Understanding Your Health Insurer’s Formulary Drug List: What You Need to Know

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

The formulary is also called a preferred drug list (PDL). At first glance, you may think you need a decoder ring to figure it out. But understanding your PDL can help you pay the lowest price for the drugs you need.

Make Sense of Your Drug Formulary

Your plan’s list is created by a committee made up of doctors and pharmacists. The group works together to make sure the formulary is based on safety, effectiveness, and overall value, says Louise Norris, a licensed insurance broker and analyst for healthinsurance.org.

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

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

With an open formulary, your health plan covers any drug approved by the FDA. “Any drug imaginable is on some tier. Worst-case scenario is the most expensive drugs are on the highest tiers,” says Michael Botta, PhD, co-founder of the direct-to-patient health care company Sesame. 

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

With a closed formulary, “there are some medications that are on none of the tiers and so are not subject to your medication benefits,” Botta says.

A third of Americans use Medicaid, state-funded health insurance for those with low incomes, he says. Most of those plans have closed formularies.

Where to Find Your Formulary

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

• Alphabetically
• By tier
• By type of drug
• By medical condition they treat

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

“You might find that your health plan has an interactive formulary page that shows you covered alternatives if your medication isn’t on the formulary,” Norris says. It also may give you lower-tier alternatives if your medication is in a higher tier, she adds.

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

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

Most formularies change at the start of each calendar year.

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