Formulary
A health insurer's approved list of covered prescription drugs, organized by cost-sharing tiers.
What is Formulary?
A formulary is the list of prescription drugs covered by a health insurance plan, including Medicare Part D plans and employer-sponsored plans. Drugs are grouped into tiers, each with a different cost-sharing level: Tier 1 typically includes low-cost generic drugs with the lowest copays; Tier 2 covers preferred brand-name drugs; Tier 3 covers non-preferred brands; higher tiers may include specialty drugs with the highest out-of-pocket costs or that require special approval. Formularies are developed by a plan's pharmacy benefit manager (PBM) based on clinical effectiveness, safety, and negotiated pricing. If a drug is not on the formulary, the insurer may not cover it, or coverage may be available only through an exception process. Formularies can change annually, so patients should review them during open enrollment to ensure critical medications remain covered.
Example
A patient on a branded blood pressure medication finds it on Tier 3 of their plan's formulary, costing $75/month. Their doctor requests a formulary exception for a newer Tier 4 specialty alternative. Alternatively, the patient asks if a therapeutic substitute on Tier 1 — a chemically similar generic — is clinically appropriate, reducing their cost to $10/month.
Source: CMS — Medicare Drug Coverage