Pharmacy costs are rising faster than medical costs, faster than most employers budgeted for, and faster than the benefits industry has seen in living memory. But your clients probably don’t understand why.
For Rick Kelly, National Pharmacy Lead and Senior Vice President, Employee Health & Benefits at Marsh McLennan Agency (MMA) in Raleigh, North Carolina, the acceleration is the result of four forces colliding at once, and none of them are going away.
"The drug pipeline is very heavy specialty-focused," Kelly told Insurance Business Benefits. "The newer drugs coming onto the market are very expensive. They do amazing things, but they're very expensive."
Layer in worsening population health, rising cancer prevalence tied to longer life expectancy, and what Kelly calls a fundamental misalignment between pharmacy benefit managers (PBMs) and the employers they serve, and the picture sharpens into something alarming for self-funded plan sponsors trying to hold the line on costs.
"The surprise is less the acceleration itself and more the rate of acceleration," Kelly said. "People have been understanding and budgeting for pharmacy trend, but I think it's the rate of acceleration that's probably done the surprising."
"Employers understand what they're paying as it relates to what's coming out of their bank account," Kelly said. "But employers do not generally understand how most PBMs make money. And it's there that the misalignment comes in."
The major PBMs still operate largely on a spread model: they pay retail pharmacies one rate and charge the employer plan another, keeping the difference. On top of that, manufacturer rebates, once a relatively transparent pass-through, have been progressively carved up into marketing fees, distribution fees, and other line items that dilute what clients actually receive.
"The dollars got big and the PBM decided to say, let's chop this up - call some of it a rebate, some of it a marketing fee, some of it a distribution fee," Kelly said. "Even now, if they're paying most of the rebate to the client, not only are they keeping some, but there's a lot of other revenue that a client may naturally think should be in that rebate bucket that's not."
Kelly extended that critique to the broker community. Many consultants operate coalitions or consortiums with PBMs that he described as quasi-joint ventures - arrangements that create potential conflicts of interest at the client's expense. MMA's pharmacy practice, now roughly ten years old, was built without such arrangements from the start.
"Our clients never needed to wonder: are they recommending this because they have some sort of relationship or downstream compensation we don't know about?" Kelly said. "Every analysis we do, we have our fee as a separate line item. The client always knows here's what you're paying us, and here's what we've saved you."
On formulary design, Kelly made a point he regards as more important than headline rebate or discount rates: understanding how a PBM constructs its preferred drug list. Does it lead with biosimilars? The originator? Or a newer specialty product positioned as an originator replacement, carrying an equally high price tag?
"Just understanding how the PBM is building their formulary or preferred drug list is usually more important than asking what's your rebate or discount," he said.
No drug class has concentrated the pharmacy cost conversation more sharply than glucagon-like peptide-1 (GLP-1) receptor agonists. But the debate has so far focused on coverage or no coverage, clinical gates, and direct-to-consumer access.
What it has largely missed, Kelly says, is a workforce economics problem that changes the return-on-investment calculus entirely. Among MMA's employer clients, only about 18% now cover GLP-1s for weight loss.
"Clients who cover GLP-1s for weight loss, their annual expense as a company is typically more than their entire annual merit pool for their organization," Kelly said.
That commercial reality has driven most employers toward tighter clinical gating or outright removal of weight-loss GLP-1 coverage, often facilitating access instead through health reimbursement arrangements (HRAs) or by pointing employees toward direct-to-consumer programs run by manufacturers such as Eli Lilly and Novo Nordisk, channels that can undercut what PBMs charge for the same branded drugs.
But even for employers who believe GLP-1s may reduce long-term healthcare costs through improved metabolic health, Kelly raises a structural objection that has not received the attention it deserves.
"If you only have 12% employee turnover - which is low - you change your entire workforce over in six years," he said. "So you've got to sit there and say: am I taking the cost today and someone else is going to get the benefit? And as I'm fighting to be competitive in recruiting and retaining talent, which way is it actually going to allow me to win that battle?"
The long-term return-on-investment argument for GLP-1s assumes continuity: that the employees an employer covers today will still be on the plan when the downstream savings materialize. With average turnover at most organizations, that assumption is fragile. The employer absorbing the near-term cost may simply be funding health improvements that a competitor harvests later.
MMA is currently running cohort analysis on whether GLP-1 use for diabetes - distinct from weight loss - generates offsetting reductions in emergency room visits and other medical costs.
"In theory, that's what it should mean," Kelly said. "But the question is, sometimes the price point of a drug may be set at a level that the return on investment is hard to achieve, even though it's adding value to a person's life."
The GLP-1 debate has absorbed much of the industry's attention, but Kelly is equally focused on what is building underneath it. Cancer drugs are doing extraordinary things clinically, but the site of care where they are administered can produce a price swing that no employer plan has budgeted for.
"If they're infused in an outpatient hospital as opposed to a physician office or a home setting, that literally can be a five, eight, or ten-to-one price difference for the same infusion medication," he said. Specialty drugs for conditions such as cystic fibrosis, hemophilia, and dermatologics are further compounding the pressure, often entering markets where biosimilars exist alongside newer originator-like molecules that manufacturers introduce to defend their franchises.
Further out, Kelly flagged orexin-class sleep drugs - cited recently by Morgan Stanley as a potential next high-growth category - as a signal worth watching. "If you watch the stock prices of the different drug manufacturers, in the last two weeks we've seen one of the mid-size ones literally go up about 70% in a day," he said. "You can very easily then see what's coming down the pike."
With cost pressure intensifying across every line of pharmacy spend, Kelly sees the benefits broker's role evolving, but not in the direction some might expect.
Employee communication is essential, he acknowledges because as employers move toward a model of foundational coverage plus flexible HRA dollars (allowing employees to direct funds toward GLP-1s, infertility treatment, or out-of-network behavioral health on their own terms) clear, accessible guidance becomes critical. But so does something else.
"The very first critical role of a broker-consultant is to improve the financial performance of the employers they're working with through strategic benefit management," he said. "There are levers to pull to save money, or not know to pull, to cost more money without adding more value. First and foremost, we have to help them spend their capital wisely so they can actually take care of their people."
In a market where pharmacy costs outpaced medical trends by 2.5 percentage points in 2025, according to PwC's Health Research Institute, and where the pressure shows no sign of easing, that mandate has never been more urgent.
