What Is a Formulary and How Does It Affect Your Drug Costs

Your health insurance plan does not cover every drug the same way. It uses a tiered list called a formulary that determines which drugs are covered and how much you pay for each. Understanding your formulary can save hundreds or thousands of dollars per year.

How formulary tiers work

Most plans organize their formulary into four or five tiers. Generic drugs occupy the lowest tier with the lowest copay. Preferred brand-name drugs are in the middle tiers with moderate copays. Non-preferred brands and specialty drugs are in the highest tiers with the highest cost-sharing, sometimes as coinsurance rather than a flat copay.

A specialty drug in tier four or five might have a coinsurance of 20 to 30 percent of the drug's cost. For drugs priced at $5,000 or more per month, this means cost-sharing in the hundreds or thousands of dollars even with insurance.

How to check your formulary

Every insurer publishes its formulary online. Find your plan's member portal or search the insurer's website for formulary or drug list. You can search by drug name to find its tier and any restrictions such as prior authorization requirements, quantity limits, or step therapy requirements.

If your drug is not on the formulary, it is considered non-formulary and may not be covered at all or may be covered only at the highest tier with maximum cost-sharing.

Formulary exceptions

If your drug is in a high tier or not on the formulary, you can request a formulary exception asking your insurer to cover it at a lower tier. To succeed, your physician must document that the formulary drugs at lower tiers are medically inappropriate for you or that you have tried them and they did not work.

The exception request is separate from a prior authorization request. An exception changes your cost-sharing tier. A prior authorization approves coverage.

Mid-year formulary changes

Insurers can change their formulary during the plan year with notice. If your drug is removed from the formulary or moved to a higher tier mid-year, you are generally entitled to a grace period to transition or appeal. For Medicare Part D plans, protections against mid-year formulary changes are more robust and federally defined.

During open enrollment, always check whether your current medications are on the new plan year's formulary before renewing or switching plans. Formularies change annually and a drug covered this year may not be covered at the same tier next year.

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Bill Advantage is a document literacy tool. Nothing in this article constitutes legal or medical advice.