What Is a Drug Formulary? Complete Explanation for Patients

A drug formulary is a list of prescription medications that your health insurance plan agrees to cover. It’s not just a catalog-it’s a tool that decides which drugs you can get at a low cost, which ones will cost you more, and which ones might not be covered at all. If you’ve ever been surprised by a high pharmacy bill, or told your doctor you can’t fill a prescription because it’s "not on the list," you’ve run into a formulary. Understanding how it works can save you hundreds-or even thousands-of dollars a year.

How a Drug Formulary Works

Think of a drug formulary like a menu at a restaurant. Not every dish is available, and the ones that are come with different prices. Insurance companies and Pharmacy Benefit Managers (PBMs) build these lists to balance two things: what works medically, and what they can afford to pay for. They don’t just pick drugs randomly. A team of doctors, pharmacists, and researchers called a Pharmacy and Therapeutics (P&T) committee reviews every medication based on clinical studies, safety records, and cost-effectiveness. Only drugs that meet strict standards make the cut.

Most formularies are divided into tiers. Each tier has a different cost for you, the patient. The higher the tier, the more you pay. This structure pushes patients toward cheaper, equally effective options without forcing them to sacrifice care.

The Five Tiers Explained

Most plans use three to five tiers. Here’s what each one usually means:

• Tier 1: Generic Drugs - These are the cheapest. They contain the same active ingredients as brand-name drugs but cost far less. For example, generic lisinopril for high blood pressure might cost you $5 or even $0 with insurance. The FDA requires generics to be identical in safety, strength, and performance to their brand-name versions.
• Tier 2: Preferred Brand-Name Drugs - These are brand-name medications that the plan has negotiated a good price for. You’ll pay more than for generics-usually $25 to $50 per prescription-but still less than non-preferred brands.
• Tier 3: Non-Preferred Brand-Name Drugs - These are brand-name drugs that aren’t on the plan’s preferred list. They might be newer, more expensive, or have cheaper alternatives available. Your cost here is typically $50 to $100 per prescription.
• Tier 4: Specialty Drugs - These are high-cost medications for complex conditions like cancer, rheumatoid arthritis, or multiple sclerosis. You might pay 30% to 50% coinsurance, or a $100+ copay. Some plans split this into Tier 4 and Tier 5 for the most expensive treatments.
• Tier 5: Ultra-Specialty Drugs - Reserved for the most expensive therapies, like gene therapies or certain biologics. Costs can reach $1,000 or more per month, even with insurance.

These tiers aren’t the same across all plans. A drug that’s Tier 2 on your Medicare plan might be Tier 3 on your employer’s plan. That’s why comparing formularies during open enrollment matters.

Why Some Drugs Aren’t Covered

Not every medication makes it onto a formulary. Sometimes it’s because there’s a cheaper, equally effective generic. Other times, the drug is new and hasn’t been reviewed yet, or it hasn’t proven better than existing options. But if your doctor prescribes a drug that’s not on the list, you’re not stuck.

You can request a formulary exception. This means asking your plan to cover a drug that’s not on their list. Your doctor must submit a letter explaining why you need it-maybe you tried all the alternatives and had side effects, or the non-formulary drug is the only one that works for your condition. Most plans approve these requests within 72 hours. In urgent cases, like if you’re in the hospital, they must respond within 24 hours. In 2023, about 67% of Medicare Part D exception requests were approved.

Other Restrictions You Might Face

Even if a drug is on the formulary, your plan might still put limits on it:

• Prior Authorization - Your doctor has to get approval before the plan pays. This often happens with expensive or high-risk drugs.
• Step Therapy - You must try a cheaper drug first. For example, if you have asthma, your plan might require you to try an inhaler like albuterol before approving a more expensive one.
• Quantity Limits - You can only get a certain amount at a time. For instance, your plan might limit you to 30 pills per month, even if your doctor prescribes 60.

These rules aren’t meant to deny care-they’re meant to prevent waste and ensure safer use. But they can be frustrating. If you’re denied, you can appeal the decision.

Formularies Change-All the Time

Your formulary isn’t set in stone. Plans update them regularly, sometimes mid-year. A drug you’ve been taking for years could move from Tier 2 to Tier 3, or be removed entirely. That’s why you need to check your formulary every year during open enrollment (October 15 to December 7 for Medicare). But don’t wait-check it again when you refill a prescription. About 28% of formulary changes happen outside of open enrollment, according to the Patient Advocate Foundation.

Medicare Part D plans must send you a notice if a drug you take is changing tiers or being removed. Commercial plans must give you 60 days’ notice. If you get a letter like this, call your pharmacist or plan directly. Ask: "Is there a similar drug on the formulary? Can I get an exception?" Don’t assume you’re stuck with a higher bill.

How to Find Your Plan’s Formulary

Every insurance plan publishes its full formulary online. Here’s how to find yours:

• Log in to your insurer’s website and look for "Drug List," "Formulary," or "Prescription Benefits."
• For Medicare Part D, use the Medicare Plan Finder tool. Type in your medications, zip code, and pharmacy. It shows exactly what each plan covers and how much you’ll pay.
• Call customer service. Ask for a copy of the current formulary. They’re required to send it to you.

Always verify your medication’s tier before filling a prescription. A simple check can prevent a surprise bill.

Real Patient Stories

One patient on Reddit shared that her diabetes medication moved from Tier 2 to Tier 3. Her monthly cost jumped from $35 to $85. She switched to a generic version and saved $600 a year.

Another, a cancer survivor, said her immunotherapy drug was on Tier 4. Instead of paying $5,000 out of pocket, she paid $95. "It saved my life financially," she wrote.

But not everyone wins. A 2023 survey found that 31% of insured adults had a prescription denied because it wasn’t on the formulary. Many felt confused, frustrated, or even abandoned.

What You Can Do

You have power here. You don’t have to accept a formulary’s limits without fighting back:

• Ask your doctor: "Is there a generic or preferred brand on the formulary?"
• Use GoodRx or SingleCare to compare cash prices-even if a drug isn’t covered, the cash price might be lower than your copay.
• Request a formulary exception if your medication is essential and not covered.
• During open enrollment, compare plans based on your medications-not just premiums.
• Keep a list of your prescriptions and their tiers. Update it every time you get a new prescription.

Formularies exist to make healthcare more affordable. But they only work if you understand them. The system isn’t perfect. Some patients fall through the cracks. But with the right knowledge, you can navigate it successfully-and protect your wallet while getting the care you need.

What’s Changing in 2025

Starting January 1, 2025, Medicare Part D will cap out-of-pocket costs for all covered drugs at $2,000 per year. That’s a huge shift. Previously, people with expensive medications could pay tens of thousands. Now, there’s a hard stop.

Also, insulin will still be capped at $35 per month. More biosimilars (lower-cost versions of biologic drugs) are hitting the market, and formularies are starting to favor them. Expect more drugs to move to lower tiers as competition increases.

By 2027, AI tools will help plans predict which drugs work best for individual patients, making formularies more personalized and less one-size-fits-all.