The word shows up on your insurance card paperwork, in denial letters, and in the fine print at the pharmacy counter. A formulary is simply the list of drugs your plan covers, and the tier your drug lands on is usually a bigger driver of what you pay than your premium is.
This covers both sides of the market, because the intent is the same in both: Medicare Part D formularies, which CMS reviews and approves every year, and commercial or employer formularies, which follow no federal template at all. The mechanics of exceptions, appeals and mid-year changes differ sharply between them, and that difference matters most on the day your drug gets denied.
What a Formulary Is
A formulary is a covered drug list built by a plan’s pharmacy and therapeutics committee, usually run by a pharmacy benefit manager. Being on it means the plan pays part of the cost. Being off it means the plan pays nothing and you pay the pharmacy’s full price.
Part D formularies are the regulated version. Under 42 CFR 423.120(b)(2), CMS must approve every one, and each formulary has to include at least two drugs that are not therapeutically equivalent in each therapeutic category and class, plus near-complete coverage of the statutory “categories and classes of clinical concern” that the industry calls the protected classes. Even so, coverage is not universal and it is narrowing. MedPAC’s June 2025 report to Congress found that the average stand-alone Part D enrollee had 59% of Part D products available on formulary in 2025, down from 61% in 2024, while Medicare Advantage drug plan enrollees had 63%, down from 65%.
Commercial and employer formularies have no such floor. An employer plan can exclude a drug class outright, and increasingly does. That is why the same prescription can be tier 2 in one job’s plan and simply absent from the next one’s.
How the Tiers Work
Tiers translate the list into a price. Almost every plan runs a ladder from cheap generics up to specialty drugs, and the figures below are 2026 plan year medians for Medicare Part D from KFF’s analysis of CMS enrollment and benefit data, alongside the maximum CMS will let a plan charge in 2027.
| Tier | What is in it | Typical Part D cost share (2026) |
|---|---|---|
| 1. Preferred generic | Lowest-cost generics the plan steers you toward | $0 median copay in 8 of the 10 national plans |
| 2. Generic | Other generics | $0 to $10 median copay; CMS caps standard copays at $20 for 2027 |
| 3. Preferred brand | Brand drugs the plan negotiated best | 25% median coinsurance in stand-alone plans, 21% in Advantage plans; CMS caps copays at $47 |
| 4. Non-preferred | Brands and some generics with a cheaper alternative on formulary | 34% median coinsurance in stand-alone plans, 38% in Advantage plans; national plans range 29% to 50% |
| 5. Specialty | Drugs above $950 a month in 2026, rising to $1,080 in 2027 | 25% median coinsurance in stand-alone plans, 28% in Advantage plans; national plans range 25% to 33% |
The commercial side looks different because employers lean on flat copays rather than percentages. KFF’s 2025 Employer Health Benefits Survey found that among covered workers in plans with three or more drug tiers, the average copay is $12 on the first tier, $40 on the second, $71 on the third and $123 on the fourth. Where those plans use coinsurance instead, the averages are 19%, 25%, 35% and 31%.
The Part D shift toward coinsurance is the trend to watch. KFF found that in 2026 virtually all stand-alone plan enrollees (97%) pay a percentage rather than a flat copay for preferred brands, and 100% do for non-preferred drugs. A percentage means your cost moves with the list price, which you cannot see in advance. There is more on how that flows through the benefit year in Part D costs and the donut hole.
Utilization Management
Being on the formulary is not the same as being available. Plans attach three kinds of gates: prior authorization (approval before the plan pays), step therapy (try a cheaper drug first), and quantity limits (a cap on how much they cover per period).
These are common, not exceptional. MedPAC’s June 2025 report, drawing on Acumen’s analysis of 2025 Part D formulary files, found that 53% of on-formulary products in stand-alone drug plans carried some form of utilization management. Quantity limits hit 42% of covered products, prior authorization 27%, and step therapy 3%. Medicare Advantage drug plans were marginally lighter at 51%, 40%, 26% and 4%.
Medicare.gov describes each of the three plainly, including its own example that a plan may cover only 30 tablets of a drug per month. All three can be waived through the exception process below, and all three should be checked before you enroll rather than after. That check is step 7 in how to choose a Part D plan.
What Happens When Your Drug Is Not Covered
You have two distinct requests, and it helps to name them correctly on the phone.
A formulary exception asks the plan to cover a drug that is not on the list at all, or to waive a prior authorization, step therapy or quantity limit. A tiering exception asks the plan to charge you the lower tier’s cost sharing for a non-preferred drug. Under 42 CFR 423.578 your prescriber must supply a supporting statement saying the preferred alternatives would not be as effective for you, would cause adverse effects, or both.
The deadlines are in regulation, not plan policy. Under 42 CFR 423.568 a Part D plan must decide a standard request within 72 hours, and for an exception the 72 hours runs from receipt of your prescriber’s supporting statement. If that statement never arrives, the clock starts 14 calendar days after you filed and the plan still owes an answer within 72 hours of that point. Under 42 CFR 423.572 an expedited request drops both figures to 24 hours. A request to be paid back for a drug you already bought gets 14 calendar days.
If the plan says no, that denial is a coverage determination and the appeal is a redetermination. Medicare.gov states you have 65 days from the denial notice to file, and per 42 CFR 423.590 the plan must answer within 7 calendar days for a benefit, 14 calendar days for a payment request, or 72 hours if expedited. There are five levels in total: plan redetermination, an Independent Review Entity, an administrative law judge, the Medicare Appeals Council, and federal court. You get 60 days to move between the later levels.
One limit worth knowing before you fight: plans are allowed to design their tiering exception process so that drugs on a specialty tier cannot be moved down to a non-specialty tier, and so that a brand drug cannot be moved to a tier that holds only generics.
New to a plan and mid-prescription? Federal rules require a transition supply. Under 42 CFR 423.120(b)(3), a Part D sponsor must give you a one-time temporary supply of at least an approved month’s supply within your first 90 days of coverage, with written notice within 3 business days of the fill. Medicare.gov describes this to consumers as a one-time 30-day supply, which is the same rule stated in the common case. It applies to new enrollees, people switching plans, and current members hit by a formulary change.
Commercial and employer plans run a different track. There is no 42 CFR 423 clock; the internal appeal deadlines come from your plan documents, followed by an independent external review. Ask for the plan’s formulary exception form and the appeal timeline in writing on the first call.
Mid-Year Formulary Changes and What Plans Are Allowed to Do
Part D plans can change formularies during the year, but 42 CFR 423.120 fences the negative ones in.
Most removals, tier increases and new restrictions require a change request to CMS. Routine maintenance changes are deemed approved 30 days after submission, while non-maintenance changes need explicit CMS approval and, importantly, enrollees already taking the drug are exempt from them for the rest of the contract year.
Notice is required either way. A plan must give at least 30 days of advance written notice, or, when you next request a refill, give you an approved month’s supply on the old terms plus the notice. The notice has to name the drug, say whether it is being removed or moved or restricted, list formulary alternatives at the same or lower tier with their expected cost sharing, and explain how to request an exception.
There is also a blackout. A plan may not make a negative formulary change that takes effect between the start of the annual election period and 60 days after the new contract year begins, which protects the list you shopped against in October. Two exceptions bypass all of this: an immediate generic or biosimilar substitution within 30 days of adding the equivalent at the same or lower tier, and removal of a drug the FDA or manufacturer has pulled from the market. Plans also may not change their therapeutic categories and classes except at the start of a plan year.
What To Do If The Price Is Still Too High
Sometimes the tier is simply the wrong deal. For older generics in particular, the cash price outside the plan can beat your coinsurance, because a percentage of a marked-up list price can exceed what a discount pharmacy charges outright. Compare your plan’s price against Cost Plus Drugs, Walmart, Amazon Pharmacy and a GoodRx or SingleCare card before you fill.
One trade-off to understand first. Medicare.gov states plainly that discount cards, including the TrumpRx offers it now points to, are not creditable coverage, and that when you use them instead of your plan the spending does not count toward your Medicare deductible or your out-of-pocket maximum. If you are heading for the $2,100 cap in 2026 anyway, paying cash can delay you getting there.
For brand drugs with no generic, the lever is usually the manufacturer rather than the pharmacy. Prescription assistance programs and manufacturer copay support cover a real share of the market, though most manufacturer copay cards exclude people on Medicare. Individual drug pages such as Eliquis and Jardiance show what those specific programs pay. And if you qualify for Extra Help, your tier stops mattering much at all, since 2026 copays cap at $5.10 generic and $12.65 brand.
The Bottom Line
The formulary, not the premium, decides what you actually pay. Check your drugs against the tier list and the utilization management flags before you enroll, because after January 1 your options narrow to the exception process.
If a drug is denied, get the prescriber’s supporting statement moving immediately, since that is what starts the 72-hour clock, and ask for an expedited decision if waiting would hurt. Use your transition fill to buy time in a new plan, and compare cash prices for generics where a percentage-based tier is working against you. For the broader picture, start at Medicare Part D or the parts of Medicare explained, and look at the Medicare Prescription Payment Plan if the annual total is manageable but the monthly spikes are not.