What Is a Formulary (Drug List)? How Tiers Work and How to Appeal Exclusions

Your health insurance plan doesn't cover every drug in the world — it covers drugs on its formulary. Understanding how formularies work is essential to appealing medication denials and managing your prescription costs.

What Is a Formulary?

A formulary (also called a drug list, preferred drug list, or covered drug list) is the list of prescription medications that your health insurance plan agrees to cover. Drugs on the formulary are covered; drugs off the formulary may not be covered at all — or may require special authorization.

Every plan — commercial insurance, Medicare Part D, Medicaid, and employer-sponsored plans — maintains its own formulary. Formularies change every year, and a drug covered this year may not be covered next year.

How Drug Tiers Work

Formulary drugs are organized into tiers that determine your out-of-pocket cost:

Medicare Part D standard: 5-tier structure is common. Some plans offer 6 tiers. Catastrophic coverage phase reduces cost after you hit out-of-pocket maximum.

Why Might Your Drug Be Excluded?

1. Off-formulary: The drug isn't on the plan's covered list at all — typically because there's a therapeutically equivalent alternative that is on formulary
2. Tier placement too high: The drug is on formulary but placed in a high-cost tier, making your copay unaffordable
3. Prior Authorization Denied: How to Appeal" class="auto-link">Prior authorization required: The drug is covered but requires PA for specific conditions or patient profiles
4. Step therapy required: Must try and fail another drug first
5. Quantity limits: Only a certain quantity or days' supply per period
6. Age, sex, or indication limitations: Drug is covered for some patients/conditions but not yours

How to Find Out What Your Formulary Covers

• Online formulary tool: All plans must provide an online searchable drug list at their website
• Plan Summary of Benefits and Coverage (SBC): Available for all ACA plans — lists drug tier structure and cost-sharing
• Call member services: Ask about your specific drug, dose, and the PA requirements
• Medicare Part D: Each plan's formulary is published at Medicare.gov's Plan Finder

Appealing a Formulary Exclusion or Non-Preferred Tier

Formulary Exception Request

If your drug is not on formulary or is placed in a high tier, you can request a formulary exception (also called a coverage determination or non-formulary exception request):

Grounds for formulary exception:

1. Medical necessity: The formulary alternatives are not appropriate for you — documented adverse effects, contraindications, or documented clinical failures
2. Step therapy exception: You've already tried and failed the formulary alternative(s)
3. No therapeutically equivalent alternative: The formulary alternative drugs don't treat your specific condition at the same efficacy level

How to request:

• Submit a formulary exception request with a letter of medical necessity from your prescriber
• Include: your medical history with the condition, the specific drugs tried (name, dose, duration, outcome), why the formulary alternatives are inadequate
• CMS Medicare Part D: Insurers must respond to standard formulary exceptions within 72 hours and expedited requests within 24 hours

Appealing a Tier Exception

If your drug is on formulary but placed in an excessively expensive tier:

• Request a tier exception to have the drug treated as a lower-tier drug
• Grounds: Medical necessity for the specific drug at the formulary-drug-tier-exception level
• Most plans' tier exception processes parallel formulary exceptions

External Independent Review

After exhausting internal formulary exception appeals:

• ACA plans: External Independent Medical Review available
• Medicare Part D: Administrative Law Judge (ALJ) hearing available after plan denial
• Medicaid: State fair hearing process

What About Non-Formulary Drug Coverage Under ACA?

ACA essential health benefits: Plans must cover prescription drugs in every essential health benefit category, but they don't have to cover every specific drug. If your plan's formulary doesn't include adequate drugs for your condition across all therapeutic categories, the plan may be violating EHB standards.

ACA Section 2719: Plans cannot use formulary design to discriminate against specific conditions or patient populations.

Medicare Part D Formulary Exceptions (Step-by-Step)

1. Prescriber submits a Coverage Determination request to the Part D plan
2. Plan must decide within 72 hours (standard) or 24 hours (expedited)
3. If denied: Redetermination — plan reviews again (7-day standard, 72-hour expedited)
4. If denied: Independent Review Entity (IRE) — independent review (72-hour expedited, 7-day standard)
5. If denied: ALJ Hearing — independent judge (90 days from IRE denial)
6. If denied: Departmental Appeals Board (DAB) — HHS-level review
7. If denied: Federal District Court

Fight Back With ClaimBack

ClaimBack generates formulary exception request letters and appeal letters that document your clinical history with formulary alternatives and make the case for non-formulary coverage.

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Related Reading

• Step Therapy Override: Your Right to Skip the Insurance Ladder
• Prior Authorization Denied? Complete Appeal Guide
• What Is Medical Necessity (and How to Prove It)?