What Is a Formulary?
Formulary — also called Formulary
A formulary is a list of prescription drugs that a health insurance plan agrees to cover. Health insurance companies, Medicare Part D plans, Medicare Advantage plans, Medicaid programs, and employer-sponsored health plans use formularies to identify which medications are covered, how they are categorized, and what your share of the cost may be. A formulary can change over time, so it's important to review your plan's drug list each year.
Official source: medicare.gov
What is a formulary?
A formulary is an official list of prescription medications covered by a health insurance plan.
Rather than covering every available medication, insurers develop formularies to identify which drugs are included under the plan's prescription drug benefit.
Each medication on a formulary is typically assigned to a pricing tier that helps determine what you will pay when you fill your prescription.
Health plans regularly review and update their formularies based on clinical evidence, safety information, and other factors.
Who uses formularies?
Many types of health insurance plans use formularies, including:
- Medicare Part D prescription drug plans
- Medicare Advantage plans that include prescription drug coverage
- Medicaid programs
- Employer-sponsored health insurance
- Individual and Marketplace health insurance plans
Although all of these plans use formularies, the specific medications they cover and the rules for obtaining them vary by plan.
What information does a formulary include?
A formulary typically includes:
- Covered prescription medications
- Drug tiers
- Generic and brand-name drugs
- Quantity limits
- Prior authorization requirements
- Step therapy requirements
- Specialty drug designations
Many plans also identify preferred pharmacies and provide tools that allow members to search for covered medications online.
What are drug tiers?
Most formularies organize medications into pricing levels called tiers.
Although tier structures vary by plan, a typical formulary may include:
- Tier 1: Preferred generic medications
- Tier 2: Preferred brand-name medications
- Tier 3: Non-preferred brand-name medications
- Tier 4: Preferred specialty medications
- Tier 5: Non-preferred specialty medications
In general, lower-tier medications have lower out-of-pocket costs than higher-tier medications.
Each insurance company determines its own tier structure.
Why aren't all medications covered?
Health plans use formularies to encourage safe, effective, and cost-conscious prescribing.
When deciding whether to include a medication, insurers may consider factors such as:
- Clinical effectiveness
- FDA approval
- Safety information
- Availability of generic alternatives
- Recommendations from pharmacy and therapeutics committees
If a medication is not included on the formulary, your healthcare provider may recommend an alternative medication or request an exception if allowed under your plan.
Can a formulary change?
Yes.
Health plans may update their formularies throughout the year in accordance with applicable federal and state requirements.
Changes may include:
- Adding new medications
- Removing medications
- Moving drugs to different pricing tiers
- Changing prior authorization requirements
- Updating quantity limits
Medicare Part D plans and many other insurers must provide notice before making certain formulary changes that affect covered medications.
Formulary vs. prior authorization
These terms are closely related but serve different purposes.
Formulary
Identifies which prescription drugs are covered under your health plan.
Prior authorization
Is the process your insurance company may use to review certain medications before agreeing to cover them.
A medication may appear on your plan's formulary but still require prior authorization before it will be covered.
Formulary vs. generic drug
A formulary is not a list of generic drugs.
Instead, most formularies include both:
- Generic medications
- Brand-name medications
The formulary determines which drugs are covered and how they are categorized under your health plan.
Common misconceptions
Myth: If my doctor prescribes a medication, my insurance company is required to cover it.
Reality: Coverage depends on your health plan's formulary, prior authorization requirements, quantity limits, and other coverage rules. Even FDA-approved medications may not be covered by every insurance plan.
Why this matters
Prescription drug costs can vary significantly depending on whether a medication appears on your plan's formulary and which tier it occupies. Reviewing your formulary before enrolling in a health plan—or before starting a new medication—can help you estimate costs, avoid unexpected coverage issues, and discuss lower-cost alternatives with your healthcare provider.
In real life
- A Medicare beneficiary compares several Part D plans and chooses one that covers all of their regular medications on lower-cost formulary tiers.
- A physician prescribes a medication that is not included on a patient's formulary and recommends a covered alternative with similar clinical effectiveness.
- A patient learns that a specialty medication is covered under the plan's formulary but requires prior authorization before it can be dispensed.
Also known as
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Frequently asked questions about Formulary
What is a formulary?+
A formulary is a list of prescription medications covered by a health insurance plan. It identifies which drugs are covered and how they are categorized for cost-sharing purposes.
Does every health insurance plan have a formulary?+
Most health insurance plans that include prescription drug coverage maintain a formulary, although the medications covered and plan rules differ.
Can my insurance company remove a drug from its formulary?+
Yes. Health plans may update their formularies, but Medicare Part D plans and many other insurers must follow federal and state rules governing certain formulary changes and member notifications.
What happens if my medication is not on the formulary?+
Your healthcare provider may recommend a covered alternative or request a formulary exception if your health plan allows one.
Does being on the formulary mean my medication is free?+
No. Most covered medications still require deductibles, copayments, or coinsurance depending on your health plan and the medication's tier.
Can a formulary require prior authorization?+
Yes. Some medications listed on a formulary also require prior authorization, step therapy, quantity limits, or other utilization management requirements before coverage is approved.
Sources
- What's a Medicare drug formulary?
Medicare.gov — medicare.gov - Prescription Drug Coverage (Part D)
Centers for Medicare & Medicaid Services — cms.gov - Find Health & Drug Plans
Medicare.gov — medicare.gov - Prescription Drug Coverage Resources
U.S. Department of Health and Human Services — hhs.gov - Medicare Part D Formulary Requirements (42 CFR Part 423)
Code of Federal Regulations — ecfr.gov