What is the role of a 'formulary' in a health or prescription drug plan?

A formulary is the list of prescription drugs that a health or drug plan covers. Formularies are commonly organized into tiers — for example, generic drugs in a low-cost tier and brand-name or specialty drugs in higher-cost tiers — which determine the copayment or coinsurance the insured pays for each drug. Drugs not on the formulary may not be covered or may require an exception or prior authorization. Understanding the formulary helps an insured anticipate drug costs and is part of managed-care and pharmacy benefit design. Recognizing the formulary as the tiered covered-drug list is standard content on the health insurance exam.