The cost of GLP-1 medications to group health plans continues to increase rapidly as FDA approval expands and the percentage of participants and beneficiaries taking GLP-1 medications rises. This trend is creating significant financial pressure for plan sponsors, prompting a reevaluation of how GLP-1 medications for weight loss are covered. We previously discussed the balance between providing GLP-1 coverage and cost containment in our blog.
There is growing buzz around a new approach to GLP-1 coverage: removing GLP-1 coverage from the traditional pharmacy benefit manager (“PBM”) reimbursement model and instead reimbursing employees for GLP-1s through a direct-to-consumer or “carve-out” model tied to a utilization management program. The model is typically structured as follows:
- GLP-1 medications are excluded from the plan’s formulary for weight loss.
- Participants must enroll in and actively participate in the plan’s weight management program to obtain a GLP-1 prescription. The weight management program will determine whether to approve a GLP-1 prescription and monitor ongoing medical necessity and engagement with the program.
- Participants fill prescriptions through direct-to-consumer pharmacies and pay the lower direct-to-consumer price for the medication.
- The plan reimburses some or all of the drug cost through an HRA-style arrangement or through the plan’s manual claims procedures.
The concept works because GLP-1s are one of the few prescription drug categories with a robust direct-to-consumer market. It is unclear, however, whether increased contractual and operational costs will offset the savings from lower direct-to-consumer prices.
PBM Contract Risks and Exclusivity Concerns
Many PBM agreements include exclusivity provisions that require all prescription drug coverage – and often related programs – to flow through the PBM.
A primary question for plan sponsors to consider is whether the PBM will permit GLP-1 drugs to be removed from the formulary. In many cases, PBM agreements do not permit deviations from the formulary, and removing drugs from the formulary may jeopardize negotiated pricing guarantees not only for GLP-1 medications but for all drugs on the formulary. Before pursuing any direct-to-consumer reimbursement model, plan sponsors should closely review their PBM agreements and engage counsel early to assess any risk.
Some PBMs also have their own internal weight management program or a partnership with an outside service provider to manage medical necessity review and utilization management for GLP-1 coverage. Using a weight management vendor different from the one offered through the PBM may breach the terms of the plan’s PBM agreement or void certain pricing guarantees.
Is the Direct-to-Consumer Reimbursement Model an HRA?
The direct-to-consumer reimbursement model in many cases constitutes a health reimbursement arrangement (“HRA”), even when the program is not labeled as such. Plan sponsors implementing one of these programs should ensure it is properly documented.
Typically, an employer introducing a direct-to-consumer model will do so through an HRA integrated with its group health plan. To comply with the ACA’s annual dollar limit and preventive care rules, an HRA that reimburses GLP-1 costs must be “integrated” with a major medical plan that meets minimum value requirements. When a program is integrated, it also benefits from the plan’s existing framework for compliance with ERISA, COBRA, and other applicable requirements. However, employers must still assess how the added program affects these obligations. If the integrated group health plan meets the minimum value requirement, the HRA can be used to reimburse the cost to purchase GLP-1 medications on a pre-tax basis.
Under this structure:
- The employer must sponsor an ACA-compliant group health plan;
- The HRA must be available only to employees (and, if applicable, their spouses or other dependents) who are enrolled in a group health plan (the employer’s plan or, if permitted by the plan, a spouse’s plan);[1] and
- Employees must be offered the opportunity to opt out of and waive future reimbursements from the HRA.
There are no specific annual reimbursement limits for integrated HRAs, but the plan sponsor should consult legal counsel to ensure the plan’s structure complies with the IRS prohibition against discrimination in favor of highly compensated individuals.
Carve-Out Program Approach
A carve-out program approach, as opposed to an HRA approach, carves out GLP-1 medications from the formulary so that the PBM no longer processes claims for GLP-1 coverage, while allowing GLP-1 coverage through the plan outside the PBM arrangement.
Participants would obtain a prescription typically through the group health plan’s weight management program, fill their prescription through a direct-to-consumer pharmacy, and then submit a claim for reimbursement under the group health plan’s manual claims procedures.
Since the GLP-1 medications would still be covered under the plan, but not through the PBM, this option is likely to require a waiver of any exclusivity provisions under an applicable PBM agreement.
High-Deductible Health Plans (“HDHP”) and HSA Compatibility Issues
Plan sponsors offering an HDHP benefit option under their group health plan need to be especially cautious when considering GLP-1 direct-to-consumer models because, depending on the model’s structure, the reimbursement could be considered impermissible coverage, rendering the employee ineligible to contribute to their HSA for the year.
HDHPs can provide preventive care benefits without a participant first meeting their deductible, without jeopardizing HSA eligibility. IRS guidance has acknowledged that medications used as part of an obesity weight-loss program can be considered preventive care. Any medication intended to treat an existing condition, however, would not be considered preventive care. The issue for GLP-1 medications is that individuals are often prescribed GLP-1 medications to treat an underlying medical condition in addition to weight loss, such as treatment of diabetes, cardiovascular disease, or obstructive sleep apnea related to obesity. In these cases, the GLP-1 may not constitute preventive care, and coverage for the GLP-1 without the participant first meeting their deductible could jeopardize the participant’s HSA eligibility.
Plan sponsors that wish to offer GLP-1 direct-to-consumer models to participants enrolled in an HDHP will need to work with counsel to carefully structure the program to prevent unintended consequences for participant HSA eligibility.
HRA Approach
If an integrated HRA reimburses non-preventive expenses before the HDHP deductible is met, participants could lose HSA eligibility. To avoid this outcome, the HRA must either limit reimbursements to GLP-1s that constitute preventive care or restrict reimbursements until the participant has satisfied their deductible under the HDHP. Failing to address this issue could inadvertently disqualify employees from contributing to an HSA.
Carve-Out Approach
For the carve-out coverage model, the plan would need to manually apply the copay accumulators and apply the deductible for HDHP coverage.
Bottom Line
Direct-to-consumer GLP-1 reimbursement programs offer a promising alternative to traditional coverage, but implementation could be challenging and may not deliver the cost savings plan sponsors anticipate. Plan sponsors may need to navigate PBM contracts, ACA compliance, HRA rules, and HDHP coordination concerns before implementing one of these programs.
For organizations considering this shift, careful planning and coordination between benefits teams, legal counsel, and vendors are critical to balancing cost containment with compliance.
