Tier 1 and Tier 2 are cost categories that health insurance plans use to organize prescription drugs on their formulary, which is the list of medications your plan covers. Tier 1 drugs carry the lowest copayment and typically include generic medications. Tier 2 drugs cost more out of pocket and usually consist of preferred brand-name drugs or, in some plans, non-preferred generics. The lower the tier number, the less you pay at the pharmacy counter.
How Drug Tiers Work
Insurance plans group covered medications into tiers based on cost and clinical value. Each tier comes with a different copayment or coinsurance amount. The logic is straightforward: plans want to steer you toward effective, lower-cost medications when they’re available, so they make those drugs the cheapest to fill. More expensive options still get covered, but your share of the bill goes up.
Most plans use a structure that looks something like this:
- Tier 1: Lowest copayment, mostly generic drugs
- Tier 2: Medium copayment, preferred brand-name drugs (or non-preferred generics)
- Tier 3: Higher copayment, non-preferred brand-name drugs
- Specialty tier: Highest copayment, very high-cost medications
Every plan can divide its tiers differently. Some plans use three tiers, others use five or six. The labels can shift too. In Medicare Part D, for instance, Tier 1 is typically “preferred generics” and Tier 2 is “preferred brand-name drugs.” The VA health care system defines Tier 1 as preferred generics and Tier 2 as non-preferred generics and certain over-the-counter medications. The names and categories vary, so checking your specific plan’s formulary is the only way to know exactly where a drug falls.
What Tier 1 Drugs Cost
Tier 1 drugs are the least expensive medications on a formulary. They’re almost always generics, meaning the original patent has expired and multiple manufacturers produce the same active ingredient. Because generics cost insurers far less to cover, they pass significant savings along to you.
Exact copays depend on your plan, but the range gives you a sense of scale. Some plans charge $0 for Tier 1 generics. The VA system charges $5 for a 30-day supply of a Tier 1 medication, $10 for a 60-day supply, and $15 for a 90-day supply. Employer-sponsored and marketplace plans commonly set Tier 1 copays somewhere between $0 and $15 for a month’s worth of medication. Common Tier 1 drugs include widely used generics for blood pressure, cholesterol, diabetes, thyroid conditions, and depression.
What Tier 2 Drugs Cost
Tier 2 drugs sit one step above in price. In many plans, this tier holds preferred brand-name medications, meaning the plan has negotiated favorable pricing on these specific brands. In other plans, like the VA system, Tier 2 contains non-preferred generics rather than brand names.
Copays for Tier 2 are noticeably higher. The VA charges $8 for a 30-day supply of a Tier 2 drug, $16 for 60 days, and $24 for 90 days. In employer and marketplace plans, Tier 2 copays often fall in the $25 to $50 range for a 30-day supply, though some plans use coinsurance instead, requiring you to pay a percentage of the drug’s cost (commonly 20% to 30%). Plans can also mix the two approaches, charging the greater of a flat dollar amount or a percentage.
Why a Drug Lands in a Specific Tier
Tier placement isn’t random. Insurance companies and their pharmacy benefit managers weigh several factors when deciding where a drug goes. The wholesale cost of the medication matters most, but it’s not the only consideration. Rebates and discounts negotiated with drug manufacturers can push a brand-name drug into a lower, preferred tier. Clinical effectiveness and safety also play a role. If two brand-name drugs treat the same condition equally well, the one with a better negotiated price typically lands in the preferred tier.
This means tier placement can change from year to year. A Tier 2 drug in January might move to Tier 3 the following year if the plan renegotiates its contracts or a new generic enters the market. Plans are required to notify you of formulary changes, but it’s worth reviewing your drug list annually, especially during open enrollment.
How to Lower Your Tier Costs
The simplest strategy is to ask your prescriber whether a Tier 1 generic exists for your condition. For many common health issues, generics work identically to their brand-name counterparts and cost a fraction of the price. If your doctor prescribes a Tier 2 or Tier 3 medication, it’s reasonable to ask whether a lower-tier alternative would be just as effective.
When no lower-tier alternative works for you, a formal process called a tiering exception lets you request that your plan cover a higher-tier drug at the lower-tier price. To qualify, your prescriber needs to submit a supporting statement explaining that the preferred drugs in the lower tier either wouldn’t be as effective for your condition or would cause adverse effects. The prescriber can submit this statement verbally or in writing. Once the plan receives the supporting statement, it must respond within 72 hours for a standard request or 24 hours if the request is expedited.
Tiering exceptions aren’t guaranteed. The plan reviews each request on a case-by-case basis and grants it only when the drug is deemed medically necessary for you specifically. But the process exists for a reason, and it’s worth pursuing if a lower-tier drug genuinely isn’t a good fit.
Checking Your Plan’s Formulary
Because every insurer structures its tiers differently, the only reliable way to know your costs is to look up your specific plan’s drug list. Most insurers publish a searchable formulary on their website where you can type in a medication name and see its tier, any coverage restrictions, and your estimated copay. If you have Medicare Part D, the Medicare Plan Finder tool at Medicare.gov lets you enter your prescriptions and compare costs across available plans.
If you’re choosing between plans during open enrollment, plugging in your current medications and comparing tier placements across plans can save you hundreds of dollars a year. A plan with a lower monthly premium might place your drugs in higher tiers, making it more expensive overall. The reverse is also true: a slightly higher premium sometimes buys significantly lower prescription costs if your medications sit in Tier 1 instead of Tier 2.