How are Drug Tiers defined on a Medicare Part D plan's formulary?

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Category: Understanding Your Formulary
Updated: Feb, 28 2024

Drug Tiers are an attempt to "logically" group drugs (such as generics, preferred-generics, brand drugs, and specialty drugs) within a list (drug formulary).

All of your Medicare Part D prescription drugs are organized into these different drug “tiers,” or groups of different drug types on a Medicare prescription drug plan's formulary. As an example, a plan may form drug tiers this way:

Tier 1 – Preferred generic drugs - $0 co-pay.
Tier 2 – Generic drugs - $10 co-pay.
Tier 3 – Preferred brand-name drugs - $47 co-pay.
Tier 4 – Non-preferred drugs - 35% of retail cost-sharing.
Tier 5 – Specialty Tier - 25% of retail cost-sharing.

Important: There is not one correct tier structure for a formulary; however, most Medicare plans have a 5 or 6 tier formulary and Medicare plans are becoming more consistent in their tier structures. You can see an example below of how one Medicare plan defines the tiers of the plan's 5-tier formulary.

Example stand-alone Medicare Part D prescription drug plan formulary
Drug Tier Name	Co-Payment or Coinsurance	General Tier Description	Additional Comments
Tier 1: Preferred Generics	Lowest costing co-payment (example: $0 or $1 or $3)	Lower-costing, commonly used generic drugs.	May be excluded from your plan's initial deductible.
Tier 2: Generics	Low co-payment (example: $1 or $2 or $10)	Most generic drugs.	May be excluded from your plan's initial deductible.
Tier 3: Preferred Brand Drugs	Medium co-payment (example: $17 or $27 or $42)	Many common brand name drugs and some higher‑costing generic drugs.	Many Tier 3 drugs have lower-costing Tier 1 or Tier 2 alternatives
Tier 4: Non-preferred Drugs	Highest co-payment or coinsurance (example: 47% of retail or 50% of retail or $93)	Non‑preferred generics and some non-preferred brand name drugs.
Tier 5: Specialty Drug tier	Coinsurance or fixed percent of retail drug price (example: 25% of retail)	Unique drugs and very expensive drugs.	Your coverage prices can (and probably will) vary as the drug prices change throughout the plan year.

Question: Do all Medicare Part D prescription drug plans place the same formulary medications on the same drug tiers?

No. There is no requirement that specific drugs must be on a specific formulary tier. For example, the drugs on Tier 1 for Medicare Plan AAA may not be the same as the drugs on Tier 1 for Medicare Plan ZZZ. In fact, sometimes the organization of drugs may not appear logical and you may, for example, find a generic drug on a brand-name tier. Medicare plans can choose to move drugs to a different tier every year - so the drugs on a Medicare plan's Tier 1 in 2023 may not be the same as the drugs on the same plan's Tier 1 in 2024.

Important: You will pay different prices for drugs that are organized on different formulary tiers - and, if you are comparing Medicare plans, a Tier 1 drug on one plan may not be the same price as a Tier 1 drug on another plan. Medicare plans can charge different prices for a drug tier every year - so a Tier 1 drug may cost $0 in 2023 and the same Tier 1 drug may cost $10 in 2024.

How drug tiers change over time.

Formulary structures have stabilized over the last years, however, prior to 2018, they were more varied. For example, in 2017 we have the following article: "How drugs are organized on a Medicare drug plan formulary and moving toward uniform drug tier definitions" that can be found here: Q1News.com/617 where you can see the following table of different 2017 formulary tier structures:

2017 Stand-alone Medicare Prescription Drug Plans
Nbr of Tiers	Tier 1	Tier 2	Tier 3	Tier 4	Tier 5	Tier 6	Nbr of Plans
4	Preferred Generic	Preferred Brand	Non-Preferred Brand	Specialty Tier			2
5	Preferred Generic	Generic	Preferred Brand	Non-Preferred Brand	Specialty Tier		45
5	Preferred Generic	Generic	Preferred Brand	Non-Preferred Drug	Specialty Tier		671
6	Preferred Generic	Generic	Preferred Brand	Non-Preferred Brand	Injectable Drugs	Specialty Tier	2
6	Preferred Generic	Generic	Preferred Brand	Non-Preferred Drug	Specialty Tier	Select Care Drugs	37

As compared to 2024:

2024 Stand-alone Medicare Prescription Drug Plans
Nbr of Tiers	Tier 1	Tier 2	Tier 3	Tier 4	Tier 5	Tier 6	Nbr of Plans
5	Preferred Generic	Generic	Preferred Brand	Non-Preferred Drug	Specialty Tier		580
5	Tier 1	Tier 2	Tier 3	Tier 4	Tier 5		2
6	Preferred Generic	Generic	Preferred Brand	Non-Preferred Drug	Specialty Tier	Select Care Drugs	137

As compared to 2023:

2023 Stand-alone Medicare Prescription Drug Plans
Nbr of Tiers	Tier 1	Tier 2	Tier 3	Tier 4	Tier 5	Tier 6	Nbr of Plans
5	Preferred Generic	Generic	Preferred Brand	Non-Preferred Drug	Specialty Tier		673
6	Preferred Generic	Generic	Preferred Brand	Non-Preferred Drug	Specialty Tier	Select Care Drugs	70
6	Preferred Generic	Generic	Preferred Brand	Non-Preferred Drug	Specialty Tier	Select Diabetic Drugs	68

As compared to 2022:

2022 Stand-alone Medicare Prescription Drug Plans
Nbr of Tiers	Tier 1	Tier 2	Tier 3	Tier 4	Tier 5	Tier 6	Nbr of Plans
5	Preferred Generic	Generic	Preferred Brand	Non-Preferred Drug	Specialty Tier		704
6	Preferred Generic	Generic	Preferred Brand	Non-Preferred Drug	Specialty Tier	Select Care Drugs	72

As compared to 2021:

2021 Stand-alone Medicare Prescription Drug Plans
Nbr of Tiers	Tier 1	Tier 2	Tier 3	Tier 4	Tier 5	Tier 6	Nbr of Plans
1	All Formulary Drugs						1
5	Preferred Generic	Generic	Preferred Brand	Non-Preferred Brand	Specialty Tier		3
5	Preferred Generic	Generic	Preferred Brand	Non-Preferred Drug	Specialty Tier		864
6	Preferred Generic	Generic	Preferred Brand	Non-Preferred Drug	Specialty Tier	Select Care Drugs	139

You can contact the Medicare plan to learn more about the plan's specific formulary tier structure - and the corresponding cost for each tier. You can also see each plan's drug tier structure and cost-sharing in our plan finders: PDP-Finder.com and MA-Finder.com.

Tip: You can see all drugs covered by a particular Medicare plan by using our Q1Medicare Formulary Browser, you can change the name of the Medicare Part D plan and state to browse other formularies. You can also browse all Medicare Part D plans in a certain area that cover a specific medication - and at what cost using our Q1Medicare Drug Finder tool (found at Q1Rx.com).

More articles about drug plan formularies can be found in our News Section "Your Formulary (Drug List)".

(original source: Medicare.gov) [with our additions]