Updated October 15, 2026
How do prescription drug benefits work? Your plan covers medications on its formulary, a list of covered drugs sorted into tiers. Lower tiers, usually generics, cost the least, and higher tiers, like specialty drugs, cost the most. What you pay depends on the drug’s tier and your plan’s copays, coinsurance, and deductible. If you have Medicare drug coverage, your yearly out-of-pocket costs for covered drugs are capped at $2,100 in 2026 and $2,400 in 2027.
Health plans cover medications in different ways, which can make prescription costs hard to predict. This guide explains formularies, drug tiers, and cost-sharing, and how to get the most from your coverage.
Key Takeaways
- A formulary is the list of medications your plan covers, usually grouped into tiers that set what you pay.
- Generic drugs are typically in the lowest tier and cost the least.
- Copays, coinsurance, and deductibles determine how drug costs are split between you and your plan.
- Specialty medications may be covered under your pharmacy benefit or your medical benefit, depending on how they’re given.
- Medicare drug plans cap your yearly out-of-pocket costs for covered drugs and limit insulin to $35 a month.
Understanding Formularies
A formulary, also called a preferred drug list (PDL), lists the prescription medications your plan covers. It includes both generic and brand-name drugs. Plans use formularies to manage costs while giving you access to effective treatments.
Formularies can change from year to year, and sometimes during the year. Check yours during open enrollment to make sure your medications are still covered.
Prescription Drug Tiers Explained
Plans sort drugs into tiers based on cost, how a drug compares to others that treat the same condition, clinical effectiveness, and how the drug is delivered or stored. A common four-tier structure looks like this:
- Tier 1: Generic drugs, with the lowest copays.
- Tier 2: Preferred brand-name drugs, with moderate copays.
- Tier 3: Non-preferred brand-name drugs, with higher copays.
- Tier 4: Specialty or high-cost drugs, with the highest costs.
Some plans, including many Medicare drug plans, use five or six tiers. Check your plan’s documents to see how your drugs are grouped.
Higher-tier drugs may require prior authorization or step therapy, which means trying a lower-tier drug first. Katrina Parrish, MD, President and CMO of Patient.com, explains, “Generally speaking, there is a process required by your insurance company to progress from a lower tier or generic medication to a higher tier or brand name. While it might take some time trying the various required steps in treatment, the purpose is to ensure that your provider helps find and recommend the best, safest, and most valuable treatment for you.”
If a drug you need isn’t covered or is in a high tier, your provider can ask your plan for a formulary exception. If the request is denied, you can appeal.
How You Share Prescription Costs
- Copays: A fixed amount you pay for a prescription, which varies by tier. For example, you might pay $10 for a Tier 1 drug and $50 for a Tier 3 drug.
- Deductible: The amount you pay before your plan starts sharing costs. Some plans have a separate deductible for prescriptions.
- Coinsurance: A percentage of the drug’s cost you pay after meeting your deductible. With 20% coinsurance, you pay 20% and your plan pays 80%.
Our guide to copays, coinsurance, and deductibles walks through each term with examples.
Specialty Medications: Pharmacy vs. Medical Benefit
- Pharmacy benefit: Covers drugs you get from a pharmacy and take at home, often through a specialty pharmacy. Your costs depend on your formulary and tier structure.
- Medical benefit: Covers drugs given by a healthcare professional, such as at a hospital, infusion center, or doctor’s office. Your costs follow your plan’s rules for medical services.
Medicare Prescription Drug Costs
If you have a Medicare Part D plan or a Medicare Advantage plan with drug coverage:
- Out-of-pocket cap: Under the Inflation Reduction Act, your yearly out-of-pocket costs for covered drugs are capped. The cap began in 2025 and is $2,100 in 2026 and $2,400 in 2027 (KFF).
- Insulin: Covered insulin costs no more than $35 for a month’s supply.
- Monthly payments: The Medicare Prescription Payment Plan lets you spread out-of-pocket drug costs into monthly payments instead of paying at the pharmacy. It doesn’t lower your total costs.
- Extra Help: If your income and resources are limited, Extra Help can lower your premiums, deductibles, and copays.
Tips to Get the Most From Your Prescription Benefits
- Review your formulary: Make sure your medications are covered and check their tiers.
- Ask about alternatives: If a drug isn’t covered or is in a high tier, ask your provider or pharmacist about a generic or lower-cost option. See our guide to generic vs. brand-name medications.
- Use preferred pharmacies: Some plans charge less at certain pharmacies.
- Consider mail order: Mail-order pharmacies can be convenient for maintenance medications and may offer 90-day supplies at a lower cost.
- Check for plan changes every year: Formularies, tiers, and costs can change at open enrollment.
Frequently Asked Questions
Does health insurance cover prescription drugs?
Usually, yes. Review your plan’s formulary to see which drugs are covered and what you’ll pay for each tier.
Can prescriptions be cheaper without insurance?
Sometimes. Compare cash prices across pharmacies and ask about generics. Keep in mind that drugs you buy without using your insurance may not count toward your deductible or out-of-pocket maximum.
How can I get my prescription if I can’t afford it?
Depending on your situation, you may have options. State Pharmaceutical Assistance Programs help in many states, Medicare Extra Help lowers costs for people who qualify, and many drug manufacturers offer Patient Assistance Programs (PAPs) with free or low-cost medications. Nonprofit organizations and discount pharmacy programs, such as those from Walmart, GoodRx, and Cost Plus Drugs, may also help.
What is the Medicare Part D out-of-pocket cap?
The Inflation Reduction Act capped yearly out-of-pocket costs for covered drugs in Medicare Part D and Medicare Advantage drug plans starting in 2025. The cap is $2,100 in 2026 and $2,400 in 2027. Once you reach it, you pay nothing more for covered drugs that year.
What if my medication isn’t on my plan’s formulary?
Ask your provider to request a formulary exception from your plan. If it’s denied, you can appeal. Your provider may also be able to suggest a covered alternative.
Learn More with Patient.com
Understanding your prescription benefits can help you make more informed decisions about your care. By knowing your plan’s formulary, drug tiers, and cost-sharing, you can work with your providers to manage both your health and your prescription costs.
