Understanding how different medications are classified into tiers can be difficult since drug tiers and formularies are not standardized. Knowing more about how these tiers are generally defined can help you pick the right Medicare Part D plan for your prescription coverage.

How Does Medicare Provide Prescription Drug Coverage?

Although Original Medicare, which is Part A (known as hospital insurance) and Part B (known as medical insurance), does not provide conventional prescription drug coverage, recipients can choose to enroll in a stand-alone Medicare Part D prescription drug plan or choose a Medicare Advantage plan that includes Part D coverage.

Both stand-alone and bundled coverage plans are administered by Medicare-contracted private insurers, which means coverage options can change depending on where you live and what plans are available in your area.

Premiums for these plans are also determined by the carriers. With a stand-alone prescription drug plan, you pay both the premium for Part B and a premium for your Part D plan. A Medicare Advantage plan pays the Part B premium on your behalf from the premium you pay for your plan.

What is a Formulary?

A formulary is the list of prescription medications covered by an insurance plan. Some insurance carriers offer a variety of coverage plans at different price points for both the premium and any pharmacy copays. Although a plan can change their formulary at any time throughout the year, it’s more common for changes to be made only once a year, if any. Recipients can expect to be notified of any potential changes before they take effect.

What is a Tier?

The cost of a medication determines which tier it falls under in any given formulary. This will dictate how much your cost-sharing obligation may be in terms of copays and maximum coverage limits. Although insurers can classify medications into tiers according to their own determinations, tiers generally indicate the following:

  • Tier 1: low-cost medication, usually generic drugs rather than brand name ones.
  • Tier 2: brand name medications preferred by the insurance carrier.
  • Tier 3: non-preferred and brand name medications.
  • Tier 4 and above: expensive, brand name specialty medications.

Generally speaking, the higher the tier, the higher you can expect your copays to be. Your plan may allow for exceptions that lets you pay a lower copayment if you are a prescribed a high tier medication for a serious medical condition that cannot be treated by a cheaper prescription.

Medicare Coverage for Tier 5 Drugs

Because there is no standardized process for classifying tiers, someone who requires a costly and specialized prescription medication may need to check benefit information with the plans in their area for specific coverage details. Some Part D plans may only cover certain tiers while others offer options that provide coverage for every tier.

Medicaid’s Extra Help program, which lowers prescription costs for eligible Medicare recipients, may be available for qualifying low-income applicants. This can help reduce your out-of-pocket expenses when faced with expensive copays or coverage gaps after the Part D yearly maximum is met and before catastrophic coverage rules apply.

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