Medicare Part D - Program Specifics - Plan Formularies

Plan Formularies

Part D plans are not required to pay for all covered Part D drugs. They establish their own formularies, or list of covered drugs for which they will make payment, as long as the formulary and benefit structure are not found by CMS to discourage enrollment by certain Medicare beneficiaries. Part D plans that follow the formulary classes and categories established by the United States Pharmacopoeia will pass the first discrimination test. Plans can change the drugs on their formulary during the course of the year with 60 days notice to affected parties.

Typically, each Plan's formulary is organized into tiers, and each tier is associated with a set copay amount. Most formularies have between 3 and 5 tiers. The lower the tier, the lower the copay amount. For example, Tier 1 might include all of the Plan's preferred generic drugs, and each drug within this tier might have a copay of $5–10 per prescription. Tier 2 might include the Plan's preferred brand drugs with a copay of $40–$50, while Tier 3 may be reserved for non-preferred brand drugs which are covered by the plan at a higher copay level - perhaps $70–$100. Tiers 4 and higher typically contain specialty drugs, which have the highest copays because they are generally quite expensive.

The Plan's tiered copay amounts for each drug only apply during the initial period before the coverage gap. Once in the coverage gap, also known as the Donut Hole, the person must pay for 100% of the prescription costs, based on prices established by the Plan. In 2008, 4% of Medicare beneficiaries spent enough to qualify for catastrophic coverage at which point the beneficiary pays 5% of the total drug cost or a co-payment of $2 for generics/preferred drugs and $5 for brand-name drugs, whichever is greater.

The primary differences between the formularies of different Part D plans relate to the coverage of brand-name drugs. Nine out of the ten plans with the highest enrollment increased the number of drugs on their formularies in 2007. Plans have generally made fewer changes for 2008. One exception is Silverscript (Caremark Rx), which significantly increased the number of drugs on its 2008 formulary.