AARP Eye Center
En español | This time each year, as Medicare open enrollment begins, I embark on an annual tradition: helping my parents compare Medicare Part D prescription drug coverage. In the coming weeks I will take my parent’s current drug list (which, by the way, they faithfully keep up to date) and plug those drugs into Medicare’s Plan Finder tool, a helpful consumer resource. When I do, the tool will give me a customized comparison of available Medicare Part D plans. I will see whether the plans’ formularies cover my parent’s drugs, any associated cost sharing, expected out-of-pocket costs across the year, and any drug coverage restrictions.
Based on the information gathered, they may choose to switch to a new prescription drug plan. Some years my parents have elected to remain in their current plans, while in others they have selected a new plan—and, in the process, saved hundreds or even thousands of dollars.
What are drug formularies?
Drug formularies play a large role in health care access, whether consumers know it or not. As such, it’s important to understand them. A drug formulary is a complex, multi-layered tool used to manage the safe and appropriate use of prescription drugs. Each health insurance plan develops a unique formulary, and the design of the formulary controls an enrollee’s access to prescription drugs. (In other words, it determines if a given drug is covered and how to get it.) While drug formulary design can vary significantly from plan to plan, all formularies share four common components:
- Covered drugs are the generic, brand name and high-priced and complex specialty drugs a plan includes in its formulary.
- Utilization management encompasses the range of tools that plans use to manage consumer access to certain, often high-priced, drugs. The three most common forms of utilization management are prior authorization (obtaining approval from your insurer before a pharmacy can dispense a medication), limits on the quantity of a drug that can be dispensed at a given time, and step therapy (a requirement that patients try other, less expensive medications before the plan will cover a higher-priced medication).
- Tiers are levels or groupings of covered drugs and determine a consumer’s cost sharing. Most formularies have between two and seven tiers broken out by whether an insurer classifies a drug as preferred and a drug’s type (generic, brand, specialty drugs). For example, a formulary may have a preferred brand tier and a non-preferred brand tier.
- Cost sharing is a consumer’s out-of-pocket obligation for drugs on a specific formulary tier. Typically, the lowest tier has minimal cost sharing, in the form of a fixed payment (copay), and the highest tier requires cost sharing that is a percentage (coinsurance) of the drug’s price.
Compare, compare, compare
During open enrollment for health coverage—whether it is Medicare, through an employer, individual coverage including Marketplace plans, retiree health, or some other plan—older adults have an opportunity to review drug formularies as part of their options for the coming year. Individuals, like my parents, can evaluate the elements of their plan’s formulary, note any changes from the past year, examine a range of other insurance options, and select a plan with a formulary that meets their needs.
Yet, many adults do not compare their coverage options. Research has shown that most Medicare beneficiaries with Part D coverage do not compare their plan’s drug coverage with other available plans. A survey of private insurance enrollees showed that they paid only slightly more attention to formularies, with less than one-quarter (24 percent) of adults considering drug coverage when selecting a plan.
Some older adults may be overwhelmed by the number of plans to choose from. In 2022, insurers offered over 15,500 Marketplace plans and nearly two-thirds (61 percent) of adults ages 50 to 64 could choose Marketplace plans from more than five insurers. Also in 2022, the average Medicare beneficiary had to choose from nearly 60 Part D plans.
Effectively comparing plans may prove additionally challenging for older adults with limited medication literacy—defined as those with a limited ability to obtain information about medication, process it, and use the information to make medication decisions. One study showed that as the number of plan options increased, older adults with a low capacity to understand mathematical concepts reported greater difficulty selecting a Part D plan. And whether they have good medication literacy or not, older adults may be unfamiliar with or unable to use comparison tools, or be confused by the process.
Open enrollment as an opportunity
And so, the time of year to take a hard look at plan and formulary options is upon us. Invest the time to review your, or your loved one’s, prescription drug coverage. During open enrollment, you have the opportunity to check and see if the formulary covers your drugs, if any of your drugs are subject to new restrictions, which pharmacies work with your plan to offer lower cost sharing for your drugs, and what you can expect to pay out-of-pocket during the upcoming year. If the plan and its formulary no longer suits your needs, then compare plans and consider whether to select a new one.
To be sure, carefully considering your drug formulary takes time and effort. And as is often the case with health care decision making, time and effort can act as barriers for people to look closely at their formulary.
Good news: help is available. Medicare enrollees can contact a local State Health Insurance Assistance Program (SHIP) office to speak with an expert about their formulary. Older adults with other plans may be able to get assistance from third-party assisters or their employer’s benefits administrator.
As for my parents, they are ready to begin the process with me.