Drug Tiers (Tier 1 through Tier 5)

Drug tiers are the pricing levels a health plan or PBM assigns to prescription drugs on the formulary. The tier a drug falls into determines the member's copay or coinsurance at the pharmacy counter, from the lowest-cost generics on Tier 1 to the highest-cost specialty biologics on Tier 5 or 6. Every plan defines its tiers slightly differently, but the structure is broadly consistent across the industry.

Tier 1 is typically preferred generics — the lowest copay, often $0 to $15 for a 30-day supply. Tier 2 is non-preferred generics and preferred brand-name drugs — usually $30 to $50. Tier 3 is non-preferred brand-name drugs — often $60 to $100 or a coinsurance percentage. Tier 4 is specialty drugs (biologics, cancer therapies, high-cost injectables) with member coinsurance typically 25 to 40 percent up to an out-of-pocket cap. Some plans add a Tier 5 for ultra-high-cost specialty drugs with even higher coinsurance. The specific placement of any given drug into a tier is negotiated between the PBM and the manufacturer — a drug's tier is not determined by its clinical effectiveness alone but also by the rebate the manufacturer is willing to pay to secure preferred placement. This is why the same drug can be Tier 2 on one plan and Tier 3 on another.

The takeaway: before filling any prescription, check the drug's tier on your specific plan's formulary. A prescriber's default choice might be Tier 3 when a Tier 1 or Tier 2 therapeutic alternative would work just as well at a fraction of the copay.