Controlling Pharmacy Costs In Self-Funded Health Plans

A decade ago, prescriptions were a relatively steady slice of overall healthcare costs for employers that self-fund. But today, pharmacy is one of the fastest-growing parts of the healthcare budget, steadily outpacing other areas of medical spend and increasing pressure on self-funded plans. Such sustained increases alter the economics of employer-sponsored healthcare, compelling organizations to reevaluate how they manage pharmacy benefits.

The challenge isn’t just higher drug prices. Multiple factors are converging, including rising specialty drug use, increasing demand for GLP-1 medications, complex PBM (Pharmacy Benefit Manager) arrangements and costly gene and cell therapies. Without a clear strategy, pharmacy costs can overwhelm a self-funded plan.

Rising costs necessitate new approaches to managing pharmacy expenses effectively. The following strategies highlight practical steps employers can take to gain greater control over pharmacy spend.

Demand Transparency from PBMs

PBMs can be powerful allies or hidden cost drivers. They negotiate discounts, design formularies and manage specialty networks, but some practices quietly raise employer costs.

PBMs help employers save by:

Negotiating drug discounts and rebates that, when passed through, reduce plan costs
Designing formularies that promote generics, biosimilars and cost-effective step therapies
Providing access to specialty pharmacy networks that offer better pricing and patient support
Running clinical programs that improve adherence and reduce waste

On the flipside, PBMs can add hidden costs by:

Using spread pricing, charging the employer more than they reimburse the pharmacy
Keeping a portion of manufacturer rebates instead of passing them all back
Burying vague terms around pricing, rebates and audit rights in their contracts
Favoring higher-rebate drugs over more affordable, clinically appropriate options

Recent reforms require PBMs in many jurisdictions to disclose total rebate amounts and fees they collect and, in some cases, to pass through 100% of manufacturer rebates to health plans. But employers shouldn’t rely on regulators alone. Regularly auditing contracts, negotiating clear terms and working with transparent PBMs are practical ways to regain control.

Build Biosimilar-First Formularies

Specialty drugs now account for over half of pharmacy spend, despite being used by less than 2% of members. Biologics like Humira and Stelara have consistently ranked among the most expensive drugs for employer health plans, but FDA-approved biosimilars—highly similar to the original biologic and shown to have no meaningful differences in safety or effectiveness—offer a way to reverse this trend.

Employers can make biosimilars the default choice, support that decision with prescriber education and give members a reason to switch (such as lower copays). This results in meaningful savings without sacrificing quality of care.

Get Ahead of GLP-1 Utilization

Originally developed for diabetes, GLP-1s are now widely used for weight management, cardiovascular health and sleep apnea. But the price tags are steep. Employers that cover these drugs with no guardrails often find themselves facing runaway costs.

Smarter plans set clear coverage criteria, such as BMI thresholds or evidence of related health conditions, and pair drug access with coaching or behavioral health programs to support lasting results. Regularly checking whether the medication is being used as intended helps ensure these big-ticket prescriptions actually deliver value.

Tackle Specialty Spend with Multifaceted Controls

Gene and cell therapies are breakthrough treatments, but their six- and seven-figure costs can crush budgets. Even long-established specialty classes, such as autoimmune and cancer drugs, continue to skyrocket.

Employers are responding with a mix of strategies:

Prior authorization and step therapy to make sure expensive drugs are prescribed only when appropriate
Site-of-care optimization, moving infusions from hospitals to ambulatory centers or home settings, which can deliver substantial savings
Carving out specialty pharmacy benefits to vendors with stronger pricing, better patient support and manufacturer assistance coordination
Value-based contracting, where payments are tied to real-world outcomes rather than paying for every prescription filled

These approaches don’t eliminate specialty costs, but they can keep them from spiraling out of control while ensuring patients get the treatments they need.

Make Data Your Ally

Too often, pharmacy and medical claims live in separate silos. That blind spot hides the true drivers of cost. Employers that connect the dots gain a clearer picture: which members are at risk of high-cost claims, which therapies are about to impact budgets and whether PBMs are really delivering on their promises.

Having timely, accurate data is no longer optional. Employers that can view pharmacy trends in real-time are better positioned to step in early, compare options and make informed decisions about coverage, utilization and vendor performance. Instead of reacting after costs have ballooned, they can steer the plan proactively.

Looking Ahead: From Cost Control to Fiduciary Duty

The pharmacy landscape is evolving fast, shaped by regulation, new therapies and shifting market models. Employers also face growing fiduciary responsibilities under ERISA and state PBM oversight laws. The days of “set it and forget it” pharmacy benefits are over.

By insisting on transparency, leaning into biosimilars, managing GLP-1s responsibly, keeping specialty spend in check and leveraging data, plan sponsors can keep costs sustainable while ensuring employees have access to life-changing therapies.

Pharmacy will remain one of the biggest challenges in healthcare for the foreseeable future. However, with the right mix of transparency, strategy and vigilance, employers can protect their budgets while supporting the health and well-being of their people.