar): $50
- Tier 4: Most expensive brand name (Cozaar-HCTZ): $100
In this case, your formulary shows that taking the generic lisinopril will offer you the lowest cost. However, if your doctor prefers the brand name Zestril, it will cost you more.
For most drugs, there is no therapeutic difference between generic and brand name, and the cost savings of generic medication can be significant.
Note that this is an example scenario only and actual coverage and costs will vary.
Next Steps If Your Medication Is Not Covered
If your medication is not part of your Part D drug formulary, you still have options to explore to try to get that drug covered.
- Check the formulary: Double-check the plan’s formulary to confirm the medication isn’t covered. Go online or call customer service to be completely clear.
- Covered alternatives: Ask your doctor or pharmacist if there are covered alternatives, such as generic versions they may prescribe instead.
- Formulary exemption: You can ask your Medicare Part D plan for a formulary exception if the medication is medically necessary. Your physician will need to show documentation explaining why the medication is needed. You may also file an appeal if the exception is denied.
- Switch plans: Consider changing to a different Part D or Medicare Advantage plan that covers the medication at a cost affordable for you.
Changing Plans
If you decide to change your Medicare Part D coverage, you must do so during specific enrollment periods throughout the year:
- Annual Enrollment Period: October 15 – December 7. During the Annual Enrollment Period, you can switch from one Medicare Part D or Medicare Advantage plan to another, enroll in one of these plans if you don’t already have one, or drop your plan altogether.
- Medicare Advantage Open Enrollment Period: January 1 – March 31. During the Medicare Advantage OEP, you can switch Medicare Advantage plans or switch back to Original Medicare from Medicare Advantage and add a Part D plan.
- Special Enrollment Periods: You may qualify for a Special Enrollment Period if you meet certain criteria, like moving out of your plan’s service area, losing your current coverage, or becoming eligible for Medicaid or Extra Help. During this period, you may enroll or switch plans.
Putting It All Together
Medicare Advantage plans with prescription drug coverage and Medicare Part D plans help cover the costs of vaccines and prescription medications. Each plan has its own formulary, which lists all the drugs that are covered and how those drugs are organized by tier. Knowing your plan’s formulary can help ensure you get your necessary medications at the best price. To help navigate the different Medicare Part D plans, consider contacting a licensed health insurance agent.
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Sources
Formulary Guidance. CMS.gov.