What is a formulary?

Benefily Team18 July 202611 min read

A pharmacist in a lab coat selecting a medication bottle from a pharmacy shelf

Your pharmacist says a drug isn't on your plan's list, or that it is covered but only once you clear a hurdle first. Both situations trace back to the same document: your Medicare Part D plan's formulary. It decides which drugs your plan pays towards, roughly how much you'll owe for each one, and whether a drug carries a prior authorization, step therapy or quantity limit flag before your prescriber can simply fill it. This guide draws on Medicare's own formulary rules to explain how a formulary is built, why it isn't fixed for the whole year, how to read the tier a drug sits in, and exactly where to find the one that applies to you.

Key takeaways

A formulary is the specific list of drugs a plan covers, plus the tier and any restriction attached to each one.
Every Part D plan must cover at least two drugs in each therapeutic category, with near-total coverage required for six protected classes.
Drugs sit in tiers, typically five, that broadly track cost-sharing, though the exact structure and amounts vary by plan.
Three separate restriction types can sit on a formulary row: prior authorization, step therapy and quantity limits.
Formularies are meant to hold steady for the year, but negative mid-year changes are allowed for reasons like safety withdrawals or new generics reaching the market.
Utilization restrictions have grown sharply industry-wide: from an average of 31.9% of drug compounds restricted or excluded in 2011 to 44.4% in 2020.

What a formulary actually is

A formulary is the list of drugs a specific health plan has agreed to cover, together with the rules attached to each one: which cost-sharing tier it sits in, and whether it carries a prior authorization, step therapy or quantity limit flag. Every Medicare Part D plan, and every Medicare Advantage plan that includes drug coverage, files its own formulary with Medicare each year. That's why two plans from the same insurer, sold in the same state, can end up covering a genuinely different set of drugs at genuinely different prices.

It helps to be clear about what a formulary isn't. It isn't a clinical judgement about which medicine suits you best, and it isn't set nationally by Medicare itself. It's closer to a commercial and regulatory document: the plan negotiates which manufacturers' products it lists, Medicare checks the result against minimum coverage rules, and what's left becomes the formulary that governs your prescriptions for the year.

How a formulary gets built

Medicare doesn't let a plan cover whatever it fancies. Under federal rule (42 CFR § 423.120), every Part D formulary must include at least two drugs that aren't chemically identical to each other in each therapeutic category and class Medicare recognises, so a plan can't cover a single blood-pressure drug and call that category finished. There's a narrow exception: where only two drugs exist in a category and one is clearly clinically superior, a plan may cover just the one.

Six categories get far stricter treatment: the so-called six protected classes, covering antidepressants, antipsychotics, anticonvulsants, immunosuppressants for transplant rejection, antiretrovirals, and antineoplastics (cancer drugs). Rather than the bare two-drug minimum, plans must cover all or substantially all drugs within these classes, because an interrupted supply of any of them can be genuinely dangerous for the people who rely on them.

The categories and classes themselves are locked in at the start of the plan year and can't be reshuffled once the year is under way, other than for CMS-approved reasons such as a newly approved drug or a new therapeutic use for an existing one. Individual drugs sitting inside those categories are a different matter, and that's where most of the changes you'll actually notice as a member happen.

Formulary tiers: what they actually mean

Within its formulary, a plan sorts covered drugs into tiers, and the tier a drug sits in broadly signals how much you'll pay towards it relative to other covered drugs on the same plan. Most Part D plans use a typical five-tier structure, though the exact number of tiers, and what sits in each one, is set by the individual plan rather than by Medicare.

Tier	Typical drug type	Typical cost-sharing pattern
1	Preferred generic drugs	Lowest cost-sharing on the formulary, often the plan's cheapest fixed copay tier
2	Generic drugs	Slightly higher fixed copay than tier 1, still relatively low
3	Preferred brand-name drugs	A moderate fixed copay, higher than either generic tier
4	Non-preferred drugs (brand or generic)	A higher copay or a coinsurance percentage rather than a flat amount
5	Specialty drugs	Usually coinsurance rather than a flat copay, reflecting the high cost of the drugs involved

A typical Part D tier structure. Exact cost-sharing amounts and the tier a specific drug lands in vary by plan, so treat this as a general pattern rather than a quote from any one formulary.

A lower tier number is a reasonable signal that a drug is cheaper for the plan to dispense, but it's only a signal. Two plans can both call something a Tier 2 drug and charge noticeably different amounts for it, because tiers describe a drug's position relative to other drugs on that same formulary, not a fixed dollar figure that carries across plans.

The three restriction types: PA, step therapy and quantity limits

Being on the formulary at all doesn't mean a drug is unrestricted. A plan can attach one, or occasionally more than one, of three separate mechanisms to a given formulary row, and each is resolved in a different way.

Restriction	What it means in practice	How it's usually cleared
Prior authorization	The plan wants clinical justification before it will pay, regardless of what you've tried before	Your prescriber submits a request showing medical necessity
Step therapy	You must try (and fail) one or more preferred, usually cheaper, drugs first	Evidence you've already tried the preferred option, or a clinical reason you can't
Quantity limit	The plan caps how much of the drug it will cover within a given period	A request from your prescriber justifying a higher amount, if your dose genuinely needs it

The three formulary restriction types and how each is normally cleared.

Our companion guides cover what prior authorization actually involves and how Part D's tier system works in more depth, including deadlines and appeal routes, in more detail than fits here.

How often a formulary changes

The underlying dataset behind every plan's filing is Medicare's own Formulary Reference File, the list of drug products a plan sponsor is permitted to draw from when building its Health Plan Management System formulary submission. CMS publishes the related formulary, pharmacy network and pricing data on a quarterly cadence, and the file a plan submits for the coming year is prepared well before open enrolment, then refreshed as new drugs and pricing become available.

Once a plan year starts, formularies are meant to hold reasonably steady, but "steady" isn't the same as "frozen". A plan can't remove a covered drug or move it to a less favourable tier mid-year without CMS approval, and members have to be notified in advance. That protection has real exceptions, though: an immediate substitution when a generic version of a brand drug reaches the market, or an urgent removal following an FDA safety action, can happen with little warning because the alternative (leaving an unsafe or discontinued drug listed) is worse.

“The share of drug compounds restricted or excluded by Part D plans surged from an average of 31.9% in 2011 to 44.4% in 2020.”
— USC Schaeffer Center, summarising a Health Affairs study of Medicare Part D formularies

A formulary change in practice: an illustrative example

To make this concrete, picture a mid-market cholesterol drug that a plan lists on tier 3 as a preferred brand, with no restrictions, throughout one plan year. At the following year's annual redesign, two things happen at once: a generic version of a competing drug in the same class launches, and the plan's own utilization review flags rising use of the tier 3 drug. Its next formulary keeps the drug covered, but moves it to tier 4 and adds a step therapy requirement, meaning members now need to try the newly generic alternative first, unless their prescriber documents a reason they can't. Nothing about the drug changed; the formulary decision around it did. This is illustrative rather than a claim about any specific drug or insurer, but the pattern, a tier shift plus a new restriction landing together at the annual redesign, is exactly how real formulary changes tend to arrive.

How to find your plan's formulary

The formulary that matters is the one your specific plan filed, not a generic summary, so it's worth going straight to a primary source rather than a general description like this one.

Check the Annual Notice of Change (ANOC) your plan mails every autumn; it flags formulary changes taking effect the following January.
Use Medicare's Plan Finder tool at medicare.gov, which lets you search your specific drugs against your specific plan's current formulary.
Log into your plan's member portal or call the number on your ID card; insurers are required to publish the full comprehensive formulary, not just a summary.
Ask your pharmacist to run the drug through their system. Point-of-sale checks reflect the live formulary, including restrictions that might not appear in an older printed copy.
Cross-check a specific drug against every payer at once using Benefily's drug lookup, which tracks tier and restriction data across plans rather than one insurer at a time.

Common misunderstandings

Assuming a drug missing from the formulary just needs authorization first. It almost always means the opposite: the drug isn't covered at all, and a formulary exception request, not a prior authorization request, is the correct route.
Assuming a formulary never changes mid-year. Categories are fixed at the start of the plan year, but individual drugs can still be removed or re-tiered mid-year for reasons like safety withdrawals or new generic launches.
Assuming a low tier number always means a low fixed copay across every plan. Tiers describe a drug's position relative to other drugs on the same formulary, not a dollar amount that carries across insurers.
Assuming the printed formulary you were handed at enrolment is still current. Quarterly updates and CMS-approved mid-year changes mean the version worth trusting is the one in the plan's live system, not the one in a drawer.
Assuming one strength or dose of a drug carries the same restriction as every other strength. A formulary lists each strength as its own row, and a prior authorization flag on one doesn't automatically apply to the others.

Frequently asked questions

What is a formulary in health insurance?

A formulary is the list of drugs a specific health plan has agreed to cover, along with the cost-sharing tier and any prior authorization, step therapy or quantity limit attached to each one. Every Medicare Part D plan files its own formulary, so coverage varies plan by plan, not just insurer by insurer.

How do I find my Medicare Part D formulary?

Use Medicare's Plan Finder at medicare.gov to check your specific drugs against your specific plan, check the Annual Notice of Change your plan sends every autumn, log into your plan's member portal, or ask your pharmacist to run the drug through their system for the live, current answer.

How often does a Part D formulary change?

The therapeutic categories a formulary must cover are locked in for the plan year, and CMS's underlying reference data is refreshed on a quarterly cadence. Individual drugs can still be removed or moved to a different tier mid-year with CMS approval, and sometimes with little notice for safety withdrawals or new generic launches.

What does a formulary tier mean?

A tier is a plan's own grouping of covered drugs by roughly how much you'll pay for them relative to other drugs on the same formulary, typically running from generics on the lowest tiers to specialty drugs on the highest. The number of tiers and the amount charged for each is set by the plan, not by Medicare.

What's the difference between a formulary exception and prior authorization?

Prior authorization applies to a drug that is on the formulary but flagged for clinical review before the plan will pay. A formulary exception applies when the drug isn't on the formulary at all, and you're asking the plan to cover it anyway; see our formulary exception guide for the full process.

Related on Benefily

Sources

Administrative information only. Benefily reports what a payer has published in its own prior-authorization policy as of the effective date shown. It is not medical advice, not a coverage or payment guarantee, and not an authorization. Requirements vary by plan, place of service and member benefits — always verify with the payer before rendering service.