One of the most difficult portions of the new Medicare Prescription Drug Plan to navigate is the various drug plans’ formularies. Selection of a plan is based on what drugs an individual is currently on and which plans provide the best coverage for those selected drugs. In order to select the optimal plan for themselves, it is critical that Medicare-eligible individuals understand how these formularies work.

What exactly is a formulary?

A formulary is a list of “covered" prescription drugs that the various Medicare prescription drug plans must provide to their enrollees. Some plans restrict prescriptions to those contained on the formulary and others may also provide non-formulary prescriptions depending on the level of coverage selected by the beneficiary. Drugs contained on the formulary are generally those that are determined to be cost effective and medically effective. However, because of the ability of the insurance providers to negotiate their own “deals" with the drug companies under Medicare Part D, without having to pass the savings on to the consumer, formularies often contain the drugs that these insurance companies are able to negotiate the best pricing on.

Basically, the insurance providers that operate the various plans have a Pharmacy & Therapeutics committee that chooses which drugs they will cover on their formulary and which drugs they will not cover. There is a national formulary coverage standard that the insurance providers must follow when creating their formulary under the new Medicare Prescription Drug Plan. They must provide a certain standard level of drug coverage for particular disease/health condition categories. This means that these plans must cover a certain number of drugs in most disease categories which effect seniors’ health. The big mystery for Medicare-eligible individuals to figure out is will these plans cover the drugs that they have been prescribed by their physician and that they have been taking for some time.

There is one important catch with Medicare Part D that Medicare beneficiaries must be aware of. Once a Medicare Part D beneficiary chooses a plan they are “locked in" to that plan for the year. Now, even though the beneficiary has done all the research to choose the right plan that covers all of their drugs the insurance companies have the ability to switch which drugs are covered under their formulary (with a 60 day warning period).

Now that we know what a formulary is, the next question to ask is “what are the “Tiers" that some of the various plans have in their formularies?"

Most plans that have tiers will have three tiers.

Within a three-tiered formulary, prescription drug products are categorized as Tier 1, Tier 2 or Tier 3. Each Tier is assigned a specific co-payment amount.

What is a co-payment?

A co-payment is a cost-sharing arrangement under which a beneficiary pays a specified dollar amount for a prescription drug. Basically, a co-payment is a fix amount that a beneficiary must pay for each 30-day supply of a drug they buy within a specified Tier.

Tier 1 is the lowest co-payment level and usually contains generic drugs.

Tier 2 is the mid-range co-payment level and usually contains “Preferred" brand name medications.

Tier 3 is the highest co-payment level and usually contains newer, more innovative and expensive brand name medications. There are often specific clinical restrictions established within a plans formulary for a beneficiary to receive these Tier 3 medications (some Tier 2 drugs may also have these restrictions). These restrictions include Quantity Limits, Prior Authorizations and Step Therapy.

What are Quantity Limits (QL), Prior Authorization (PA) and Step Therapy (ST)?

Quantity Limit (QL) means that the insurance company will only pay for a set amount of a particular drug within a given time frame. For example, 10 tablets within a 30 day period. If you want more than that set quantity you are responsible to pay for the product. A good example of where a quantity limit is often implemented is with migraine medications. Exceptions to established quantity or days supply limits may be made if the prescribing physician is able to justify medical necessity.

Prior Authorization is the process of obtaining coverage approval for a particular medication. Without such prior authorization, the medication is not covered. Authorizations are normally issued by nurse reviewers or other authorized personnel at the insurance company who review the doctor's orders and other documentation to ensure that the medication is medically necessary. A set standard or protocol is used to determine whether the medication will be approved or not.

Step Therapy is defined as the practice of beginning drug therapy for a medical condition with the most cost-effective and safest drug therapy and progressing to other more costly or risky therapy, only if necessary. The aims are to control costs and minimize risks. Step Therapy is also called step protocol. Step Therapy may require the beneficiary to use a "first-line" drug before authorization is granted for a more costly "second-line" drug. For example, an individual may be required to try generic ibuprofen as a “first line" drug for arthritis pain before they will be given brand name Celebrex as a “second line" drug.

Due to the complicated formularies within many Medicare Part D plans, it is important that participants in Medicare Part D let their physician know which plan they have signed up for. This way the individual’s physician can work within the constraints of the formulary in order to ensure that the beneficiary gets the best and most appropriate therapy that is covered under their plan.

Medicare Part D individuals should also be aware that purchasing medications, which are not covered under their plan’s formulary, from a licensed Canadian pharmacy, is an excellent alternative to paying the local U.S. pharmacy price. Many individuals will also benefit greatly by ordering their medications from a Canadian pharmacy once they have reached the gap in coverage, called the “doughnut hole". This gap in coverage occurs at the $2250 annual drug expenditure level and beneficiaries are 100% responsible for their drug costs until they reach $5100 in drug expenditures. For a surprisingly high number of individuals, they may save more by ordering all of their medications from Canada rather than purchasing them through the Medicare program.

Medicare Part D beneficiaries must understand how their plan’s formulary works and they also need to keep up to date with any notices of changes to their plan’s formulary. Without keeping up to date they may find themselves in a position in which they are unable to get their medication the next time they walk into their pharmacy. With the preceding information a Medicare beneficiary will be better equipped to choose a plan that is best for them. Medicare Part D coverage combined with Canadian pharmacy savings can provide seniors with incredible savings. These individuals should be able to save a lot of money.