Employee Benefits
What Is a Prescription Drug Tier List (Formulary) for Insurance?
Have you ever wondered how health insurance companies set their cost and coverage for prescription medications? Typically, they use a “tiered” model in which medications are categorized and assigned a specific cost-sharing level (e.g., copayments or coinsurance) for patients.
Read on to learn how a prescription drug tier list works and how it can help you manage your medication costs more effectively.
What is a prescription drug list and how does it work?
A prescription drug tier list, also referred to as a formulary, is used to determine what you pay out of pocket for prescription medications. They list which medications are covered by your health insurance plan and what they’ll cost you.
Formularies categorize generic, brand name, and specialty medications into tiers. Typically, medications in lower tiers are more cost-effective than those in higher tiers. This means your cost-sharing responsibilities will likely be lower in tier 1 or 2 than they would be in tier 4 or higher. Medications that aren't included in your insurance company’s formulary typically aren’t covered under your plan, which means you’ll have to pay full price for them. However, in some circumstances — like if the medication is deemed medically necessary — you can submit a request to your insurance company for an exception.1
Keep in mind that formularies can be updated regularly as new medications are developed, patients’ needs change, or new health and safety research emerges. So, what you’ll pay today for a certain medication may differ from what you’ll pay for it at another time.
How to locate your drug formulary
You can typically access your insurer’s formulary on their website or by requesting a copy. Your copay or coinsurance values for each tier may also be listed on your insurance card.
Drug tier list: What tier is my medication?
There are often five tiers, although, some plans may only have three or four. Carefully review your insurance company's formularies for each of their plans. A drug listed as tier 1 in one plan could be listed as tier 2 in another plan offered by the same company. Also, don’t assume that a drug classified as tier 2 for one insurance company will hold the same classification for all providers. The same drug can be listed differently depending on the insurer.
Tier 1 medications: Generic versions
Medications in tier 1 are usually generic versions with the lowest possible copayments. Examples of low-cost medications you may find in tier 1 include:
- Generic pain relievers (e.g., ibuprofen)
- Generic drugs used to treat allergies (e.g., diphenhydramine)
- Generic contraceptives (e.g., birth control pills — like desogestrel)
- Generic antibiotics (e.g., penicillins)
Tier 2 medications: Preferred brands
Medications in tier 2 typically include brand-name medications that may not be available in generic form. You’ll pay a higher rate for these medications than you would for a generic medication, but less than you’d pay for a non-preferred medication.
Examples of moderately priced medications you may find in tier 2 include:
- Brand-name cholesterol-lowering medications with no generic equivalent
- Brand-name antibiotics with no generic equivalent
- Brand-name allergy medications with no generic equivalent
- Brand-name contraceptives with no generic equivalent
Tier 3 medications: Non-preferred brands
Medications in the tier 3 category typically cost more than tier 2 because these medications also have a generic option.
Examples of higher-cost medications you may find in tier 3 include:
- Non-preferred brand-name cholesterol-lowering medications
- Non-preferred brand-name allergy medications
- Non-preferred brand-name antidepressants
- Non-preferred brand-name contraceptives
Tier 4 medications: Preferred specialty
Medications in tier 4 are specialty brand-name products that may not have generic versions available. These medications are commonly used to treat complex, rare, or chronic medical conditions. Preferred specialty medications are more cost-effective than non-preferred specialty drugs.
Examples of specialty drugs you may find in tier 4 include:
- Specialty drugs for autoimmune conditions with no generic equivalent
- Specialty drugs for certain cancers with no generic equivalent
- Specialty drugs for rare genetic disorders with no generic equivalent
- Specialty antiviral medications with no generic equivalent
Tier 5 medications: Non-preferred specialty
Medications in tier 5 include the highest-cost versions of specialty drugs because they also have a generic option.
Examples of higher-cost specialty drugs you may find in tier 5 include:
- Specialty drugs for autoimmune conditions
- Specialty drugs for certain cancers
- Specialty drugs for rare genetic disorders
- Specialty antiviral medications
Ways to save on prescription drug costs
HSAs and FSAs
Health savings accounts (HSAs) and flexible spending accounts (FSAs) are tax-advantaged accounts that can help you save money on eligible medical expenses, including prescription medications.
With an HSA, you, your employer, and your family members can make pre-tax dollar contributions to cover a range of medical expenses — such as doctor visits, treatments, and prescription medications. To be eligible for an HSA, you must have a high-deductible health plan (HDHP).
An FSA is an employer-sponsored account that doesn't require you to have an HDHP to be eligible. You or your employer can contribute pre-tax dollars to an FSA, which can be used to cover various FSA-eligible items and expenses, such as prescription medications, copayments, hospital fees, and therapy services.