Prescription Drug Costs: How Your Plan Works

What you pay at the pharmacy depends on more than the drug itself. It depends on your plan's drug list, which "tier" the drug is on, whether you've met your deductible, and where you fill it. This guide walks through each piece in plain words, then lists simple ways to pay less.

What is a formulary?

A formulary is your plan's list of covered prescription drugs. HealthCare.gov calls it "a list of prescription drugs covered by a prescription drug plan or another insurance plan offering prescription drug benefits," also called a drug list.

If a drug isn't on the list, the plan may not pay for it at all, or may pay only after an approval. Plans can change their lists, so it's worth checking yours every year at open enrollment, and any time you get a new prescription. Your plan's Summary of Benefits and Coverage (SBC) has a row for prescription drugs and tells you where to find the drug list. See How to read your SBC.

What are drug tiers?

Most plans sort the drugs on their list into tiers. A lower tier usually costs you less. The exact tiers and prices are set by your plan, but a common pattern looks like this:

The U.S. Department of Labor describes it the same way: a plan's formulary "organizes the drugs into tiers, with different cost-sharing requirements," and the tiers "often distinguish between generic drugs and brand-name drugs," with one or more separate tiers for specialty drugs. Your plan's own numbers are what count, so look them up in your SBC or drug list.

Copay vs. coinsurance for drugs

There are two common ways to share the cost of a prescription:

• Copay: a fixed dollar amount for each fill, no matter what the drug costs.
• Coinsurance: a percentage of the drug's cost. If the drug's price goes up, your share goes up too.

Coinsurance can be a surprise with expensive brand-name or specialty drugs. The Department of Labor notes that in many plans, coinsurance "is often based on list price, resulting in higher out-of-pocket costs." If a drug you take has coinsurance, ask your plan or pharmacy what the dollar amount will be before you fill it.

New to these words? See Health insurance words explained.

Does my deductible apply to prescriptions?

It depends on your plan. Some plans charge a simple copay for drugs right away. Others make you pay the full price of the drug until you meet your deductible. Some have a separate deductible just for prescriptions. The SBC's "Important Questions" box tells you whether there are other deductibles for specific services, like drugs.

The Department of Labor puts it this way: you may pay "the full cost of the drug up to the amount of the annual deductible, if the group health plan applies a deductible," and a copay or coinsurance after that.

Your drug costs for covered drugs generally count toward your plan's out-of-pocket maximum, the most you'd pay in a year for covered in-network care. Check your plan documents to confirm what counts.

What is prior authorization?

Prior authorization is approval from your health plan that may be needed before you fill a prescription for the plan to cover it (HealthCare.gov). Your doctor's office usually sends the request.

Plans also use two related rules (both described by the Department of Labor):

• Step therapy: you may need to try a lower-cost drug first before the plan covers a more expensive one.
• Quantity limits: a cap on how much of a drug you can get in a set period.

If the plan says no, you can ask your plan about an exception or an appeal. Your plan documents explain how, and your doctor can often help.

Generics and biosimilars

A generic drug has the same active ingredient as a brand-name drug. HealthCare.gov says generics usually cost less, and the FDA rates them to be as safe and effective as brand-name drugs. The FDA says a generic must be the same as the brand in dosage, safety, effectiveness, strength, stability, quality, and the way it is taken.

Why are generics cheaper? The FDA explains that generic makers don't have to repeat the animal and human studies the brand already did, and competition among several generics tends to push prices down.

Some drugs are biologics, made from living sources. Their lower-cost versions are called biosimilars. The FDA describes biosimilars as like "generic" versions of biologic drugs. If you take a biologic, ask your doctor or pharmacist whether a biosimilar is an option.

Mail order and 90-day supplies

Many plans let you fill drugs you take every month through a mail-order pharmacy, often as a 90-day supply. This can cost less and save trips. Some plans go further: in KFF's 2026 Employer Health Benefits Survey, 11% of employers with 50 or more workers limit coverage for certain prescriptions to mail-order pharmacies only, so the plan won't pay if you use a store pharmacy for those drugs. Check your plan's rules before you switch.

Manufacturer coupons and discount cards: read the fine print

Drug makers often offer copay coupons or savings cards for brand-name drugs. They can lower what you pay at the counter, but keep these points in mind:

• They may not count toward your deductible. Some job-based plans don't count coupon money toward your deductible or out-of-pocket maximum. When the coupon runs out, you may suddenly owe much more. Ask your plan how it treats coupons before you rely on one.
• They can end. Coupons often have yearly limits or end dates.
• Discount cards are different from insurance. If you pay with a discount card instead of your plan, that purchase usually isn't run through your plan. For people with Medicare, Medicare.gov says discount cards (including TrumpRx.gov prices) don't count toward your Medicare drug plan's deductible or out-of-pocket limit.
• Compare both ways. Medicare.gov suggests comparing discount prices with what you pay under your plan, to make sure you get the best price.

If you have an HDHP and HSA

With a high deductible health plan (HDHP), you often pay the full plan price for prescriptions until you meet the deductible. You can pay for prescriptions with money from your health savings account (HSA). See What is an HSA?

There is one helpful exception. Under IRS Notice 2019-45, an HDHP is allowed (but not required) to cover certain drugs for people with specific chronic conditions before the deductible, without losing its HSA status. The IRS list includes, for example:

• Statins for heart disease and/or diabetes
• Insulin and other glucose-lowering drugs for diabetes
• ACE inhibitors and beta-blockers for certain heart conditions
• Inhaled corticosteroids for asthma
• SSRIs for depression

Not every HDHP does this. Check your plan's drug list or ask HR.

If you have Medicare drug coverage

Medicare drug plans (Part D) work differently. Medicare.gov lists these limits:

• Deductible: no Medicare drug plan may have a deductible over $615 in 2026 or $700 in 2027.
• Yearly cap: once your out-of-pocket costs for covered Part D drugs reach $2,100 in 2026 ($2,400 in 2027), you pay nothing more for covered Part D drugs for the rest of that year.
• Insulin: no more than $35 for a one-month supply of each covered insulin product, with no deductible.

Still working at 65? See Turning 65 and still working.

Simple ways to pay less

1. Look up your drugs on your plan's drug list at open enrollment and when you get a new prescription.
2. Ask about a generic or biosimilar. Ask your doctor or pharmacist, "Is there a lower-cost option that works for me?"
3. Ask which tier a drug is on. A "preferred" brand may cost less than a "non-preferred" one.
4. Check mail order and 90-day supplies for drugs you take every month.
5. Use your HSA or FSA to pay with pre-tax money. See HSA vs FSA.
6. Get prior authorization started early so you aren't stuck at the pharmacy counter.
7. Ask before using a coupon whether it counts toward your deductible and out-of-pocket maximum.
8. Compare plans by your drugs, not just the premium. One plan's lower premium can be wiped out by higher drug costs.