Taking prescription drugs? You should know about the Tier Structure before retirement.

Retired, thinking about retiring, planning on ever retiring? Next question: taking prescription drugs for a chronic illness?

If answering yes to these questions you should take note on how Medicare works with prescription drugs, specifically with the Tier Structure when it comes to what you are responsible for paying.

Prescription drugs are covered thru Medicare by either a stand-alone Part D drug plan which a retiree purchases on their own or thru a Medicare Advantage Plan where the private insurance company administering coverage incorporates a plan to cover drugs.

Either way you choose to cover your drugs you will have to adhere to a very under-reported system known as the Tier Structure and unfortunately, it is tipped not in your favor.

According to Medicare.gov the Tier Structure was created to “lower costs” as “many plans offering prescription drug coverage place drugs into different “tiers” on their formularies.

Each plan can divide its tiers in different ways. Each tier costs a different amount. Generally, a drug in a lower tier will cost you less than a drug in a higher tier”.

An example of the original Tier Structure is as follows:

Drug Tier What it covers Costs in 2020 (typically)
Tier 1 Preferred generic drugs. $1.00 to $3.00 a drug
Tier 2 Generic drugs, which may cost more than drugs in Tier 1 $7.00 to $11.00 a drug
Tier 3 Preferred brand which are brand name drugs and higher costing Generic drugs $38.00 to $42.00 a drug

 

Not to rest on their laurels the insurance companies in 2009 created another tier to compliment the original structure known as “Tier 4” drugs. This new tier, Tier 4, was created to help the insurance companies keep the cost of medications down on specialty drugs that fight disease states like Cancer, Rheumatoid Arthritis, and MS.

The logic, which was blessed by the federal government, was that by spreading costs of these drugs back onto the users it would result in lower prices for everyone. Yes, you are reading that right.

The end result: these specialty drugs came with a 33% co-pay, which was higher than the 25% co-pay that was the maximum of Tier 3 drugs at that time.

Realizing that this insane logic was widely accept by those who were voted to represent the public, the insurance companies again, in 2011, created yet another tier, Tier 5 and broke up both these new tiers to cover even more medications.

The rationale behind this new structure is that many beneficiaries of drug plans were prescribed medications that were not included on the lists of drugs that the insurance companies covered. In order to provide insurance for these drugs Tier 5 was created specifically to cover those Specialty Drugs and Tier 4 would now be for Non-preferred Drugs which are “brand-name drugs that are not included on the plan’s formulary”.

By 2011 the added tiers were:

Drug Tier   Costs
Tier 4 Non-preferred drugs. Drugs not covered by formulary 50% co-pay
Tier 5 Specialty drugs 31% co-pay

Get it yet?

Retired, on Medicare and taking prescription drugs, you better know where your medication falls on the grid as the co-pay could be a few extra dollars or as much as 50% of that drug.

Granted there is always the “Donut Hole” which helps offset the high out-of-pocket costs for medications, but in order to reach this you will have to pay $6,350.00 in costs in 2020. Does this sound like a great deal?

But this only the beginning of the problem as the rules were even more skewed towards the insurance companies through the years too.

Embedded in the contracts of each drug plan is wording that allows the insurance companies to make changes to that list of drugs they cover (the formulary). Yup it gets worse.

According to Q1 Medicare.com insurance companies “can update their plan formularies or drug lists throughout the plan year and – besides removing a medication from your Medicare Part D plan’s drug list they can:

  • add new medications to your formulary,
  • change usage management restrictions for a formulary medication,
  • move a medication to a lower cost-sharing tier, or
  • move a drug to a higher cost-sharing tier.

The even more mind-numbing rule change, you the consumer, even though the insurance company changed the list of drugs it covers, the exact reason why anyone would pick a plan, can not change your plan for that current year.

Result: that medication that was initially covered in your plan, which you are taking, and is dropped is now considered a “Non-preferred drug” and that is a 50% co-pay.

Only in America

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