When you pick up a prescription at the pharmacy, you might not think about why your insurer only covers one version of your medication - and not another. But behind every prescription is a carefully built list called a preferred generic list. These aren’t random choices. They’re the result of complex negotiations, clinical reviews, and financial calculations that determine what you pay - and what your insurer pays too.
What Exactly Is a Preferred Generic List?
A preferred generic list, often called a
Preferred Drug List or PDL, is a tiered catalog of medications that your health plan encourages you to use. It’s not a list of every drug available - it’s a curated selection designed to balance cost and effectiveness. The top tier, Tier 1, is reserved for generic drugs that have been proven safe, effective, and cheap. These are the drugs insurers push you toward because they save everyone money.
The FDA says generic drugs cost, on average, 80-85% less than their brand-name equivalents. When six or more companies make the same generic, prices can drop by up to 95%. That’s not a small difference. For a monthly medication like levothyroxine, that could mean going from $187 to $12 per month. That’s the kind of savings insurers want - and they structure their formularies to make it happen.
How Formulary Tiers Work
Most insurance plans use a tiered system, usually with three to five levels. Here’s how it breaks down:
- Tier 1: Preferred Generics - These are your cheapest options. Copays are typically $5-$15 for a 30-day supply. Examples include atorvastatin (generic Lipitor), lisinopril, and metformin.
- Tier 2: Preferred Brand-Name or Higher-Cost Generics - These cost more, usually $25-$50. They might be newer generics or brand-name drugs the insurer has negotiated a good deal on.
- Tier 3: Non-Preferred Brands - These are brand-name drugs with no cheaper alternatives. Copays jump to $50-$100.
- Tier 4: Specialty Drugs - These include biologics like Humira or Enbrel. Costs can be $100+ per month, or you might pay a percentage (like 30%) of the total price.
Medicare Part D plans, which cover nearly all seniors, mostly use four-tier systems. Commercial insurers follow the same pattern. In fact, 98% of commercial plans and 100% of Medicare Part D plans use tiered formularies today.
Why Insurers Care So Much About Generics
It’s simple math. In 2023, generics made up 90% of all prescriptions filled in the U.S. - but only 23% of total drug spending. That’s because they’re cheap to produce and compete fiercely. When multiple generic manufacturers enter the market, prices plummet.
Pharmacy Benefit Managers (PBMs) - the middlemen between insurers and drugmakers - play a huge role. CVS Health, UnitedHealth’s OptumRx, and Cigna’s Evernorth control 78% of the PBM market. They negotiate rebates and discounts directly with drugmakers. For brand-name drugs, they typically get 25-30% off the list price. For generics? They buy in bulk at rock-bottom rates and pass most of the savings to the plan.
This system saves the U.S. healthcare system about $1.68 trillion every year, according to Harvard’s Dr. Aaron Kesselheim. That’s money that keeps premiums lower and keeps insurers from raising prices on you.
When Generics Don’t Work - And Why Insurers Still Push Them
Not every drug works the same way when switched to a generic. For medications like warfarin (a blood thinner), doctors sometimes avoid switching because small differences in how the body absorbs the drug can lead to dangerous side effects. A 2022 study from the American College of Clinical Pharmacy found that 23% of physicians resist switching patients on these drugs.
Yet insurers still push generics - even in these cases - because they’re legally allowed to. Most states let pharmacists automatically substitute a generic unless the doctor writes “dispense as written.” But here’s the catch: 37% of patients don’t even know this option exists.
And then there’s the issue of step therapy. Many plans require you to try a generic first - even if your doctor says it won’t work for you. If you fail on the generic, you can appeal. And 68% of those appeals get approved, if you have good documentation from your doctor. But that process can take weeks. The American Medical Association found that 42% of doctors report delays in treating chronic pain because of these rules.
The Biosimilar Problem
Biosimilars - cheaper versions of biologic drugs like Humira - are the next frontier. But they’re not working the way insurers hoped.
Brand-name biologics often come with co-pay assistance programs that cut your monthly cost from $1,200 to $50. Biosimilars don’t have those programs. So even though Amjevita (the biosimilar to Humira) costs less on paper, your out-of-pocket bill might not drop - or could even go up.
Cigna’s 2023 member report found that 44% of patients on biologics had trouble switching to biosimilars because they lost their co-pay cards. And only 15% of eligible biologic prescriptions in the U.S. are filled with biosimilars - compared to 85% in Europe.
That’s changing. Starting in 2025, Medicare Part D will be required to place biosimilars in the same tier as their brand-name counterparts. That could push adoption up to 45%. But insurers are fighting back with “accumulator adjuster” programs - which count biosimilar costs toward your deductible but not toward your out-of-pocket maximum. That means you might pay more before your coverage kicks in.
What You Can Do to Save Money
You don’t have to be a passive player in this system. Here’s how to take control:
- Check your formulary every year. During open enrollment, look up your meds on your plan’s formulary list. A switch from Tier 3 to Tier 1 can save you $417 per year per drug, according to CMS data.
- Ask your pharmacist. They can tell you if a generic is available, if substitution is allowed, and if there’s a cheaper option you didn’t know about.
- Use GoodRx or SingleCare. These apps often show prices lower than your insurance copay. Sometimes, paying cash is cheaper than using your plan.
- Appeal if needed. If your drug is denied, your doctor can submit a prior authorization request. With solid medical justification, 68% of these appeals succeed.
- Don’t assume your doctor knows your plan. Tell them your cost concerns. Many doctors don’t know your formulary tiers - but they can still write “dispense as written” if a generic won’t work for you.
Why This System Is Both Brilliant and Broken
The preferred generic list system was designed to make healthcare affordable. And it works - for most people, most of the time. It’s why you can get 30 days of metformin for $5. It’s why insulin prices haven’t exploded as much as they could have.
But it’s also why some patients pay more than expected. Why some get stuck waiting for approval. Why biosimilars aren’t catching on like they should.
The system isn’t evil. It’s just complex. And it’s built on incentives that don’t always align with patient needs. Insurers want low costs. Patients want reliable access. Doctors want to treat based on individual needs.
The real question isn’t whether preferred generics are good or bad. It’s whether we can make them work better - for everyone.
What’s Next for Formularies?
The next big shift is toward
value-based formularies. UnitedHealthcare started testing this in early 2024. Instead of just picking drugs based on price, they’re starting to use real-world data - like how often patients stay on the drug, how many hospital visits they avoid, or how well their blood pressure improves.
By 2030, experts predict tier placement will be based more on outcomes than on list price. That could mean better drugs get prioritized - even if they cost more upfront.
But for now, the system remains rooted in cost control. And until that changes, your best tool is knowledge. Know your plan. Ask questions. Advocate for yourself. Because in the world of insurance formularies, the cheapest option isn’t always the best - but it’s almost always the one they want you to take.
Why does my insurance only cover one version of my generic drug?
Insurers use preferred generic lists to steer patients toward the cheapest, clinically equivalent options. Even if multiple generics exist, your plan may only cover one - usually the one they negotiated the best price on. This helps them control costs and keep premiums lower. You can ask your pharmacist or check your plan’s formulary to see which version is preferred.
Can I get my brand-name drug covered if the generic doesn’t work for me?
Yes, but you’ll need your doctor to submit a prior authorization request explaining why the generic won’t work - for example, due to side effects, poor absorption, or a narrow therapeutic index like with warfarin. About 68% of these appeals are approved when supported by clinical documentation. Don’t assume the answer is no - ask for an exception.
Why is my biosimilar more expensive than the brand-name drug even though it’s supposed to be cheaper?
Many brand-name biologics come with co-pay assistance programs that reduce your out-of-pocket cost to $0 or $50. Biosimilars don’t have those programs, so even if the list price is lower, your actual payment might be higher. Also, some insurers use accumulator adjuster programs that don’t count biosimilar costs toward your out-of-pocket maximum, meaning you pay more before coverage kicks in.
How do I find out which tier my medication is on?
Log into your insurance plan’s website and look for the formulary or drug list tool. Medicare plans use the Plan Finder tool, which scores 4.2/5 in usability. Commercial plans are often harder to navigate, averaging just 2.8/5. If you can’t find it, call customer service or ask your pharmacist - they have access to the same formulary data.
Should I always take the generic version of my medication?
For most drugs - like statins, blood pressure meds, or diabetes pills - yes. Generics are just as safe and effective. But for drugs with narrow therapeutic windows - like warfarin, levothyroxine, or seizure meds - talk to your doctor first. Some patients are sensitive to small differences in absorption. Your doctor can write "dispense as written" on the prescription to prevent automatic substitution.
