Understanding Drug Tiers & Formularies
Your complete guide to understanding prescription drug coverage and saving money on medications
80-85%
Average savings with generic drugs
Source: FDA Generic Drug Data66%
Of prescriptions are for generic drugs
Source: IQVIA Institute$4.1B
Saved through prior authorization annually
Source: AHIP ResearchUnderstanding Drug Tiers
| Tier | Type | Typical Cost | Examples |
|---|---|---|---|
| Tier 1 | Preferred Generic Drugs | $1-15 copay | Generic antibiotics, blood pressure medications, diabetes drugs |
| Tier 2 | Preferred Brand Drugs | $30-45 copay | Common brand-name drugs with no generic equivalent |
| Tier 3 | Non-Preferred Drugs | $85-100 copay | Brand-name drugs with generic alternatives |
| Tier 4/5 | Specialty Drugs | 25-33% coinsurance | Biologics, cancer drugs, rare disease treatments |
Note: Actual costs may vary by insurance plan. Check your plan's specific drug formulary for details.
Common Mistakes to Avoid
Not Checking Drug Tiers
Many people don't check their medication's tier placement, leading to unexpected costs.
Impact: Can result in paying 3-4x more than necessary
Solution: Always verify your drug's tier status and look for lower-tier alternatives
Skipping Prior Authorization
Starting medications without getting required prior authorization.
Impact: Insurance may deny coverage completely
Solution: Work with your doctor to submit authorization before filling prescriptions
Ignoring Formulary Changes
Not reviewing annual formulary updates from insurance.
Impact: Medications may change tiers or be removed from coverage
Solution: Review formulary changes during open enrollment and when receiving notices
Missing Step Therapy Requirements
Not following required step therapy protocols.
Impact: Coverage denied for higher-tier medications
Solution: Document trials of lower-tier medications with your healthcare provider
Key Formulary Features
Prior Authorization
Insurance approval required before covering certain drugs
Impact: Ensures appropriate and cost-effective use
Tip: Start the process early, work with your doctor to provide documentation
Step Therapy
Try lower-cost drugs before moving to more expensive options
Impact: Can reduce costs while ensuring effective treatment
Tip: Document how lower-tier drugs worked (or didn't work) for you
Quantity Limits
Restrictions on amount of medication covered per time period
Impact: Controls costs and ensures safe use
Tip: Plan refills ahead, discuss extended supplies with your doctor
Formulary Exceptions
Process to request coverage for non-formulary drugs
Impact: Provides access to necessary medications not on formulary
Tip: Have your doctor document medical necessity
Research-Backed Saving Strategies
Use Generic Drugs
Generic drugs are FDA-approved to be as safe and effective as brand-name drugs, but cost 80-85% less on average.
Source: FDA Generic Drug FactsChoose Preferred Pharmacies
Using your plan's preferred pharmacies can save 20-40% on prescription costs.
Source: CMS Medicare Part D Data90-Day Supplies
Getting a 90-day supply instead of 30-day can save up to 33% on copays.
Source: Health Insurance Association DataManufacturer Programs
Drug manufacturer savings cards can reduce costs by 60-75% on brand-name medications.
Source: PhRMA Patient Assistance DataFrequently Asked Questions
What is a drug formulary?
A drug formulary is a list of prescription medications covered by your insurance plan. It's organized into tiers, with each tier having different cost-sharing amounts. Insurance plans use formularies to encourage the use of lower-cost, effective medications.
What are drug tiers?
Drug tiers are categories that determine how much you'll pay for a medication. Typically, Tier 1 includes low-cost generic drugs, Tier 2 includes preferred brand-name drugs, Tier 3 includes non-preferred brand-name drugs, and Tier 4 or higher includes specialty drugs.
What is prior authorization?
Prior authorization is a requirement from your insurance company to approve certain medications before they'll cover them. This process helps ensure the prescribed drug is medically necessary and appropriate for your condition.
What is step therapy?
Step therapy is a process where you must try less expensive options before 'stepping up' to more expensive drugs. For example, you might need to try a generic drug before the insurance will cover a brand-name version.
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