Employer Health Plans and Generic Preferences: How to Navigate Your Prescription Coverage

When you pick up a prescription at the pharmacy, you might not think about why one drug costs $10 and another costs $75-even if they treat the same condition. The answer lies in something most employees never see: your employer’s formulary. This hidden list controls which drugs your health plan covers, how much you pay, and whether you get a generic version or are stuck with a brand-name drug that costs ten times more.

How Formularies Work: The Tiered System

Your employer’s prescription drug plan doesn’t treat all medications the same. Instead, it sorts them into tiers. Think of it like a pricing ladder. The lower the tier, the less you pay out of pocket.

• Tier 1: Generics - These are the cheapest. You’ll usually pay $10 or less per prescription.
• Tier 2: Preferred brand-name drugs - These are brand-name drugs your plan has negotiated a deal on. Expect to pay around $40.
• Tier 3: Non-preferred brand-name drugs - These are brand-name drugs your plan doesn’t encourage. Copays jump to $75 or more.
• Tier 4: Specialty drugs - Used for complex conditions like cancer, MS, or rheumatoid arthritis. These can cost hundreds or even thousands per month.

Here’s the key: if a brand-name drug becomes available as a generic, your plan will automatically move the generic to Tier 1 and push the brand version to Tier 4. That means if you keep taking the brand-name version, your out-of-pocket cost could spike overnight. No warning. No notice. Just a higher bill at the pharmacy counter.

Why Employers Push Generics

You might wonder: why do employers care so much about generics? It’s simple-money. The FDA confirms that generic drugs are just as safe and effective as brand-name ones. The only real difference? Price.

Generics cost 80-85% less because they don’t need expensive clinical trials or marketing campaigns. They use the same active ingredients, same dosages, same safety standards. Yet, they save the U.S. healthcare system over $150 billion every year. That’s $3 billion a week.

Employers don’t just save money-they pass some of those savings to employees. A $10 copay for a generic instead of a $75 copay for the brand name means employees keep more money in their pockets. That’s why 99% of large employer health plans include prescription drug coverage, and nearly all of them structure it to favor generics.

Who Controls What Drugs Are Covered?

You might think your insurance company decides which drugs are on your formulary. But the real power lies with Pharmacy Benefit Managers, or PBMs. These are middlemen-companies like OptumRx, CVS Caremark, and Express Scripts-that manage drug benefits for most employer plans.

PBMs don’t just list drugs. They decide which ones get excluded entirely. In January 2024, each of the three biggest PBMs removed over 600 drugs from their formularies. That’s more than 1,800 drugs gone in one month. Why? To pressure drug manufacturers into offering bigger discounts. If a company won’t give a deep enough rebate, the PBM drops the drug. No second chances.

Here’s the catch: the savings from those rebates don’t always reach you. PBMs use a system called gross-to-net pricing. A drug might have a list price of $100, but after rebates, discounts, and returns, the PBM pays only $45. That 55% difference is the gap between what’s listed and what’s paid. But your copay is still based on the original $100 price. So you’re paying more than the drug actually costs.

What Happens When Your Drug Gets Removed?

Imagine you’ve been taking a medication for years. One day, you go to refill it, and the pharmacist says, “Sorry, it’s no longer covered.” That’s not rare. It’s standard practice.

If your drug is removed from the formulary, you have three options:

1. Switch to a generic or preferred alternative-if one exists and is safe for you.
2. Ask your doctor to file a medical exception request with your insurer.
3. Pay full price out of pocket.

Medical exceptions aren’t guaranteed. You’ll need documentation from your doctor proving the drug is medically necessary and that alternatives won’t work. Some plans approve them quickly. Others take weeks. In the meantime, you might go without treatment.

And here’s the worst part: if your drug is removed because the manufacturer refused to pay a big enough rebate, you’re the one who loses-not the drug company, not the PBM. You’re stuck choosing between your health and your budget.

How to Find Out What’s Covered

You can’t rely on memory or your doctor’s word. Formularies change constantly. A drug covered this month might be gone next month.

Here’s what you should do every time you get a new prescription:

• Check your insurer’s website for the current drug list. Look for “formulary,” “drug list,” or “prescription coverage.”
• Read your Summary of Benefits and Coverage (SBC). It’s required by law and should include a section on prescription drugs.
• Call your insurer directly. Ask: “Is [drug name] covered? What tier is it on? Is there a generic?”
• Ask your pharmacist. They often know what’s covered and what’s not before you even pay.

Don’t wait until you’re at the counter. A quick 5-minute check can save you $65-or more.

What Employers Can Do Better

Many employees want to use generics-they just don’t know how to. A Schauer Group study found that employees are often willing to switch to generics, but they’re afraid they’re less effective or don’t understand the process.

Employers who communicate clearly see better results. Simple actions make a big difference:

• Send emails with clear comparisons: “This generic saves you $65/month and works the same way.”
• Include generic drug info in payroll stuffers or onboarding packets.
• Offer free consultations with care managers who can help find affordable alternatives.
• Use tools like HealthOptions.org’s Price Assure Program, which automatically applies savings when you fill generics at in-network pharmacies.

When employees understand the system, they make better choices. And when they make better choices, everyone saves.

What You Can Do Right Now

You don’t need to wait for your employer to fix the system. You can take control today:

1. Look up your current prescriptions on your insurer’s formulary. Note the tier and copay.
2. Ask your doctor: “Is there a generic version of this? Is it on our plan’s formulary?”
3. If your drug is on Tier 3 or 4, ask if a Tier 1 or 2 alternative exists.
4. Use mail-order pharmacies-they often have lower prices on 90-day supplies of generics.
5. If you’re on a chronic condition like diabetes or high blood pressure, ask if your plan offers a Chronic Illness Support Program. These can reduce costs significantly.

Remember: your plan’s formulary is designed to save money. But it’s not designed to make your life easier. You have to be the one to navigate it.

What’s Changing in 2025?

The trend is clear: formularies are getting tighter. PBMs are removing more drugs. Rebates are getting bigger. And the gap between what drugs cost and what you pay is widening.

Some states are starting to regulate PBMs to force more transparency. But for now, the system stays complex. The only thing that won’t change? Generics will always be the cheapest option. And if you can use them, you should.

The real question isn’t whether generics work. It’s whether you’ll let fear or ignorance stop you from saving hundreds-or thousands-of dollars a year.