How Medicare Prescription Drug Coverage Works

Formularies

A formulary is the list of drugs a plan covers. Plans design their own formularies within Medicare's requirements, so coverage differs from plan to plan and can change during the year with appropriate notice.

Drug tiers

Formularies group drugs into tiers, and your cost sharing depends on the tier. Preferred generics generally cost the least, and specialty medications generally cost the most.

If a medication you take sits on a high tier, ask whether a therapeutic alternative on a lower tier exists, and discuss it with your prescriber.

Prior authorization

Some drugs require the plan's approval before they are covered. Your prescriber submits clinical information, and the plan decides based on its criteria. Building in time for this step avoids surprises at the pharmacy counter.

Step therapy

Step therapy requires trying a preferred medication first before the plan covers an alternative. Exceptions can be requested when a preferred drug is not appropriate for you.

Quantity limits

Plans may limit the amount of a medication covered over a given period for safety or cost reasons. Your prescriber can request an exception when a larger quantity is medically necessary.

Preferred pharmacies

Plans contract with pharmacy networks, and some pharmacies are designated preferred with lower cost sharing. Using a non-preferred network pharmacy usually costs more, and an out-of-network pharmacy may not be covered.

Mail-order pharmacies

Many plans offer mail order for maintenance medications, sometimes with a lower cost for a longer supply. Whether that saves money depends on the plan and the specific drug.

Annual plan changes

Plans update premiums, deductibles, tier placement, formularies, and pharmacy networks each year. A plan that fit well last year may not fit next year, which is what the Annual Enrollment Period is for.

Late enrollment penalties

Going without Part D or other creditable prescription drug coverage for a continuous period after eligibility can result in a penalty added to your premium, generally for as long as you have Part D.

Extra Help

Extra Help assists people with limited income and resources in paying Part D costs. The Social Security Administration determines eligibility, and there is no cost to apply.

Reviewing medications before choosing coverage

• List every medication, dosage, and fill frequency
• Check tier placement and utilization rules for each drug
• Confirm your pharmacy's network status
• Compare estimated total annual cost rather than premium alone
• Repeat the review each fall, since plans change