Formulary

A formulary is your plan's list of covered prescription drugs, usually organized into tiers that determine what you pay. Tier 1 is generics (lowest cost-share), Tier 2 is preferred brand-name drugs, Tier 3 is non-preferred brand-name drugs, and Tier 4 or 5 is specialty drugs (highest cost-share, often 20 to 40 percent coinsurance). Drugs not on the formulary aren't covered at all.

Formularies change constantly. A drug that was Tier 2 in January can move to Tier 3 in July, doubling your copay. Drugs can be added, dropped, or hit with new prior-authorization or step-therapy requirements mid-year. The pharmacy benefit manager (PBM) that runs the formulary — Caremark, Express Scripts, OptumRx, and a handful of independents — negotiates rebates with manufacturers, which is a big part of why placement decisions look the way they do. Self-funded employers can (and increasingly do) build custom formularies through independent PBMs to control this dynamic. Non-formulary drugs can sometimes be covered through a formulary exception request with clinical documentation.

The takeaway: check your plan's formulary before any new prescription, and reprice long-term medications at open enrollment. A tier change can add hundreds of dollars a year without warning.