Pharmacy Benefits Are Changing – Is Your Plan Ready?

Pharmacy Benefits Are Changing – Is Your Plan Ready? Many employer health plans appear financially stable – until they aren’t. Like the weather, conditions can look calm, then change quickly. One year, pharmacy costs may track closely with expectations. The next, a handful of high-cost prescriptions or a newly approved therapy can drive spending higher.

A new report cited by SHRM shows that organizations expect health care costs to increase by 10% in 2026. A significant part of this growth is being driven by newer weight-loss and diabetes treatments, particularly GLP-1 medications such as Ozempic, Wegovy, Mounjaro, and Zepbound. These therapies can cost hundreds to thousands of dollars per patient each month.

With healthcare costs climbing and new therapies emerging, keeping pharmacy benefits under control has never been more important.

Understanding how pharmacy coverage is structured is the first step toward managing that risk.

Most pharmacy plans operate using a tiered formulary structure that determines how medications are priced and how costs are shared between the plan and the member. And while the framework may seem straightforward, each tier plays a different role in overall plan spending.

Generic medications, often referred to as Tier 1 medications, provide the same treatment and effectiveness as brand-name drugs but at a lower cost. As the most cost-effective option on a health plan formulary, employees generally pay the lowest copay when using them.

These drugs are FDA-approved equivalents, so plan sponsors can manage costs without sacrificing quality of care. Using generic medications is one of the most effective ways employers can control pharmacy costs while maintaining appropriate care.

Preferred brand medications represent the next tier. These are brand-name drugs that the Pharmacy Benefit Manager (PBM) has negotiated more favorable pricing for. While more expensive than generics, they are generally positioned as the most cost-efficient brand-name options available within the plan.

These medications typically come with moderate copays and have rebates built into the pricing. While they offer important treatment options and cost efficiency for certain conditions, careful management of Tier 2 utilizations can help ensure these medications are used appropriately, and costs remain controlled.

Medications that can drive plan spending.

Non-preferred brand medications, tier 3, are higher-cost brand-name drugs that either have lower negotiated discounts, have generic or preferred alternatives available, or sit outside the PBM’s preferred formulary structure. These medications typically come with higher copays or coinsurance and are often subject to prior authorization or step therapy. Because of their cost and formulary placement, non-preferred brands can quietly drive plan spending if utilization and coverage are not monitored.

At the top of the cost structure – tier 4 or 5 – are specialty medications. These therapies treat complex or chronic conditions such as cancer, autoimmune disorders, multiple sclerosis, and rare genetic diseases. They usually require injection, infusion, specialized storage, or clinical monitoring.

The financial impact of these medications can be substantial. Annual costs for specialty medications frequently range from $50,000 to more than $500,000 per patient. Drugs used in oncology, autoimmune treatment, and emerging gene therapies are pushing the upper limits of pharmacy spend. For self-funded employers in particular, even a single claimant using one of these therapies can significantly alter a plan’s financial performance in a given year.

Some specialty medications that can significantly impact employer plans include:

• Oncology infusions such as Keytruda (pembrolizumab)
• CAR-T cell therapies like Yescarta
• Autoimmune biologics such as Humira
• Multiple sclerosis treatments like Ocrevus
• Gene therapies such as Zolgensma

Why this matters for executive leadership.

Although specialty medications are typically used by fewer than two percent of plan members, they can account for half of total pharmacy spending.

When specialty claims emerge unexpectedly, or formulary management isn’t optimized, the financial ripple effects can extend beyond the pharmacy line of the budget. Without active management, employers could see unexpectedly large claims, increased stop-loss pressure, higher renewal rates, and make long-term cost forecasting more difficult.

HR leaders often experience a different side of the challenge. Complex authorization requirements and high coinsurance can create confusion or frustration for employees trying to access needed medications. What begins as a financial challenge at the plan level can quickly become an employee experience issue.

Effective pharmacy management requires more than simply partnering with a Pharmacy Benefits Manager (PBM).

For many employers, PBMs have long been the standard approach to managing prescription drug costs, but the complexity and opacity of today’s pharmacy landscape make it important to take a closer look.

Complex contracts, rebate structures, and PBMs that own or control pharmacies can make it difficult to see where savings are coming from or ensure the plan is fully optimized. As costs continue to rise, employers need to start taking a proactive approach to reviewing how their pharmacy benefits are structured and managed.

To help, employers should understand:

• Is the plan maximizing generic utilization?
• Are biosimilars being adopted when available?
• What specialty pharmacy network controls are in place?
• Is site-of-care optimization being enforced for infusions?
• Are manufacturer assistance programs properly coordinated?
• Is the PBM contract transparent regarding rebates and spread pricing?
• Are high-cost claims being proactively managed before renewal?

Even small structural adjustments in these areas can produce significant savings – sometimes reaching six figures annually.

Caring for employees without breaking the budget.

Your people deserve the best care possible, and as a fiduciary, you’re responsible for making sure your benefits program delivers that while keeping costs under control. Like packing an umbrella to take on a picnic, being prepared ensures your employees get the care they need – no matter what comes their way.

If your organization hasn’t recently evaluated the structure and performance of its pharmacy benefit, now may be the right time to take a closer look.

At Conner Insurance, we help employers:

• Conduct in-depth pharmacy contract and formulary reviews
• Identify specialty cost containment opportunities
• Evaluate alternative funding models
• Improve transparency and rebate alignment
• Mitigate large-claim exposure

We welcome the opportunity to perform a comprehensive review of your current pharmacy structure and identify practical opportunities for savings within your existing plan.

Healthcare costs aren’t slowing down – but with the right strategy, they can be controlled.

Contact us today!

Cost figures, coverage details, and plan design elements presented in this blog are for illustrative purposes only and do not reflect any specific insurance policy or provider. Actual costs will vary based on your organization’s health plan, the insurance carrier, provider contracts, and the specifics of each medical situation. Employers and employees should refer to their official plan documents or speak with their broker or benefits consultant for guidance if needed.