Health plan approved drug lists more complex, challenging consumers

Health plan prescription drug formularies continue to increase in complexity, and changes to those formularies are especially challenging for consumers to navigate.

Those were among the highlights of a presentation on formulary placement and specialty drugs by Matthew Sankey, market regulation manager with The INS Companies, during the National Association of Insurance Commissioners fall meeting. A formulary is the list of medications approved for coverage by a health insurance plan.

Sankey discussed how formularies have evolved and what regulators can do to regulate them.

Formulary development starts with a pharmacy benefit manager’s pharmacy and therapeutics committee, he said. Committee members are clinicians who work in oncology, pediatrics, geriatrics, pain management and mental health, and all discuss what medications should be on the formulary based on clinical reviews and data.

Committee members discuss what is clinically relevant about a drug versus its cost. Sankey said the committee determines the first-line therapy for a specific condition.

Drug rebates have a huge impact

Many issues on formulary development center on manufacturer rebates for drugs, he said.

“Under the current system, medications are not incentivized to be low cost. The higher the cost of the medication, the more you can get in rebate. That has a huge impact on what is being preferred or excluded from the formulary.”

Formularies are divided into anywhere from four to six tiers to manage costs and encourage the use of clinically effective, lower-cost medications. Each tier corresponds to a different level of cost-sharing for the patient. The lower the tier, the less the patient pays out of pocket. Higher tiers generally mean higher copays or coinsurance. Formulary tiers – listed in order from lowest to highest out-of-pocket cost – include:

1. Preventive
2. Preventive generic
3. Preferred brand
4. Nonpreferred brand
5. Preferred specialty
6. Nonpreferred specialty

Sankey said formularies are not transparent and several factors go into them, including medication characteristics, prior authorization requirements, step therapy requirements, patient outcomes, and nonformulary medication reimbursement.

Specialty medications continue to grow

Specialty medications are complex and continue to grow, he said. Specialty medications are defined as prescription drugs that treat chronic, complex or rare conditions; have limited distribution; require specialized administration and handling, and are part of patient management.

PBM-affiliated drug procurement is something new, Sankey said. He gave Humira, the brand-name version of adalimubab, as an example. Sankey said that the top three PBMs – CVS Health-Cordavis, Cigna/Evernorth-Quallent Pharmaceuticals and UnitedHealth Group-NUVAILA – have replaced Humira on their formularies with biosimilar drugs they procured.

Formularies have several impacts on consumers, he said, including annual and even quarterly changes, copays and coinsurance, and higher-cost brand-name medications sometimes preferred over generics.

Sankey said the tiering of antipsychotics is of particular concern. All antipsychotics are Tier 4 medications, carrying a higher out-of-pocket cost. But some of those drugs are generics that have been available for years.

“Why would a brand name medication be preferred on the formulary if there is a generic available at a lower cost? It goes back to rebates,” he said.

“Formulary changes are one of the hardest things for consumers to navigate,” he said. “Formularies must be more transparent for consumers.”

Concerns about formularies and PBMs

Sankey said he is concerned about the increasing number of medications being excluded from formularies. He cited research from Cencora that showed the Big 3 PBMs excluded a total of 1,453 unique medicines from their formularies, an average increase of 27% between 2014 and 2025.

What he said he finds even more alarming is PBMs’ preference for brand-name medications over generics.

“If the generic is available and the plan requires a brand name drug, what does that do for health care costs?” he asked.

Sankey listed a number of challenges with formularies and PBMs, including increased complexity and number of tiers, higher-cost medications being incentivized to remain on formularies, and patients being required to try and fail on drug therapy before being permitted to use a higher-cost drug.

“Formularies will continue to be more complex. More specialty drugs will enter this space and costs will continue to grow,” he said. “Meds for these specific patients should be accessible if needed.”

© Entire contents copyright 2025 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at susan.rupe@innfeedback.com.