Your Drug Costs Are Growing Faster Than Everything Else in Your Health Plan. Here's What to Do About It.
Pharmacy just became the fastest-moving line on your benefits balance sheet — and most employers are still managing it with their eyes closed.
Kyle Kube
Founder, The Benefits CEO · June 23, 2026
The renewal calls happening right now are delivering the same message: medical trend is up, but pharmacy trend is running ahead of it. Reports this month consistently point to prescription drug costs as the single fastest-growing component inside employer-sponsored health plans. Specialty drugs — biologics, gene therapies, high-cost injectables — are a major driver. So is the quiet, compounding markup that lives inside most pharmacy contracts that employers never see.
If you're running a company with 50 to 500 employees, this isn't an abstract industry problem. It's a direct hit to your renewal number, and it's one of the few cost drivers where informed employers still have real leverage.
---
Why This Beat Finally Matters to Your Finance Team
For years, the conversation about benefits costs was mostly about medical — hospital networks, specialist utilization, surgery rates. Pharmacy was a line item, not a strategy.
That's over.
Specialty drugs now routinely account for a disproportionate share of total pharmacy spend, even when only a handful of employees are using them. One member on a high-cost biologic — a drug used to treat conditions like rheumatoid arthritis, Crohn's disease, or certain cancers — can move the entire plan's numbers in a year. Add in the expansion of GLP-1 medications (the class that includes drugs prescribed for diabetes management and weight-related conditions), and many employers are seeing pharmacy behave more like a volatile asset than a predictable operating expense.
The math has changed. Your strategy needs to catch up.
---
The Entity Most Employers Don't Understand: The PBM
A PBM — pharmacy benefit manager — is the intermediary that processes your employees' prescriptions. They negotiate with drug manufacturers, set the formulary (the approved drug list), and determine what your plan pays at the pharmacy counter.
Here's the tension: most employers don't choose their PBM directly. It's bundled into whatever fully-insured carrier or ASO (administrative services only) arrangement they're already on. The contract terms, the rebate structures, the spread pricing — all of that is negotiated by the carrier, not by you.
"Spread pricing" means the PBM charges your plan more for a drug than it actually pays the pharmacy, and keeps the difference. You may never see it.
"Rebates" are payments drug manufacturers send back to PBMs in exchange for favorable formulary placement. On paper, some of those rebates are supposed to flow through to your plan. In practice, how much flows through — and how it's calculated — varies enormously and is rarely transparent without a contract audit.
This is what "you can't manage what you can't see" means in practice.
---
Four Questions to Ask Before Your Next Renewal
You don't need to become a PBM expert. You need to ask better questions than your peers are asking. Start here:
1. What is our pharmacy spend as a percentage of total plan cost — and how has it trended over the last three years? If your broker can't hand you this number in ten minutes, that's a finding. Pharmacy should be its own line, not buried in aggregate claims data.
2. Are we on a pass-through contract or a spread-pricing contract? Pass-through means your plan pays the actual acquisition cost of drugs, and the PBM is compensated with a transparent admin fee. Spread pricing means the PBM makes money on the margin between what they pay and what they charge you. Knowing which model you're on is foundational.
3. How much in rebates did our plan receive last year — and what's the audit trail? Rebates can meaningfully offset pharmacy costs, but only if they're actually flowing back to your plan. Ask for documentation. If your carrier or broker can't produce it, escalate.
4. Do we have any specialty utilization, and what's our management protocol? If any employee is on a specialty drug, your plan needs a prior authorization process (a clinical review before the plan approves coverage) and ideally a specialty pharmacy arrangement that controls cost without disrupting care. Ask whether that infrastructure exists today.
---
What "Leverage Is a Function of Time and Information" Means Here
Most employers engage their broker 60 to 90 days before renewal. By then, the carrier has your claims data, has priced the risk, and is waiting on you. You're negotiating with less information, under time pressure, against a counterparty who does this every day.
The employers who are winning on pharmacy costs right now started the conversation six to nine months out. They requested a pharmacy claims audit. They asked their broker or consultant to model alternative PBM arrangements — including carve-out options, where the pharmacy benefit is managed separately from the medical benefit. They understood their specialty exposure before it showed up as a renewal surprise.
Benefits belong on the balance sheet. That means treating pharmacy costs the way your CFO treats any other significant vendor contract: with data, with lead time, and with the option to walk away.
---
One Move to Make This Quarter
If your renewal is in the next six months, request a pharmacy utilization report from your current carrier or TPA (third-party administrator — the company that processes your claims). Break out specialty spend from generic and brand spend. Identify your top ten drugs by cost.
That single exercise will tell you more about your plan's risk than most employers learn in three renewal cycles.
---
This content is produced by The Benefits CEO for general educational purposes only and does not constitute medical, legal, or tax advice. Benefits advisory and insurance services are provided by Think Insurance Group, a licensed insurance agency.