Insurance Formularies and Substitution: How Drug Coverage Works and What You Can Do

When your doctor prescribes a medication, you might assume it’s covered by your insurance. But what if your plan doesn’t list it? Or worse-what if it did last month, but now you’re being charged $1,200 instead of $45? This isn’t a glitch. It’s the reality of insurance formularies-the hidden rulebooks that decide which drugs you can get, at what price, and whether your pharmacist can swap it for something cheaper without asking you.

What Is an Insurance Formulary?

An insurance formulary is a list of prescription drugs your health plan agrees to cover. It’s not just a catalog-it’s a tool used to control costs while trying to keep patients on effective treatments. Every Medicare Part D plan and most private insurance plans in the U.S. use one. These lists are updated regularly, sometimes without warning, and they determine everything: how much you pay at the pharmacy, whether you need pre-approval, and if you can even get the drug at all.

Formularies aren’t random. They’re built by Pharmacy Benefit Managers (PBMs) like CVS Caremark and Express Scripts, who negotiate with drugmakers. The more a drug gets prescribed, the more leverage insurers have to demand rebates. Those rebates often determine which drugs land on the cheapest tiers. A drug might be clinically identical to another-but if it gives the PBM a bigger discount, it gets promoted. That’s not always about what’s best for you.

How Formulary Tiers Work

Most formularies divide drugs into four tiers, each with different out-of-pocket costs:

• Tier 1: Generic drugs. These cost the least-usually $10 to $15 per prescription.
• Tier 2: Preferred brand-name drugs. Slightly more expensive, around $40 to $50.
• Tier 3: Non-preferred brand-name drugs. These cost $70 to $100 or more.
• Tier 4: Specialty drugs. These are high-cost medications for complex conditions like cancer, MS, or rheumatoid arthritis. You might pay 33% of the price-no cap. That means $1,500 a month for some drugs.

Here’s the catch: the same drug can be on Tier 2 with one insurer and Tier 3 with another. A 2022 analysis found that cost differences for identical drugs could be $30 to $60 per prescription just based on your plan. That’s why choosing a plan without checking its formulary is like buying a car without knowing the fuel efficiency.

What Are the Restrictions?

Even if a drug is on your formulary, you might still face barriers:

• Prior Authorization: Your doctor has to prove to your insurer why you need this specific drug-not a cheaper alternative. This can take days or weeks. The American Medical Association found 82% of doctors have seen delays cause serious harm to patients.
• Step Therapy: You must try and fail on cheaper drugs first. For someone with chronic pain or autoimmune disease, this isn’t just frustrating-it’s dangerous. One patient on Reddit shared that being forced to try five cheaper drugs before getting Humira led to a hospitalization.
• Quantity Limits: You can only get a 30-day supply, even if your doctor prescribes 90 days. You’ll have to call your insurer for an override.

These rules exist to cut costs-but they often shift the burden onto patients. In a 2023 GoodRx survey, 42% of people skipped doses because of cost. 29% switched to less effective drugs. 18% stopped treatment entirely.

Open vs. Closed vs. Partially Closed Formularies

Not all formularies are the same. There are three main types:

• Closed formularies: Only cover drugs on the approved list. About 65% of Medicare Part D plans use this. If your drug isn’t on it, you pay full price unless you win an exception. It saves money for the insurer-but leaves patients stranded.
• Open formularies: Cover almost all drugs. About 22% of Part D plans. You pay higher premiums-$18 to $22 more per month-but you have more freedom. Good if you’re on multiple specialty meds.
• Partially closed: A middle ground. Some drugs are excluded based on cost or clinical guidelines. Most employer plans fall here.

Medicare Part D plans must cover all recommended vaccines at $0 cost. But for everything else? It’s a minefield.

Therapeutic Substitution: When Your Pharmacist Swaps Your Drug

In 31 states, pharmacists can legally substitute a drug with another in the same therapeutic class-without telling you or getting your doctor’s approval. This is called therapeutic substitution. For example, if you’re on Enbrel, your pharmacist might give you Humira instead. They’re both biologics for rheumatoid arthritis. But they’re not the same.

A 2023 study in the American Journal of Managed Care found that 18% of prescriptions undergo substitution. For most people, it’s harmless. But for those with complex conditions-like cancer, epilepsy, or autoimmune disorders-it can trigger side effects, reduce effectiveness, or even cause flare-ups. Patients often don’t realize the switch happened until they feel worse.

Some states require pharmacists to notify the prescriber. Others don’t. You have to ask. Always ask. If your medication suddenly feels different, check the label. Look for the generic name. Call your doctor. Don’t assume it’s the same.

What Happens When Your Drug Gets Removed?

Insurers can remove a drug from their formulary at any time-often mid-year. A patient on Reddit described how their Humira was moved from Tier 2 to Tier 4 overnight. Their monthly cost jumped from $45 to $1,200. No warning. No grace period.

When this happens, you have two options:

1. Request a formulary exception. Your doctor must submit paperwork proving why you need the specific drug. For Medicare Part D, 73.2% of these requests are approved-but the process takes 7.2 business days on average. If you’re waiting for a cancer drug or a treatment for a life-threatening condition, that delay can be deadly.
2. Appeal the decision. If your exception is denied, you can appeal. But only 38.5% of expedited appeals get approved. And 61% of patients who try to get an exception need to submit multiple times. 28% give up.

Some insurers now offer tools to predict your monthly drug costs. Humana’s Medicare Plan Finder, for example, has a 92% accuracy rate. Use it.

How to Protect Yourself

You can’t control your insurer’s decisions-but you can control how you respond.

• Check your formulary every year. During open enrollment (October 15 to December 7 for Medicare, November 1 to January 15 for ACA plans), log into your plan’s website. Search every medication you take. Don’t trust memory. Don’t assume it’s still covered.
• Ask your doctor for alternatives. If your drug is on Tier 3 or 4, ask: "Is there a Tier 1 or 2 version?" Sometimes, switching to a different drug in the same class can save hundreds.
• Use GoodRx or SingleCare. These apps show cash prices. Sometimes, paying out-of-pocket is cheaper than your copay-especially for Tier 4 drugs.
• Know your state’s substitution laws. In 31 states, pharmacists can swap drugs without consent. Ask your pharmacist: "Will you substitute this?" If you say no, they must honor it.
• Document everything. Save emails, letters, and call logs. If your drug is removed or your exception is denied, you’ll need proof to escalate.

A 2023 CMS audit found that 43% of formulary changes happen without direct notice to patients. You can’t wait for them to tell you. You have to check.

What’s Changing in 2025?

The Inflation Reduction Act is reshaping formularies. Starting January 1, 2025, Medicare Part D will cap out-of-pocket drug spending at $2,000 a year. That’s a game-changer. Insurers are already restructuring tiers to comply. Some are lowering copays on specialty drugs. Others are shifting more costs to premiums.

Also in 2025, all Medicare Part D plans must provide a simplified, 4-page formulary summary-down from 287 pages. That’s huge. For years, formularies were designed to confuse, not inform. Now, they’re being forced to be readable.

And by 2026, every Part D plan must show real-time drug costs at the point of prescribing. That means your doctor will see your copay before they even write the script. No more surprises at the pharmacy.

Final Thought: You’re Not Powerless

Insurance formularies are complex. They’re built by corporations, shaped by rebates, and enforced by bureaucracy. But they’re not unbreakable. Millions of people navigate them every year. You can too.

The key isn’t fighting the system. It’s understanding it. Know your tiers. Check your formulary. Ask questions. Speak up when something changes. If you’re on a chronic medication, keep a printed copy of your formulary status. Bring it to every appointment. Tell your pharmacist: "Don’t substitute this without my doctor’s approval."

Formularies are meant to save money. But they shouldn’t cost you your health.