What Is a Health Insurance Formulary? And Why Does It Matter?

When you're comparing health insurance plans, it's easy to focus on the monthly premium, deductible, copays, and whether your doctors are in-network.

But if you take prescription medications, there's another part of your coverage that's just as important to check:

The formulary.

A formulary is simply the list of prescription medications covered by your insurance plan.

And two health insurance plans that look very similar on the surface can cover the exact same prescription very differently.

Understanding how a formulary works can help you avoid an unpleasant surprise at the pharmacy — and make a better decision when choosing your health insurance coverage.

What Is a Formulary?

A health insurance formulary, sometimes called a drug list, is the list of prescription medications your insurance plan covers.

Insurance companies typically organize covered medications into different categories, or tiers.

While every plan can structure its formulary differently, you may see something like:

• Tier 1: Lower-cost generic medications

• Tier 2: Preferred brand-name medications

• Tier 3: Non-preferred brand-name medications

• Specialty Tier: Higher-cost or specialty medications

Generally, medications on lower tiers cost you less, while medications on higher tiers may have higher copays or coinsurance.

That's why simply asking, "Does my insurance cover this medication?" doesn't always give you the whole answer.

The better question is:

"How does my insurance cover this medication?"

A Covered Prescription Can Still Be Expensive

Let's say two different insurance plans both include your medication on their formularies.

Plan A might classify it as a preferred medication with a relatively low copay.

Plan B might place the exact same medication on a higher tier and require you to pay significantly more.

Technically, both plans "cover" your prescription. But your actual cost could be very different.

That's one reason I always recommend looking at your specific medications when comparing health insurance plans instead of assuming prescription coverage will be roughly the same from one plan to another.

Your Formulary May Have Additional Rules

Finding your medication on the drug list is only the first step.

Some prescriptions have additional requirements before your insurance will cover them.

You may see terms such as:

Prior Authorization

Your doctor may need to provide additional information to the insurance company and receive approval before the plan will cover the medication.

Step Therapy

Your plan may require you to try another medication first before it will cover a different, often more expensive, medication.

Quantity Limits

Your plan may limit how much of a particular medication it will cover during a certain period of time.

These rules don't necessarily mean you can't receive the medication. But they can affect how quickly you can fill the prescription and what steps you and your doctor may need to take first.

What If My Medication Isn't on the Formulary?

If a medication isn't included on your plan's formulary, it generally means the plan does not cover it under its standard prescription drug benefit.

That doesn't necessarily mean you're completely out of options.

Depending on the plan and your circumstances, your doctor may be able to request an exception, prescribe a covered alternative, or work with the insurance company to determine whether another option is available.

However, an exception isn't guaranteed.

That's why checking prescription coverage before enrolling in a plan, whenever possible, can be so important.

Formularies Can Change

Here's another important thing to know:

Your plan's drug list isn't necessarily the same forever.

Formularies can change from one plan year to the next. A medication that was covered favorably this year could be placed on a different tier next year, have new requirements attached to it, or potentially no longer be included on the formulary.

Your own prescriptions can change, too.

Maybe you started a new medication during the year. Maybe your dosage changed. Maybe your doctor switched you from one medication to another.

That's why prescription coverage should be reviewed along with the rest of your insurance — especially during your annual enrollment period.

The Pharmacy You Use Can Matter, Too

Even after you've confirmed that your medication is covered, there's another piece worth checking:

Where are you filling it?

Some insurance plans have preferred pharmacies where covered prescriptions may cost less.

The same medication, with the same insurance plan, could potentially cost you more depending on which pharmacy you use.

Mail-order options may also be available for certain maintenance medications.

So when comparing prescription coverage, you may want to look at both:

Is my medication covered?

and

Where should I fill it?

Why This Matters During Open Enrollment

One of the biggest mistakes you can make during Open Enrollment is looking only at the monthly premium.

A plan that's $20 cheaper each month might look like the obvious choice.

But if one of your regular prescriptions costs significantly more under that plan, those premium savings can disappear quickly.

The reverse can also be true.

A plan with a slightly higher monthly premium might ultimately cost you less over the course of the year because it covers your medications more favorably.

There isn't one insurance plan that's automatically best for everyone.

The better question is which plan works best for your doctors, your prescriptions, your healthcare needs, and your budget.

Before You Compare Plans, Make a Medication List

If you're preparing to review your health insurance options, having an updated prescription list can make the process much easier.

For each medication, write down:

• The exact medication name

• Dosage or strength

• How often you take it

• Quantity you receive with each refill

Don't forget medications you don't take every day but still refill regularly.

Having accurate information makes it much easier to compare how different plans may cover the prescriptions you actually use.

Don't Assume Your Prescription Coverage Stayed the Same

Even if you love your current insurance plan and intend to keep it, it's worth reviewing your prescription coverage for the upcoming year.

Insurance plans change.

Drug lists change.

Your medications change.

And sometimes a plan that worked beautifully for you one year isn't the best fit the next.

Taking a few minutes to review your formulary and prescription costs before choosing or renewing your coverage can help prevent surprises later.

Have Questions About Your Health Insurance?

Insurance terminology can make something as simple as filling a prescription feel much more complicated than it should.

If you're comparing health insurance options and aren't sure how your prescriptions are covered, I'm happy to help you understand what you're looking at.

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