How do drug formularies work?

Your health insurance plan includes a list called a formulary — a list of the drugs it covers. If you’ve ever been surprised by how much your prescription cost, it’s possible that the drug wasn’t on your formulary.

The formulary is also called the Preferred Drug List (PDL). At first glance, you might think you need a decoder ring to figure this out. But understanding your PDL can help you pay the lowest price for the drugs you need.

Think about your medication formulary

Your plan list is drawn up by a committee of doctors and pharmacists. The group works together to ensure the formula is based on safety, efficiency and overall value, says Louise Norris, licensed insurance broker and analyst for

The PDL categorizes drugs into tiers, usually three to five, based on how much they cost you. Tier 1 drugs are the cheapest and are often generic versions of well-known drugs that are in higher, more expensive tiers, Norris says.

Your insurance plan may not cover all possible medications. It depends on whether your PDL is open or closed.

With an open form, your health plan covers all FDA-approved drugs. “Every drug imaginable is at some level. The worst possible scenario is that the most expensive drugs are at the highest levels,” says Michael Botta, Ph.D., co-founder of direct-to-patient healthcare company Sesame.

Many commercial plans are open or very close to it, he says.

With a closed formulary, “there are some drugs that are not in any of the tiers and therefore not subject to your drug benefits,” Botta says.

A third of Americans use Medicaid, the government-funded health insurance program for low-income earners, he says. Most of these plans have closed forms.

Where to find your form

Go to your insurance plan’s website and search for it. It may be under a tab such as “find drugs” or “covered drugs.” The formulary can list the drugs:

  • Alphabetically
  • By level
  • By type of drug
  • They treat according to the state of health

If you can’t find the drug you’re looking for, call the number on your insurance card for information, Botta says.

“You may find that your health plan has an interactive formulary page that shows you covered alternatives if your drug is not on the formulary,” says Norris. It can also give you lower-level alternatives if your drug is at a higher level, she adds.

The PDL usually includes other important information about your coverage, including:

  • Prior Authorization (PA) or whether your plan requires you to get prior authorization to get drug coverage
  • Step Therapy (ST), which means you have to try cheaper drugs first to see if they work for your condition
  • Quantity Limits (QL), when the drug is only covered for a certain number of refills or for a certain number of doses per day

Most forms change at the beginning of each calendar year. Before you order your first refill of the year, check to see if your medications are still on the list, if they’ve been replaced with generic drugs, or if new ones you need have been added.

If you’re thinking about changing your health insurance plan, make sure all of your family’s medications are on the formulary before making a decision.

Know your pattern to save money

Norris says it’s common to have low, fixed copays for tier-one drugs, but coinsurance (where you pay a percentage of the cost) for top-tier drugs. To keep costs down, ask your doctor for a lower-level drug, if one is available.

You may be wondering if generics are as good as brand name drugs. FDA-approved generics have the same ingredients and are just as effective as their brand-name counterparts. They are cheaper because they do not have to repeat expensive efficacy and safety studies. There is also more market competition as many different generic drugs may be available.

Be sure to share the most up-to-date list of formularies with your doctor, especially if cost is a concern. Let them know you want the lowest-priced option to meet your needs, suggests Botta.

In some cases, you and your doctor may need to get creative. For example, an extended-release drug may not be covered while a standard-release version of the same drug is. Your doctor may write a prescription for covered drugs that you then take at different times throughout the day. This can mimic the effect of a time-release drug.

What to do if your drug is not on the formulary

If you need a drug that is not on your health plan’s list, your doctor can apply for a formulary exemption for you. You may need to do this for several reasons, says Norris.

  • You are allergic to the alternatives found in the formulary.
  • You’ve already tried alternatives on PDL and they didn’t work.
  • Medicines on the formulary can interact badly with other medicines you are taking.
  • Formula drugs can cause problems because of other health problems you have.

It usually takes some time for insurance plans to add newly approved drugs to their formularies. If your doctor thinks a brand new drug is the best or only choice for your medical needs, he or she may file an exception form if your health plan has not yet begun to cover the new drug.

There is no guarantee that your insurance provider will grant a formulary exception. If not, there is an appeals procedure. It starts with an internal appeal. If that doesn’t work, an external appeal — one reviewed by a third party instead of your health plan — can be taken.

This is an uphill battle at times, says Botta. He advises going to the drug manufacturer’s website and looking for discounts. Your pharmacist can also suggest ways to save money.