Ask a Pharmacist: What Is a Formulary, and Why Is It Important?Posted by Medicare Made Clear
Information about your medications from UnitedHealthcare Medicare and Retirement Chief Pharmacy Officer Mike Anderson, Pharm.D.
Question: I’m looking for prescription drug coverage for 2015, and read that I should look at a plan’s formulary before choosing a plan. What is a formulary, and why do I need to know about it?
Answer: Great question! And good for you for doing your research. Whether you get your prescription drug coverage from a standalone Medicare Part D plan or from a Medicare Advantage (Part C) plan, it’s important to take the time to make sure you have the right plan for you.
On to your question: A formulary is the official name for a list of drugs that are covered by a plan. The goal in creating a formulary is to identify drugs that are both medically appropriate and cost-effective to serve the interests of the members of that plan.
A formulary includes both brand-name and generic drugs. And the private companies that offer Medicare plans with prescription drug coverage decide which drugs they include on the formulary for each plan. They’re required by the federal government to include most types of drugs used by people on Medicare. This is true for both Medicare Part C and D plans.
How Formularies Work: Tiers
Many health plans, including Medicare prescription drug plans and Medicare Advantage plans with drug coverage, have tiered formularies. A tiered formulary divides drugs into groups, based primarily on cost. A plan’s formulary might have two, three, four, five or sometimes even up to six tiers.
Each plan decides which drugs on its formulary go into which tiers. In general, the lowest-tier drugs are the lowest cost. Plans negotiate pricing with drug companies. If a plan negotiates a lower price on a particular drug, then it can place it in a lower tier and pass the savings on to its members. Plan formularies generally list drugs with lower negotiated prices as “preferred” drugs.
Here’s an example of how a five-tier formulary might work (though specific tier structure depends on the plan).
|Drug Tier||Type of Drugs Included||Your Cost|
|Lower-cost, commonly used generic drugs||Lowest copay|
|Many generic drugs||Low copay|
|Common brand-name drugs, called “preferred brands,” and some higher-cost generic drugs||Medium copay|
|Non-preferred generic and non-preferred brand-name drugs||Highest copay|
|Unique or very high-cost drugs||Coinsurance (a certain percentage of the total drug cost)|
How Formularies Work: Changes
It’s important to keep in mind that formularies can change over the course of a plan year. Why? Well, new brand-name drugs may become available. Generic versions of older drugs may enter the market. Any number of things may lead a plan to add or remove a particular drug from its formulary or to move it into a different tier.
If your plan removes a drug you’re taking from its formulary, in most cases it has to notify you at least 60 days in advance. In some cases, you may be able to work with your doctor to ask for an exception to continue taking the drug that’s being removed, if none of the other drugs will work for your condition. You can learn about other changes in the plan’s formulary update documents.
Why Formularies Matter: Medicare Open Enrollment
To return briefly to the beginning of this discussion, it’s especially important to understand formularies and how they work during Medicare Open Enrollment. As you research what prescription drug coverage works best for you, you’ll want to keep these two facts in mind regarding formularies.
1. Formularies vary. Every plan creates its own formulary structure, decides which drugs it will cover and determines which tier a drug is on. One plan may cover a drug that another doesn’t. The same drug may be on tier 2 in one plan’s formulary and on tier 3 in a different plan’s formulary.
2. Formularies have different pricing. Plan members typically pay a copay or coinsurance each time they fill a prescription. How much you pay depends on the plan you have. The same drug can be on the same formulary tier in two different plans, and still you might pay more for that drug under one plan compared with the other.
So the moral of the story is that before you choose a Medicare Part D standalone plan, or a Medicare Advantage (Part C) plan with prescription drug coverage, it’s really important to do your homework and review that plan’s formulary. See whether the plan you’re investigating covers your prescriptions, and find out how much they may cost you in the coming year. And make sure to compare the plan options where you live to see where your prescription drugs fall in each plan’s formulary. Your hard work could end up saving you money.
This Medicare Made Clear blog post is part of the ongoing “Ask a Pharmacist” series, which addresses common questions about prescription drugs and other medications. Read other articles in this series for more answers to your questions on medication.
For more information, explore MedicareMadeClear.com or contact the Medicare helpline 24 hours a day, seven days a week at 1-800-MEDICARE (1-800-633-4227), TTY 1-877-486-2048.
Medicare.gov: Learn more about formularies and other components of Medicare prescription drug coverage in this fact sheet.
MedicareMadeClear.com: Check out this section of the Medicare Made Clear website, with information and a video on Medicare Part D.