Drugs on a formulary are usually grouped into tiers, and your co-payment is determined by the tier that your medication is on. A typical drug formulary includes three tiers.
Tier 1 has the lowest co-payment and usually includes generic medications.Tier 2 has a higher co-payment than tier 1 and usually includes preferred brand name medications.
Tier 3 has the highest co-payment and usually includes non-preferred brand name medications. Your health plan may place a medication in tier 3 because it is new and not yet proven to be safe or effective. Or, the medication may be in tier 3 because there is a similar drug on a lower tier of the formulary that may provide you with the same benefit at a lower cost.
For some of these drugs, your health plan may have negotiated with a pharmaceutical company to obtain a lower price. In return, your health plan designates the medication as a "preferred drug" and hence makes it available in tier 2 rather than tier 3.