Your Guide to Understanding Drug Formularies and Tiers
Your prescription medication drug coverage is an important part of your insurance plan, but terms like "drug formularies" and "drug tiers" can make it difficult for you to understand which of your prescription drugs are covered and what your potential costs at the pharmacy might be. In this guide, we will explain what these terms mean and how understanding them can help you to manage your drug coverage needs and healthcare costs.
Drug formularies
A drug formulary is simply a list of prescription drugs that your health insurance plan is willing to pay for, either fully or partially. These medications are chosen based on their effectiveness, safety, and cost.
Formularies are typically developed by healthcare professionals like doctors and pharmacists, who evaluate which medications deliver the best results for a wide range of medical conditions. Your insurance plan will often organize drug formularies into categories, such as generic drugs, brand-name drugs, or specialty medications.
It is important for you to review whether your prescription medications are on your insurance plan’s formulary as this can help you determine how much you’ll pay out of pocket for your medications. If you have questions or your medication is not in the formulary, talk with your doctor, advanced practice provider* (APP) or pharmacist to see if there are other options that fit your plan.
Drug tiers
To determine how much a given medication will cost, a drug formulary is typically divided into tiers, with each tier representing a different cost level. Generally, lower-tier drugs (such as generic medications) cost less, while higher-tier drugs (like brand-name or specialty medications) have higher out-of-pocket costs. Here is how most tiers are laid out:
Tier 1 – Generic Drugs
These are usually the most affordable medications on your plan and are most commonly generic drugs that have been FDA-approved. Generic drugs must be equal to their brand-name counterparts in terms of quality, strength, and effectiveness but are often significantly less expensive.
Tier 2 – Preferred Brand-Name Drugs
These are well-known brand-name medications that are considered cost-effective and are often available for a moderate co-payment. They are usually more expensive than generics as they have been chosen by your insurance plan.
Tier 3 – Non-Preferred Brand-Name Drugs
These drugs are often higher-priced, brand-name medications that may have less expensive alternatives in Tier 1 or Tier 2. Because of this, they typically come with a higher out-of-pocket cost.
Tier 4 – Specialty Drugs
Specialty drugs are high-cost medications used to treat complex conditions such as cancer, rheumatoid arthritis, or multiple sclerosis. These medications tend to be very expensive and may require prior authorization before your insurance will cover them.
Formularies and tiers can vary from plan to plan, so it is key to review them in any insurance plan you have or are considering to make sure your medications are covered. If a drug you need isn’t on your plan’s formulary, you may need to switch to a different medication, pay the full cost out-of-pocket, or file an appeal with your insurance company to request coverage.
By reviewing your insurance plan’s drug formularies and tiers, you can make more informed decisions about your prescriptions and help manage your healthcare costs. If your prescription medications fall into a higher tier or are not listed on your plan’s formulary, it is worth talking about other options with your doctor, APP or pharmacist. By being proactive and informed, you can take control of your health and avoid surprises at the pharmacy counter.
*An advanced practice provider includes a nurse practitioner or physician assistant.