Prescription drug coverage is a key part of most employer-sponsored health plans, and it is a growing one: pharmacy expenses reached 29.5% of total claim spending in 2025, up from 27.2% the year before, according to Benefitfocus data. But the options vary depending on the plan type and how the pharmacy benefit manager (PBM) is structured. In traditional models, employees get a tiered formulary, usually three or four tiers. Generics sit at the lowest copay. Preferred brands cost more; non-preferred brands cost even more. Specialty drugs get separate management, since a small share of prescriptions drives a large share of drug spending. Employers are getting fed up with opaque PBM pricing and ever-rising drug costs. Newer, more transparent options are emerging, like integrated pharmacy solutions such as WellthCare Pharmacy™, which align incentives with the employer and employee. WellthCare™, the first Health-to-Wealth™ Benefit System, extends this alignment beyond pharmacy to cover all preventive care, rewarding employees with store dollars and automatic retirement contributions for verified preventive health actions.
The Traditional Prescription Drug Coverage Model
Most employer health plans still rely on a standalone PBM. Under this model, employees choose from a network of retail pharmacies or use mail-order services. The standard features:
- Tiered Formularies: Drugs are grouped into tiers based on cost and clinical effectiveness. Generics (Tier 1) have the lowest copay. Preferred brands (Tier 2) are moderate. Non-preferred brands (Tier 3) are higher. Specialty drugs (Tier 4) often need prior authorization and come with high cost-sharing.
- Copay vs. Coinsurance: Some plans charge a fixed copay; others use coinsurance (a percentage of the drug's cost). Coinsurance is more common for higher-tier and specialty drugs.
- Deductible Integration: Many plans apply prescription drug costs to the medical deductible, so employees pay full price until the deductible is met. Others keep the pharmacy deductible separate.
- Mail-Order and 90-Day Fills: Employees can save money by ordering a 90-day supply via mail-order, often with lower copays.
- Prior Authorization and Step Therapy: To control costs, plans require prior authorization for certain drugs and step therapy, where a patient tries a cheaper drug first before moving to a more expensive one.
Limitations of the Traditional Model
There are real problems with the traditional PBM model. Spread pricing is a big one. That's where the PBM charges the employer more than it pays the pharmacy, pocketing the difference. Drug formularies are also often opaque, and rebates from manufacturers rarely flow back to employees directly. This misalignment means employees pay higher deductibles and copays, while employers absorb unpredictable cost spikes. A 2019 JAMA review estimated waste at $760 billion to $935 billion a year, roughly 25% of U.S. health spending, and pharmacy benefits carry a meaningful share of that waste.
Emerging Prescription Drug Coverage Options
Employers are now exploring alternative models to reduce costs and improve transparency. These alternatives are gaining traction:
1. Transparent PBM Models
Transparent PBMs pass all rebates and fees back to the employer. They charge a flat administrative fee instead of a spread. Employees still use the same network, but the employer sees full visibility into costs and savings.
2. Integrated Pharmacy Solutions (WellthCare Pharmacy™ Model)
Instead of outsourcing to a third-party PBM, some employers are moving toward integrated systems where the pharmacy is part of the broader benefits ecosystem. WellthCare Pharmacy™ does this by acting as the plan-designated pharmacy, with transparent cost-plus pricing that typically delivers 20–40% drug savings. The core features:
- Cost-Plus Pricing: Employers pay the pharmacy's acquisition cost plus a transparent markup, eliminating spread pricing.
- Personalized Medication Adherence: AI and real-time data send push reminders to take and reorder medications, supporting adherence and reducing waste.
- Direct Integration with Preventive Care Incentives: Employees earn store dollars for completing verified preventive actions, and program savings fund automatic retirement contributions, linking adherence to wealth.
- FSA/HSA Payment: Prescriptions filled through the integrated pharmacy can be paid for with FSA or HSA dollars.
3. Reference-Based Pricing
Some self-funded plans set a maximum allowable cost for each drug using a benchmark such as a percentage of the Medicare-allowed amount. Employees pay a fixed share, and the employer covers the rest. This model requires careful employee education but can cut costs.
4. Employer-Owned Pharmacies
Large employers or coalitions may set up their own mail-order or on-site pharmacies. This gives them full control over pricing and formularies but requires substantial investment in licensing, operations, and compliance.
How Prescription Drug Coverage Connects to Health and Wealth Benefits
Drug coverage shouldn't exist in a silo. Combined with a Health-to-Wealth system like WellthCare, it becomes part of a larger loop: preventive care reduces the need for expensive drugs, and when medication is needed, adherence earns real financial rewards. The WellthCare platform tracks verified preventive health actions, including medication adherence. Healthier employees cost the plan less, and they personally benefit through earned store dollars and growing retirement contributions.
What Employers Should Look for in a Drug Coverage Partner
Evaluate these factors when picking a drug coverage partner:
- Transparency: Does the PBM disclose all rebates, fees, and spread pricing? Can you see the actual acquisition cost of each drug?
- Alignment: Are the incentives structured so the PBM profits only when the employer saves money? Or does the PBM profit from higher drug prices and utilization?
- Integration with Preventive Care: Can the drug benefit be linked to preventive care programs, health-risk assessments, and financial incentives that reward verified health actions?
- Employee Experience: Is the pharmacy solution easy to use, with mobile reminders, auto-refills, and transparent cost-sharing? Does it help employees understand their options?
- Compliance and Data Safety: Does the system maintain compliance with ERISA, HIPAA, and ACA requirements? Is data used to personalize care without violating privacy?
Federal Rules Are Now Mandating PBM Transparency
The shift toward transparency now has a legal backstop. On February 3, 2026, the Consolidated Appropriations Act was signed into law, requiring PBMs to pass through 100% of rebates and other remuneration to the plan sponsor and to disclose their compensation to the employers who hire them. Most provisions phase in between 2028 and 2029. A separate proposed rule from the Department of Labor, issued January 30, 2026, would apply ERISA section 408(b)(2) to PBM compensation, requiring initial and semiannual disclosures covering manufacturer rebates, spread pricing revenue, and fees for self-insured group health plans. The DOL proposal would also give plan fiduciaries the right to audit those disclosures. Comments on it closed March 31, 2026, and the rule has not yet been finalized.
For employers, this changes the negotiating baseline. Transparency that once had to be won contract by contract is becoming a statutory requirement. The new rules do not guarantee lower prices; they make the money visible so fiduciaries can evaluate whether total pharmacy costs are falling.
The Future of Prescription Drug Coverage
The old PBM model with spread pricing is on its way out. Employers now want, and are getting, pharmacy solutions that are transparent, aligned, and integrated with health and wealth goals. The best options, like WellthCare Pharmacy™, go further: they tie medication adherence to store dollars and retirement savings. As more employers go self-funded and use data, drug coverage will shift from a cost center to a tool for better outcomes, lower costs, and stronger retirement security.
This article is for general information only and is not legal, tax, or medical advice. Employers should consult their own advisors.