Formulary Tier
A formulary tier is the cost level a drug plan assigns to each covered medication. Lower tiers (preferred generics) have the lowest copays, while higher tiers (brand-name and specialty drugs) cost more.
Understanding Formulary Tier
A formulary tier is the cost level a Part D or Medicare Advantage drug plan assigns to each medication on its formulary. Most plans use five tiers: Tier 1 (preferred generics, lowest cost), Tier 2 (generics), Tier 3 (preferred brand-name drugs), Tier 4 (non-preferred drugs), and Tier 5 (specialty drugs, highest cost). The higher the tier, the more you pay.
For beneficiaries, tiers determine your real out-of-pocket drug costs far more than the plan's premium does. The same medication can sit on Tier 2 in one plan and Tier 4 in another, producing dramatically different copays. Plans can also move drugs to higher tiers from year to year, which is why an annual review matters.
For example, if your cholesterol drug is a Tier 1 generic with a $0 copay on one plan but a Tier 3 brand with a $47 copay on another, choosing the right plan saves you more than $500 a year on that single prescription.
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Related Terms
Formulary
A formulary is a list of prescription drugs covered by a Medicare drug plan. Drugs are organized into tiers, with different cost-sharing for each tier.
Part D
Medicare Part D is prescription drug coverage. You can get it through a standalone Prescription Drug Plan (PDP) or through a Medicare Advantage plan that includes drug coverage.
Step Therapy
Step therapy is a rule requiring you to try a lower-cost drug before the plan will cover a more expensive alternative. If the first drug does not work, your doctor can request approval to move to the next option.
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