How Do Drug Formularies Work?

how do drug formularies work? text overlaying image of a doctor filling out a prescriptions with a bottle of medication on the tablePrescription drugs are not cheap. The good news is, though, that the Affordable Care Act requires insurance companies to cover them. But the bad news is that your insurance doesn’t always fully cover them. In fact, you may have to pay more than half the cost of some of your prescriptions out-of-pocket. So how do you know what drugs will be covered by your plan, and at what rate? To find out which drugs are covered and how much you’ll have to pay for them. You’ll need to familiarize yourself with what’s known as your plan’s drug formularies. This drug formulary is a list of medications that your plan covers. It also tells you how much of the cost of each drug it will cover. To find out what you need to know about your plan’s formulary in order to estimate your out-of-pocket prescription drug costs. Read our guide below.

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Formulary Tiers

Each insurance company creates its own drug formularies. In fact, each plan offered by each insurance company may have a different drug formulary. So, it’s important to understand how they work and look at yours carefully. The most important things to look at are your formulary’s tiers. Since the tier that your medication is placed on will determine if you’ll be responsible for a copayment or coinsurance (both of which are explained below) when you fill your prescription.


Most formularies have four to six tiers that they use to classify medications. Drugs in the highest tier will cost you the most out-of-pocket. While those in the lowest tier will cost the least. Your health insurance company may have bargained with a drug manufacturer to secure a discount on some of these medications. In exchange, your health insurance will label the drug as a “preferred drug,”. Making it available to you at a reduced copayment.

The Tiers

  • Tier 1 – This is the lowest tier of medications. This tier consists of mostly generic medications.
  • Tier 2 – Tier 2 medications have a higher copayment than Tier 1 medications and may include preferred brand name drugs as well as non-preferred generics. 
  • Tier 3 – This tier includes both preferred and non-preferred brand-name medications and has a higher copayment.
  • Tiers 4, 5, and 6 – Your most expensive medications are probably going to be in Tier 4, 5, or 6 of your plan, since it includes the most specialized types of drugs. Until you reach your plan’s annual out-of-pocket maximum for your healthcare plan, your out-of-pocket costs for drugs in the highest tier may be quite high. Because you will usually be required to pay coinsurance for them, rather than a copay.

In addition to a formulary of drugs that are covered by your plan. Your insurance company may also provide a list of medications that you will be responsible for the full retail price. These might include lifestyle drugs, such as those used to treat erectile dysfunction or obesity. As well as other prescription and over-the-counter medications. But with that being said, there is no universal drug formulary. So, some of these drugs may be covered by other health insurance plans.


If you’re choosing between two or more health insurance plans, it’s in your best interest to compare the drugs covered by each. This is true not only if you’re looking for health insurance through the Marketplace. But also if your insurance company offers multiple options for coverage.

What Are Copayments and Coinsurance?

You’ll see these terms a lot when looking through your health insurance plan options. A copayment (or copay) is the fixed dollar amount you are expected to pay toward the cost of a prescription. For example, your health insurance plan might cover Tier 1 drugs with a $20 copay per fill and Tier 2 drugs at $40 per fill, so you’ll be responsible for paying those amounts at the pharmacy counter. The rest of the cost will be covered by your insurance (after you’ve met any applicable deductibles).


If your drug requires coinsurance, on the other hand, that means you pay a percentage of the total cost of the medication rather than a flat copay (typical for drugs in Tier 4 and above, even if lower-tier drugs are covered with a copay).


For example, if your plan’s Tier 5 coinsurance is 30%, and the cost of the drug you need to fill it is $1,000 (after the discount your plan has negotiated with the pharmacy). You will be responsible for paying $300 out of pocket. Drugs for certain conditions, like multiple sclerosis (MS), are all specialty drugs. Meaning they fall into Tier 4 or higher and often require coinsurance.

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Reviewing Your Plan’s Drug Formulary

You should always make sure to check out any plan’s drug formulary before making a decision, but it’s especially important if you have a condition that can only be treated with a specific medication. And no matter what prescriptions you think you’ll need, it’s important to shop around, since drugs may be placed on different tiers by different insurance companies. In addition, a drug that is in Tier 1 on one company’s plan may be in Tier 2 on another plan offered by the same insurer, while some insurance companies may not cover the medication at all. 


Spending some time learning about formularies is time well-spent. Because it will help you choose a plan that works for you. You’ll also find out which drugs have different copays, limits on quantity, and which require you to pay your full deductible before they’re covered. 


It’s clear that ignoring a plan’s drug formulary can lead to money wasted. You’ll be in a better position to choose the right plan for your needs if you take the time to familiarize yourself with your formulary’s tiers. 

Drug Formulary Restrictions

Most health plan formularies include procedures for limiting or restricting the use of specific medications. This is done to encourage your healthcare provider to use specific medications correctly, as well as to save money by avoiding medication overuse. 

Some common restrictions are as follows:


  • Prior Authorizations – Your healthcare provider may have to obtain approval from your insurance company in order for a medication on your plan’s formulary to be covered. Typically, prior authorizations will be required for medications that may pose a safety risk, have a high risk of inappropriate use. Or have lower-cost alternatives on the formulary.
  • Quality Care Dosing – Your pharmacist might have to inspect medications your doctor prescribes you before you fill them to make sure that the quantity and dosage are in accordance with FDA recommendations. If the prescription doesn’t meet FDA requirements, your insurer can refuse to cover the medication.
  • Step Therapy – You might have to first try one medication to treat your health condition before moving on to another. The first medication is usually the less expensive option.


Your healthcare provider might have access to your health plan’s formulary, but they might not. So, there is a chance they might prescribe you a drug that is not covered by your plan. But if you do find that a drug you need is not on your plan’s formulary, your doctor can submit an “exceptions process” form. This lets your insurance company know that the medication they prescribed to you is medically necessary.


There are other cases in which your health insurance company might be flexible enough to allow for a few exceptions. In addition to requesting that your plan pay for a drug that is not on its formulary. You can also request that your plan continue to pay for a drug that is being taken off your plan’s formulary. You can also request that your plan’s limitations on your medication coverage be lifted. Or that your insurer lower the copayment for the medication.


If your health insurance does not cover your medication and doing so would result in you using a less effective drug or experiencing a harmful medical event, you may be eligible for one of these exceptions. And, if your request for an exception is denied, you have the option to file an appeal. The Affordable Care Act mandates that all health insurance companies offer appeals procedures. And these procedures must be accessible to all members of the public. You still have the option of having your doctor prescribe the medication if your appeal is denied. But you will be responsible for paying the full cost of the medication.

Steps To Take

If you’re in need of prescription medications, and want to make sure they’re going to be affordable for you, you’ll have to follow a few steps:

 Know your plan’s formulary.

As noted, you should always familiarize yourself with your health insurance plan’s formulary. This is because formularies can vary widely from plan to plan. You can ask about each plan’s formulary when shopping for a plan, and you will receive details about the formulary and a list of all approved medications. As well as an explanation of the tier co-payments and/or coinsurance, when you sign up for coverage. Your plan’s formulary is also available online for your convenience. Call the customer service number listed on your drug card if you haven’t received a formulary. Or if you can’t find it online.

Speak with your healthcare provider.

If you’re in need of medication prescribed by a doctor, discuss the possibility of receiving a generic version of the drug. Make sure your doctor is familiar with your health insurance’s formulary. So, that if a more expensive medication is required, one that is covered by your policy can be prescribed.

Choose your plan wisely.

Look at the formularies of multiple health plans. So, you can determine which one will cover the medications you need to treat your condition. You may find that no health plan covers everything you need. But you can certainly find the one that is best for you. Speak to an EZ agent about which plan has a formulary that will cover as many of your prescription needs as possible.


If you can’t find a plan that covers everything, let us help you find the health plan that covers your most expensive medications. Keeping in mind that you may have to pay full price for the less expensive ones as a result. Again, this is a situation in which you and your doctor can discuss the possibility of switching to a different drug from the same class that is available on the formulary.

Working With EZ

If you need assistance, EZ.Insure is here to provide it. Our team of experts can quickly and accurately compare all available health insurance options in your area. A dedicated representative will be assigned to you to explain all of your options, how they cover prescription drugs, and then assist you in selecting a plan. And the best part is that we do it all for free! Enter your zip code in the box below to get your free quotes. Or give us a call at 877-670-3557 to talk to an agent.

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The A-Z of Basic Health Insurance Terminology

Diving into the world of health insurance can be intimidating. It’s easy to get overwhelmed when you’re looking for a plan because of all of the jargon and terminology that you need to become familiar with. But knowing what everything means as you research plans will help you to determine which one is best for you and your family, and will ensure you get the best coverage at the best price. Whether this is your first time buying health insurance or not, knowing the following health insurance terminology will help you make a more informed decision.

invoice letter sticking out of an envelope
Actual charge is the dollar amount that is charged by a doctor for a particular medical service. 

Actual Charge

This is the dollar amount that is charged by a doctor or other healthcare provider for a particular medical service or treatment. 


A person that is trained in the mathematical and statistical aspects of the insurance industry. They are the ones who calculate premium rates and assist in estimating the costs and savings of your health insurance plan.

Allowed Amount

Also sometimes called an eligible expense, a payment allowance, or negotiated rates, an allowed amount is the amount that your insurance company is willing to pay for a covered healthcare service. If your provider charges more than the allowed amount, you might have to pay the difference. 

Balance Billing

This is a bill for the amount that you owe for a particular service after insurance has paid its share – in other words, the difference between the actual charge and the allowed amount. For example, if your provider charges you $200 for a service, and the allowed amount is $100, your provider will most likely bill you for the remaining $100. 


This is your share of the cost of a covered healthcare service, calculated as a percent of the allowed amount for the service. You generally have to pay the coinsurance plus any deductible that you owe. For example, if your health insurance plan’s allowed amount is $100 for an office visit and you’ve met your deductible, your coinsurance payment of 20% would be $20 for the visit.

Co-payman's hand holding a blue credit card

This is a fixed amount you pay for covered health care services, such as visits to your doctor, specialists, or any other health care professional. Your co-pay will vary depending on the type of covered healthcare service you receive: visits to a primary care physician, specialist, and the emergency room will all be priced differently.


This is the amount you have to pay each year in medical expenses before your health insurance will kick in and begin to cover the rest of the year’s medical expenses. For example, if your deductible is $2,000,  your plan will not pay anything until you have met your $2,000 deductible for covered healthcare services. 

Drug Formulary

A list of prescription medications that are selected for coverage under a health insurance plan. Prescription drugs can be included on a drug formulary based on their efficacy, safety, and cost-effectiveness. Some plans will place medications on different tiers, which will change the price of the medications. Some health insurance plans may require that patients obtain preauthorization before non-formulary drugs are covered.

Durable Medical Equipment

If you need any medical equipment, such as crutches, oxygen apparatus, wheelchairs, or even blood testing strips for diabetes, your health insurance plan will most likely cover the cost of these things up to a certain point. Generally, you will have to pay coinsurance for any durable medical equipment that you receive. 

High Deductible Health Plan (HDHP)

This type of plan has lower monthly premiums, but a high annual deductible. These plans are generally aimed at people who are healthy and do not go to the doctor often, and so do not expect to have to meet the high deductible. 

In-Network Vs Out-of-Network

netword of people with lines connecting them
Your plan will have a network of healthcare providers, if you see any doctors that are not in your network, you might have to pay out of pocket.

If a healthcare provider is in-network, that means your health insurance plan will cover services provided by them. These are very important terms to know, because if you seek services from a healthcare professional who is considered out-of-network by your plan, you might have to pay for the service completely out-of-pocket. 

Out-of-pocket Limit

This is the most that you will have to pay for medical services during a policy period, which is usually a calendar year. Your premiums and most other medical expenses paid out-of-pocket will count towards your limit, but you should be aware that some plans will not count co-payments, deductibles, or coinsurance, so it’s important to check your policy. 


The amount that you will pay for health insurance every month. Your premium does not include any other expenses. If you do not pay your premium, you will lose your health insurance coverage. 


A healthcare professional that specializes in a certain condition or area of the body. Specialists include gastrologists, dermatologists, and podiatrists, for example. Seeing a specialist will cost more than seeing your primary care physician, so your co-pays and actual charges will be higher. 

UCR (Usual, Customary, and Reasonable)

This is the amount charged for a medical service within a specific geographic area, based on what providers in the area usually charge for the same or similar medical service.

The best way to understand how health insurance works, and to find the right plan for you and your family’s specific needs, is by working with an agent who specializes in health insurance. EZ can help: we offer a wide range of health insurance plans from top-rated insurance companies in every state. And because we work with so many companies and can offer all of the plans available in your area, we can find you a plan that saves you a lot of money – even hundreds of dollars – even if you don’t qualify for a subsidy. There is no obligation, or hassle, just free quotes on all available plans in your area. To get free instant quotes, simply enter your zip code in the bar above, or to speak to a local agent, call 888-350-1890.

How You Can Save Thousands On Health Insurance & How EZ Can Help

If you feel like healthcare costs are out of control, you’re not alone. It seems like costs are constantly rising, making it hard for many to afford a health insurance plan or their medications. Because of this, many people end up going without health insurance and avoiding doctor visits, which can mean missed diagnoses and delays in treating major health conditions. But health insurance doesn’t have to be unaffordable or unattainable. EZ knows how to save you thousands on health insurance without sacrificing coverage, so you can remain insured and healthy, while saving money at the same time.

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Opt For A Higher Deductible Plan

Your first option for saving money? Cut your monthly premium by switching to a high deductible health plan. One of these plans could work for you if you don’t go to the doctor often, or if you don’t need any ongoing treatments, because if this is the case, you probably won’t ever need to meet your deductible. High deductible plans can be risky, though: if something ends up happening to you, you’ll have to pay a lot out-of-pocket to meet your deductible. 

Go With A Lower Drug Formulary Tier

pill bottle sitting on top of a dollar bill with pills on the bill too
Save money on your prescription medication by opting for a different drug tier.

Another way to lower your healthcare costs is by taking a look at your prescription drugs, and at your plan’s drug formulary. If your doctor is prescribing  you a name-brand medication that has a high copay, check to see if there are any less expensive generic drugs available – you could end up saving 30-50%. 

Check your plan’s drug formulary (the list of medications included in your plan, and their costs), as well, and see how your insurance company classifies your medications. Every plan’s formulary has four different pricing tiers, and each insurance company – and every plan! – has a different formulary, so comparing them all can get quite confusing. EZ’s agents are here to help, though – our agent will go over your medical needs, and compare plans and their drug formulary tiers to help you find a plan with affordable drug costs.

Enroll In A Wellness Incentive

If you are enrolled in your employer’s health insurance plan, find out if they offer any wellness programs or incentives. Some companies will offer a lower premium to employees who participate in wellness challenges or other incentivized programs. This could end up saving you a lot of money, or could even get you free coverage!

Use A Health Savings Account (HSA)

If you decide to opt for a high deductible health plan, or if you already have one, then start contributing to a health savings account (HSA). HSAs are only available to those with a qualified high deductible health plan, and they allow you to put money aside tax-free to pay for qualified healthcare expenses. You will accrue tax-free interest, and you will also be able to withdraw money from the account tax-free. Not only are these accounts triple tax-advantaged, but the funds in your account rollover automatically each year and continue to grow until you use them! 

white question mark in a blue circle
Before getting any lab work or tests done, make sure to ask it it is covered!

Make Sure Tests Are Covered

Avoid surprise medical bills – before you agree to any tests ordered by your doctor, make sure that they are covered under your plan. Be aware that, even if your doctor prescribes a test, such as blood work to confirm a diagnosis or rule out health conditions, it may not be covered. If it isn’t, ask your doctor for other options. 

Not knowing what’s covered in your plan can end up costing you thousands of dollars. If you find that you are often being sent for tests that are not covered, consider finding a different plan that offers more coverage. Our agent can compare plans for you and find a plan that offers the coverage you need to get any necessary tests done, so you can avoid surprise bills – and save money.


If you receive a high bill from your doctor’s office or hospital, don’t automatically assume that it is correct – as many as 8 out of 10 times, higher than expected medical bills have some type of error. If a bill seems off to you, then contact your provider and ask them to go over it with you and explain why it is so much. If your high bill is not due to a billing error and you are having trouble paying it, then negotiate with your provider – ask if they can lower the bill, or if they can offer you a monthly payment plan.

african american man with his daughter on his lap checking her temperature while sitting in front of a laptop with a doctor on the screen.
Telehealth can save you hundreds of dollars by avoiding a doctor visit copay or emergency room visit.

Utilize Telemedicine

Going to the ER should be your last resort. When you are not feeling well or need immediate care then you should consider more affordable options like urgent care or telemedicine. Telemedicine is a great option, because it allows you the convenience of speaking to your doctor over the phone and getting prescription medication sent over to your pharmacy. This eliminates having to pay a doctor visit copay, or a huge hospital bill. If your plan doesn’t offer telemedicine, EZ can help you find an affordable plan that does offer this option.

Health insurance is not cheap, but that doesn’t mean that you can’t find an affordable plan. EZ understands the need for affordable health insurance, especially in times of uncertainty. Don’t stick with the plan that you already have if it’s too pricey, or doesn’t offer the coverage you need. One of our agents can find you a more affordable plan with just as much coverage, or more. We can easily compare all available plans in your area within minutes, at no cost to you. Taking advantage of our free services is just another way you can save money with EZ. To get started, enter your zip code in the bar above, or to speak to an agent directly, call 888-350-1890.

Medications Too Expensive? Let Us Help You Find A Better Plan

The price of medications has been steadily increasing over the years, and there is no sign that prices will be going down any time soon. Studies show that the prices of some top-selling brand-name medications, like insulin, have gone up over 50% in the last decade. These sharp increases in prices have left many people unable to afford the medications that they need, and have pushed thousands of people into seeking medications abroad. Purchasing prescription drugs from unknown sources can be dangerous, so instead of taking drastic measures, come to EZ.Insure. We will do our best to find you an affordable healthcare plan that includes the medications you need in a cheaper drug formulary tier. 

different types of pills on a laptop screen
Millions of Americans are buying medications abroad, but this can be very dangerous.

Millions Seek Medications Abroad

It is no secret that millions of Americans are buying their medication from other countries. Drug prices are astronomical in the U.S., and there is no relief in sight. Your medications are necessary, but buying them abroad can be very dangerous, because these drugs can be the wrong dosage, contain different active ingredients from the drug prescribed to you, or even be completely fake. Taking these risky drugs could end up making your condition worse, or even killing you. There is a better way to get the medication that you need. At EZ, we believe that everyone should be able to access affordable medication. We can review the drug formulary that is part of your healthcare plan, and we can also help you find a plan that includes your medications in a lower tier. 

What Are Drug Formularies?

Most health insurance plans include a drug formulary, which is a list of generic and brand-name prescription drugs, and how they are covered by your plan. Drugs are grouped into 4 different tiers, and these tiers determine the cost of each medication.pyramid with 4 different colored tiers

  • Tier 1 includes the lowest cost drugs, mostly generics
  • Tier 2 includes preferred (meaning that your insurance company prefers that providers prescribe these medications, because they costs less than others) brand-name and generic medications
  • Tier 3 includes non-preferred, higher-cost, mostly brand-name medications
  • Tier 4 includes specialty drugs, usually used to treat serious illnesses

Tier one drugs require the lowest co-payment because they are usually the cheaper, generic version of brand-name drugs. The higher the tier, the more expensive the medication. Most often if a drug is not covered, you can check with your doctor to see if there is another treatment option that is on your formulary. If there is no way to get your medication covered, or if it is on an unaffordable tier, EZ can help you find a plan that is better suited to your needs.

What EZ Can Do For You

EZ understands that you need affordable access to your medications, and we also understand how drug formularies work, so we can find the best plan for you. Drug tiers vary from insurance company to insurance company, so your drug might be covered differently by one company than it is by another. Your medications might even be classified differently under different plans offered by the same company! Sorting through each drug formulary can be a lot of work, so we will go over all of it with you. If you don’t currently have any health insurance, we can sign you up for a plan with a drug formulary that works for piggy bank with stacks of money next to it

If you have any questions about what is – and what is not – covered under your plan, you can contact your insurance company. And if you are not happy with the coverage you’re getting from your plan, EZ will help you find a plan that provides affordable coverage for your medications. There is no need to take a risk and buy your medications from other countries. EZ wants to make sure that you are safe and taking the proper medications, which is why one of our agents will go over your medical history, including what medications you need to take, and will find a plan that best suits your needs. All of our services are offered for free, because we just want the best for our customers. To search through all of our available plans and quotes for free, enter your zip code in the bar above, or if you want to speak to an agent, call 888-350-1890.