Tiered formularies explained

Workers with employer coverage whose plans sort drugs into three or more cost-sharing tiers paid an average copay of $12 for a first-tier drug in 2025 and $123 for a fourth-tier drug, according to KFF's 2025 Employer Health Benefits Survey¹. Average coinsurance rose from 19 percent on the first tier to 35 percent on the third.

That spread comes from a single document, the plan's formulary, which most people open only after a pharmacist tells them a drug costs more than expected.

Tiers decide a large share of what patients pay at the counter, and generics usually land on the cheapest one. For many older generics, the pharmacy's acquisition cost is now well below even a tier-1 copay.

How a tier list is put together

A formulary is a plan's list of covered drugs. Each drug on it is assigned a tier, and each tier carries its own copay or coinsurance. Medicare.gov says² each plan has its own formulary and "can divide its tiers in different ways," so a drug on tier 2 in one plan can be on tier 3 in another.

Tiering is close to universal in employer coverage. KFF found that 92 percent of covered workers in 2025 were in a plan with tiered cost sharing for prescriptions, and 84 percent were in a plan with three or more tiers once specialty-only tiers were counted. Leave the specialty-only tiers out and the figure is 82 percent.

Source: KFF Employer Health Benefits Survey, 2025, Figures 9.6 and 9.11. Averages cover workers with that type of cost sharing on each tier.

Plans usually separate generics from preferred and non-preferred brands, and some add extra tiers for specialty drugs and biologics, KFF wrote.

Where generics usually sit

On Medicare's own example list, tier 1 carries the lowest copay and holds "most generic prescription drugs." Plans label their tiers differently, so the plan's own document is the place to confirm which tier holds generics.

A copay is a flat amount and does not move with the drug's cost. For the oldest, most widely made generics, the ingredient cost can be pennies per tablet. GxRadar's analysis of CMS NADAC files³ through October 2026 shows the gap against KFF's $12 average first-tier copay.

NADAC measures what retail pharmacies pay to acquire a drug. It leaves out the dispensing fee and the pharmacy's margin, so a real cash price will be higher than the right-hand column. Even so, the comparison explains why a pharmacist will sometimes point out that the cash price beats the copay, a situation covered in When the cash price beats the copay. Weekly figures for 47 generics are on the GxRadar price tracker, and what NADAC leaves out is explained separately.

Medicare Part D tiers in 2026

Part D plans design their own tiers within federal rules. Under 42 CFR 423.120⁴, a formulary generally has to include at least two drugs in each therapeutic category and class that are not therapeutically equivalent to each other. A plan may keep up to two specialty tiers, according to 42 CFR 423.104⁵. CMS reserves those tiers for drugs whose 30-day ingredient cost falls within roughly the top 1 percent of all Part D claims, and it caps specialty-tier coinsurance at 25 percent for plans with the full standard deductible and 33 percent for plans with no deductible.

The overall benefit also changed. The Inflation Reduction Act capped annual out-of-pocket drug spending in Part D starting in 2025, and CMS set the 2026 cap at $2,100⁶.

Source: CMS CY 2026 Rate Announcement⁷, Table V-2.

For people who qualify for the low-income subsidy, known as Extra Help, generics carry a separate federal copay ceiling regardless of the plan's tier. More on the 2025 and 2026 redesign is in Medicare Part D changes in 2025 and 2026.

Asking for a tiering exception

Medicare.gov tells enrollees that "you or your prescriber can ask your plan for an exception" to get lower cost sharing on a drug in a higher tier. The rules are in 42 CFR 423.578⁸. The prescriber has to provide a supporting statement that the preferred drugs for the condition would be less effective for that patient, would cause adverse effects, or both.

Plans have some room to refuse. A Part D plan can design its process so that a brand drug cannot be moved down to a preferred tier that holds only generics, and it can keep drugs on a specialty tier out of the exception process altogether.

Timing is set by regulation, and a denial can be appealed, as our guide to appealing a drug coverage denial explains. Under 42 CFR 423.568⁹, a Part D plan must decide a standard exception request within 72 hours of receiving the prescriber's supporting statement; for expedited requests the limit is 24 hours under 42 CFR 423.572¹⁰. Marketplace and other plans covering essential health benefits follow a parallel rule for drugs left off the formulary entirely, with the same 72-hour and 24-hour limits, under 45 CFR 156.122¹¹.

Whether a different drug or tier makes sense is a clinical question for the prescriber and pharmacist. The plan's member services line can say which tier a drug is on, whether a lower-tier option exists in the same class, and what paperwork an exception needs. Plans also use prior authorization and step therapy alongside tiers, and those carry their own request process. For the wording of the questions themselves, see A script for talking to your pharmacist.

Medicare's annual enrollment period runs from Oct. 15 to Dec. 7. Tier placements can change from one plan year to the next, so the drug list to check during that window is the one for 2027.