Drug Formularies 101: The Lesser-Known Way to Save Money on Your Prescriptions

Have you ever gone to the pharmacy to pick up a new medication, only to find out that it’s not covered by your insurance? It’s a frustrating experience—especially when you get stuck with an unexpected out-of-pocket payment.

So why are some medications covered by insurance, and others aren’t? 

The answer has to do with a drug formulary, or the official list of generic and brand medications that your health plan has agreed to pay for. Getting to know your insurance formulary is important because it helps you understand which medications are available to you, how much they might cost, and whether there are any restrictions around them.

Here, we go over the ins and outs of drug formularies with Nicole T. Rochester, MD, founder and CEO of Your GPS Doc and author of Healthcare Navigation 101: A Guide for College-Bound Students (and Parents!).

Who decides what’s covered on a drug formulary?

Each insurance company has their own pharmacy and therapeutic committee who’s in charge of deciding which medications are included on a given formulary. Made up of pharmacists, physicians, and other specialists, these committees meet periodically to determine which medications will be covered, and how the insurer and the insured will split the costs. Decisions are often based on economics—so if a less expensive medication is proven to be as effective, the committee will usually choose to cover the less expensive option.

Action plan: Before you start taking a new medication, be sure to familiarize yourself with your insurance plan’s formulary because it’s a fluid process. A medication that’s covered one year, may be taken off in the next.

Are all formularies the same?

Formularies vary by insurance company, and by insurance plans within the insurance company. They can also vary state by state.

Action plan: If you’re taking a medication for a chronic illness, it’s best to review the formulary every year. You can find it on your insurance plan’s website—some companies even have apps you can download on your phone. If you can’t track it down online, call the customer service number on the back of your insurance card.

What are drug tiers?

For each formulary, drugs are divided into tiers to determine how much of the cost the insurance is going to absorb. Tier 1, usually for generic medications, is the least expensive. Tier 2 includes brand name drugs, and Tiers 3 and 4 are for the more expensive specialty drugs. The more expensive the drug, the more cost the insurance will pass onto the client.

Action plan: Check which tier your medications are on to see how much of the cost you’ll have to absorb. It’s possible that a drug that’s on Tier 3 for one plan, may be on a Tier 4 for another plan—so it’s a good idea to shop around.

What about restrictions like step therapy?

Every health plan is administered differently, so the rules for certain restrictions like step therapy, prior authorizations, and quantity limits will vary from plan to plan.

Action plan: Research medical restrictions before you choose your health plan (this information is typically on the company’s website). And if you’re taking an expensive specialty medication, it’s best to call. You don’t want to have to jump through hoops and red tape after the fact.

What should you do if your drug isn’t covered?

Ask your doctor or pharmacist if there’s a generic equivalent (and make sure to check for discounts with Blink Health). If there’s no alternative, most insurance companies have an appeals process that your doctor or pharmacist can help you with. You can also check with your pharmaceutical manufacturer, or seek out an assistance program through The Assistance Fund, the Patient Advocate Foundation, or the Patient Access Network (PAN) to see if you can get your medication for free or at reduced cost.