Prescription drug coverage and the formulary

A formulary is the list of drugs a plan covers, organized into tiers with different cost sharing.

It changes annually and sometimes mid-year, and it is the part of health coverage that most directly affects people managing ongoing conditions.

The tier structure

Typically four to six tiers, with names varying by plan.

Tier 1, preferred generics, with the lowest copay.

Tier 2, non-preferred generics and preferred brands.

Tier 3, non-preferred brands, at substantially higher cost.

Tier 4 and above, specialty drugs — typically high-cost medications for complex conditions.

The critical difference at the specialty tier is that cost sharing is frequently coinsurance rather than a copay. Twenty or thirty percent of a drug costing thousands per month is a very large monthly amount.

This is where the out-of-pocket maximum becomes the operative protection, and why it matters more than the deductible.

The utilization management tools

Beyond tiers, plans apply restrictions.

Prior authorization, requiring approval before the drug is covered.

Step therapy, requiring you to try a preferred alternative first and demonstrate it failed or was not tolerated.

Where you have already tried the preferred drug, documentation of that history can satisfy the requirement without repeating it. Provide the records.

Quantity limits, capping the amount dispensed per period.

Specialty pharmacy requirements, requiring certain drugs to be obtained from a designated pharmacy rather than a retail one.

When a drug is not covered

Several routes.

Formulary exception request. A formal process, available on most plans, to request coverage of a non-formulary drug or coverage at a lower tier.

It requires physician support demonstrating that formulary alternatives are ineffective, would be harmful, or are contraindicated.

Denials of exception requests are appealable, including to external review.

Therapeutic alternatives. Frequently there is a covered drug in the same class that works equally well. Ask the prescriber to check the formulary before writing the prescription.

This single habit prevents most formulary problems.

Manufacturer assistance, including copay cards and patient assistance programs.

Note the accumulator issue: many plans no longer count manufacturer copay assistance toward your deductible or out-of-pocket maximum. Which means the assistance covers the drug while it lasts, and when it is exhausted you face the full cost sharing with no accumulation credited.

Check whether your plan uses a copay accumulator or maximizer program.

Charitable foundations, which assist with cost sharing for specific conditions.

Reducing cost within the system

Generics, which are required to be therapeutically equivalent and cost a fraction of brands.

Where a generic exists, ask for it. Where a brand is medically necessary despite a generic being available, a formulary exception may be required.

Ninety-day supplies, frequently at a lower per-month cost, particularly through mail order.

Preferred pharmacies, where the plan has a network with differential pricing.

Comparison shopping, including discount cards and pharmacy pricing tools. Occasionally the cash price with a discount card is lower than the insured price, particularly for inexpensive generics.

Note that when you pay cash, the amount generally does not count toward your deductible, so the comparison matters.

Splitting higher-dose tablets where clinically appropriate and where the tablet is scored, which the prescriber must approve.

Mid-year formulary changes

Plans can change formularies during the year, moving drugs to higher tiers or removing them.

Rules on notice and on protecting people already stabilized on a medication vary by plan type and jurisdiction, with more protection in some markets than others.

If a drug you take is removed or moved, request an exception on the basis of therapeutic stability. This frequently succeeds.

The annual check

During open enrollment, look up every medication you take in each plan's formulary.

Note the tier, the cost sharing, and any restrictions.

For someone on a specialty medication, this is frequently the single most important variable in plan selection, and it can outweigh premium differences by a large margin.

Pharmacy benefit managers

Worth knowing about because they explain a good deal of the structure.

Most plans contract pharmacy benefits to a pharmacy benefit manager, which negotiates with manufacturers, builds the formulary, and administers the benefit.

Their revenue model involves rebates negotiated with manufacturers, which influences formulary placement in ways that are not always aligned with the lowest net cost to the patient.

This is the subject of ongoing policy attention and litigation. For a patient, the practical implication is that formulary placement reflects commercial arrangements as well as clinical evidence, which is worth understanding when a clearly effective drug sits on a high tier.

General information about insurance concepts, not insurance or medical advice. Formularies, cost sharing and exception processes vary by plan and change. Consult your plan documents, your prescriber and your insurer.