By: Linda Mach, PharmD, BCACP, Clinical Pharmacist
Insurance plan benefits can be a challenge to understand. Get to know your insurance plan’s medication formulary to make more informed decisions about your medications and better manage costs.
To break down this information, we answer some commonly-asked questions regarding insurance formularies.
What is a formulary?
A formulary is a list of medications covered by your insurance plan. Insurance companies have pharmacy benefit managers (PBM) that oversee the formularies. Formularies are divided into different categories called formulary tiers. Formulary tiers can vary in number, category, or label.
For example, one type of formulary may have three tiers:
- Tier 1 a list of generic medications covered.
- Tier 2 a list of proprietary (brand name) medications covered.
- Tier 3 a list of specialty medications (cancer medications or medications for rare conditions).
In general, more expensive medications are placed in the higher-numbered tiers.
Or, a formulary could have just two tiers:
- Preferred medications
- Non-preferred medications
Each insurance plan can structure its formulary differently and decide what to include or omit.
What goes into making a formulary?
Creating a formulary is an extensive process that involves a panel of medical providers, including physicians, specialists and pharmacists. They will review each medication and consider:
- How effective a drug is compared to similar medications
- When a drug is recommended in a course of treatment or therapy
- The cost of a drug compared to a similar, cheaper drug with the same function
Usually, the panel will meet and discuss these components before deciding whether to include the drug in the formulary and which tier is most appropriate.
Why is a formulary necessary?
You may question, why should a third party dictate which medication is covered? Doesn’t my doctor know best?
It’s not that your physician is prescribing medications inappropriately, but oftentimes, they’re not as familiar with the cost of medications as the insurance companies that are “footing the bill.”
Formularies help ensure that patients receive the most cost-effective medications. Often, there are medications that have the same function and are equally effective, but one costs more than the other. It makes more financial sense to prefer the cheaper medication in those cases.
How could a formulary impact me?
Most of the time, you won’t run into any issues getting the medication you need. However, if your physician prescribes a medication that is not preferred, the insurance company may require you to try a different medication first.
Patients are often surprised to find that alternative medications can be equally effective. However, if it isn’t effective for you, then your physician’s office may need to complete a “prior authorization.”
What is a prior authorization?
A prior authorization is a review process that requires your doctor’s office to submit paperwork explaining why you need a specific medication when others are available. The insurance company decides if a prior authorization is needed. Usually a prior authorization is prompted when the pharmacy tries to bill for the medication and the bill is rejected, requiring a prior authorization.
What do I need to do to obtain a prior authorization?
If your pharmacy receives notification from the insurance company that your medication requires a prior authorization, the pharmacy will usually notify your physician to let them know.
Sometimes your insurance company will supply the pharmacy with forms and other times, the insurance company provides the forms once the physician’s office makes contact. The insurance company often requires documentation to explain why you need that particular medication. Sometimes, it’s as easy as your doctor saying, “Patient tried drugs A, B, C, and they didn’t work.”
The insurance plan has a team of medical professionals that reviews your physician’s documentation. This team decides whether the medication will be covered. Other times, you may be required to try an alternative medication that fails to be effective. Of course, your physician will review the alternatives to make sure they’re appropriate before prescribing them for you. If the alternatives are not appropriate, your physician can explain in the documentation to your insurance plan’s prior authorization team.
Co-pays and Drug Coverage
It’s important to remember that even though the medication may be covered, your co-pay (your responsibility of the payment) could still be very high. Co-pays are often determined by the tier that the medication is in. Co-pays can be a flat fee or sometimes, they are a percentage. For example, using PBM A’s formulary above:
- Tier 1: Co-pay $10
- Tier 2: Co-pay $40
- Tier 3: 20% of cost of medication
Know the Lingo: Formulary Vocabulary
- Co-pay: Cost of medication to patient.
- FDA: Federal Drug Administration
- Formulary: List of medications covered by insurance company.
- Formulary Tier: Category of drugs grouped mainly by price.
- Generic medications: Medications that have the same chemical structure and have been proven to the FDA to be equivalent to the proprietary medication.
- Prior Authorization: A process that allows a PBM to review whether a non-preferred medication should be covered.
- Proprietary (brand name) medications: Patented medications