Rising Drug Costs are Threatening the Future of Employee Benefits – Here's How to Fight Back

By Bradley Nelson and Tom Davies

A recent RxBenefits survey of 600 U.S. employers revealed that 52% would reevaluate their current pharmacy benefits plan if annual costs rose by 3%-10%. Not surprising considering pharmacy costs are the fastest-growing component of health benefits with total pharmacy spending up 11.4% in 2024 compared to 2023. What’s more, overall spending on medicine is expected to increase by $116 billion by 2029 compared to 2024.

So what? Is the pharmacy benefits market on the verge of a major upheaval?

It’s possible. Particularly as the uncertainty around drug costs continues to frustrate employers. Predicting pharmacy spend has become increasingly challenging with emerging high-cost categories driving new waves of adoption. Aside from diabetes patients and prescribers, who had even heard of the now ultra-popular GLP-1s five years ago? Not to mention new high-cost specialty drugs for treating complex, chronic, and rare conditions, accompanied by their own hefty price tags, continue to be launched. And, the churn of the news cycle around potential pharmaceutical tariff policies is likely to add greater ambiguity for the foreseeable future.

What all this adds up to for employers is a confusing mix, as they are left wondering how to provide high-quality pharmacy benefits for their employees with a sustainable cost trend. Traditional pharmacy benefits plans often fail to deliver consistent savings in the face of unpredictable expenses, but employers do have options that target these high-cost areas while avoiding wholesale disruptions.

Driving Forces Behind Unpredictable Drug Costs

With all the complexity of today’s pharmacy landscape, delivering predictable financial outcomes for their pharmacy benefits plans may seem like a pipe dream.

Take the rise of GLP-1s such as Ozempic and Wegovy. Sure, they are helping Americans fight Type 2 diabetes, obesity, and other chronic conditions. But at what cost to employers, who ultimately foot the bill through benefits plans?

With nearly 700,000 new GLP-1 prescriptions issued in February 2024 alone – a 181% increase compared to two years prior – the uptick in utilization of this category certainly shows no signs of a slowdown. As more GLP-1s obtain expanded indications and manufacturers explore even more, including Alzheimer’s disease, psoriasis, substance abuse, and others, GLP-1 coverage is likely to be even more of a hot-button issue for employers.

The growing number of available specialty drugs brings opportunities for patients and challenges for employers, particularly considering the median list price exceeded $370,000 in 2024.  An estimated 30 million Americans – about one in 10 – have rare or specialty conditions.

Not to mention, there are more treatment options than ever available for chronic diseases. For example, dermatological and anti-inflammatory conditions like psoriasis and Crohn’s disease can now be treated with specialty drugs instead of prescription topical and oral agents in the case of psoriasis, or oral or rectal agents for Crohn’s disease. But, they come with an annual price tag exceeding $160,000 per patient for psoriasis drugs like Stelara and Tremfya.

Specialty medications drive over 51% of total pharmacy benefit plan costs, though they make up less than 2% of prescription claims. And the challenge keeps on growing, as 50-55 new medicines are expected to launch every year over the next five years.

Innovative Solutions for Employers

Given all of these factors, solutions that help employers balance care and costs are no longer optional – they are essential for employers seeking to offer employees robust benefits while ensuring the sustainability of their plans.

Innovative strategies are helping employers reclaim control over pharmacy benefits expenses. Transitioning from traditional methods to specialized solutions is a critical first step. Here are some considerations for employers looking for better control without sacrificing care:

1. Carving out pharmacy benefits: Instead of a “carved in” plan that combines medical and pharmacy benefits together, consider a “carved out” option where pharmacy benefits are managed separately. This approach allows providers more control over costs and better oversight of specialty drug programs, such as one home healthcare provider that experienced a decrease of nearly 15% in specialty medication spend and a 26% per-member-per-month (PMPM) total decrease within the first quarter after moving from a carved in to a carved out provider.
2. Flexible pharmacy plan design: Rather than a one-size-fits-all approach, look for the ability to choose among plan options that align with goals. Striking the right balance between access and cost may require a solution that supports specific cost containment needs, such as covering GLP-1s for diabetes but excluding them for obesity management.
3. Formulary design: Encourage cost-effective alternatives like generics and biosimilars, which can be up to 90% less expensive than reference biologics, through curating lists of covered medications. With 72 biosimilars already approved in the U.S. and 97 more in development, the opportunity for savings is significant.
4. Utilization management: Ensure each prescription is appropriate, safe and cost-effective through human-led review of prior authorizations (PAs) and adherence to U.S. Food and Drug Administration (FDA) approval criteria.
5. New models: Employers facing rising costs due to high-cost specialty drugs and GLP-1s might consider innovative alternatives to traditional PBMs. They can look for tailored solutions that offer more transparent visibility into details such as drug-level pricing visibility, biosimilar-prioritized formularies, and accessible network options.

Rising drug costs create challenges, but partnering with pharmacy experts and adopting forward-thinking approaches can help employers strike the right balance between cost control and employee well-being.

The stakes are high, but with the right strategies in place, employers can combat rising drug costs effectively. After all, creating a sustainable pharmacy benefits plan isn’t just a necessary move – it's an investment in the health and future of the workforce.