Your plan's drug list: how a formulary decides what you pay, and what an exception is

Most of what a Medicare drug plan costs you over a year is decided by a document you probably haven't read: the formulary. It is the plan's list of covered drugs, and it does two jobs at once. It says whether a drug is covered at all, and it says which cost tier the drug sits on.

September is when this becomes worth looking at, because the Annual Notice of Change arriving this month describes next year's version of that list. Here is how the list works before you compare one to another.

What has to be on it

Plans build their own drug lists, but not from scratch. Medicare's explanation of how drug plans work describes the floor: each list includes at least two drugs in the most commonly prescribed categories and classes, and all plans must include most drugs in certain protected classes. Medicare names those classes — cancer drugs, HIV/AIDS drugs, antidepressants, antipsychotics, anticonvulsants, and immunosuppressants for organ transplants.

Above that floor, plans choose. Which is why the same prescription can be on one plan's list and absent from another's, and why “does this plan cover my drugs” is a question with a different answer for every person asking it. The formulary requirements themselves live in 42 CFR 423.120.

Tiers

Covered isn't one thing. Plans sort covered drugs into tiers, and, as Medicare puts it, a drug in a lower tier generally costs you less than a drug in a higher tier. Medicare's own illustration runs roughly: tier 1, most generics, lowest copayment; tier 2, preferred brand-name drugs; tier 3, non-preferred brand-name drugs; a specialty tier for very high-cost drugs. Each plan can divide its tiers differently, so the tier numbers on one plan's list don't translate to another's.

The practical consequence: a drug can be “covered” by two plans and still cost noticeably different amounts under each, because the two plans put it on different tiers.

The rules attached to individual drugs

Beyond the tier, a plan may attach a condition to a specific drug. Medicare's page on drug plan rules lists three of them.

• Prior authorization — you or your prescriber must get the plan's approval before it covers the drug, often by showing it's medically necessary for your situation.
• Step therapy — a form of prior authorization that asks you to try a less expensive drug on the list first, one proven effective for most people with your condition, before moving up a step.
• Quantity limits — a cap on how much of a drug the plan covers over a period, for safety and cost reasons; Medicare's example is 30 tablets a month.

Medicare also describes a transition fill: when your drug coverage begins, you may get a one-time 30-day supply of a drug you've been taking that the plan doesn't cover or that requires prior authorization or step therapy. It is a bridge, not a solution — it exists to give the next step time to happen.

The exception

That next step is usually an exception. Medicare defines it plainly: an exception is when a drug plan decides to cover a drug that isn't on its drug list, or to waive a coverage rule. There is also a tiering exception — when a plan agrees to charge a lower amount for a drug sitting on a non-preferred tier.

The mechanics are the same in each case, and they're worth knowing before you need them. You or your prescriber request it, and your prescriber must provide a supporting statement explaining the medical reason — that the drug is medically necessary for your condition, that a different drug would be less effective, or that you'd have negative health effects on the alternative. It is a clinical argument, made by the person with the clinical record. If the answer is no, the plan's decision is appealable.

The list can move during the year

A drug list is not frozen on January 1. Medicare says plans can change their drug list during the year under guidelines Medicare sets — when drug therapies change, when new drugs are released, when new medical information arrives. Medicare also states the protection that comes with it: your plan must notify you of any changes to its drug list that affect drugs you're taking.

One specific case is worth recognizing because it surprises people: if a plan adds a generic or biosimilar version of a drug and moves the brand-name version to a higher tier, your share can rise even though nothing about your prescription changed.

What to do with this

Nothing is due today. When you do look — at the notice arriving this month, or during the fall window — the useful comparison isn't premium against premium. It's your actual list of prescriptions against each plan's drug list, checking three things for each drug: is it on the list, what tier is it on, and does it carry a prior authorization, step therapy, or quantity rule. Medicare's plan comparison tool lets you enter your drugs and see this.

We wrote about what the September notice itself is telling you in the September envelope, and about the whole season's sequence in the fall coverage calendar.

And if you'd rather read your own drug list with someone rather than alone, that's a free, no-pressure conversation with a licensed agent — including the version that ends with “your drugs are all on tier 1 and nothing changed.”