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The Likely Fastest-Growing Line in Your Benefits Budget
Modern medicine has produced remarkable advances. Cancer therapies that were not available five years ago are now extending and saving lives. Treatments for autoimmune diseases, multiple sclerosis, and rare genetic conditions are giving employees and their families real options where few existed before. As an employer, providing access to these treatments through your benefit plan is one of the most meaningful things your organization does for the people who work there.
It also comes with a financial reality that every benefits decision maker needs to understand clearly. Over 25% of total employer health benefit expenses are now driven by prescription drugs, and within that figure, a small number of specialty drugs account for an outsized share of the cost. A single covered employee on an oncology therapy can generate $100,000 to $170,000 or more in annual drug spend. A handful of members on these treatments can represent a larger budget impact than the entire pharmacy spend of the rest of your workforce combined. The goal is not to restrict access to these medications. The goal is to understand how the system works, how costs flow, and how to structure your plan so that both your employees and your organization are best positioned for the long term.
This piece covers how the pharmacy benefit system works, how your plan’s tier structure determines who pays what, how stop-loss insurance interacts with high-cost drug claims, and what employers can do to manage this exposure thoughtfully.
The tier structure in the chart above reflects how plans already account for the cost complexity of specialty drugs. Tier 4, which is where specialty biologics and injectables are typically placed, carries significantly higher cost-sharing than the other tiers: an average employee copay of $123 and coinsurance requirements in 31% of plans. But Tier 4 behaves very differently from the other tiers. On Tier 1, 2, and 3 drugs, cost-sharing is relatively predictable and manageable. On Tier 4, the combination of high drug cost and percentage-based coinsurance can generate out-of-pocket exposure that approaches or exceeds a patient’s annual out-of-pocket maximum in a single month of therapy. How Tier 4 is structured, what controls are in place, and how the plan manages cost is one of the most consequential design decisions an employer makes.
Understanding Your Benefit Plan’s Pharmacy Options
How Pharmacy Benefit Managers Work
Most employer health plans do not manage pharmacy benefits directly. That function is delegated to a Pharmacy Benefit Manager, or PBM, which acts as the intermediary between the health plan, the pharmacy, and the drug manufacturer. The PBM builds and maintains the formulary, negotiates drug prices and rebates with manufacturers, contracts with pharmacy networks, and processes pharmacy claims. The three dominant PBMs, Express Scripts (owned by Cigna), CVS Caremark (owned by CVS Health / Aetna), and OptumRx (owned by UnitedHealth Group), together manage the pharmacy benefits of approximately 80% of covered lives in the United States. Each is affiliated with a major carrier, meaning that employers who use an ASO medical arrangement often default to the carrier’s affiliated PBM without realizing it. Independent PBMs such as Capital Rx, Navitus, and MedOne Pharmacy Benefit Solutions operate on transparent, pass-through pricing models that return all rebates to the plan rather than retaining them as PBM revenue. PBMs are compensated through administrative fees, spread pricing (charging the plan more than the pharmacy receives and keeping the difference), manufacturer rebates in exchange for formulary placement, and specialty pharmacy margin. For any employer managing meaningful specialty drug spend, understanding which of these revenue sources applies to your contract is essential.
How Drug Tiers and Cost-Sharing Work
Every pharmacy benefit plan organizes covered drugs into tiers, with cost-sharing that increases as you move from Tier 1 generics (avg. $12 copay) through Tier 2 preferred brands ($40), Tier 3 non-preferred brands ($71), and into Tier 4 specialty drugs ($123 copay, with coinsurance in 31% of plans). The tier placement of a drug affects both what the employee pays and, indirectly, what the plan pays, since tier placement drives utilization patterns. Plan sponsors have real levers here: step therapy (requiring a patient to try a lower-cost drug first), prior authorization, specialty pharmacy channel mandates, and formulary exclusions all affect Tier 4 cost without eliminating clinical access. These controls require balancing cost management with the reality that for many specialty drugs, no lower-cost alternative achieves the same clinical outcome.
How Stop-Loss Insurance Interacts with High-Cost Drug Claims
For self-funded employers, specialty drug claims are now among the most common triggers for individual stop-loss reimbursement. A single employee on a cancer therapy or rare disease treatment can generate pharmacy claims that exceed the plan’s specific stop-loss deductible, which averages $141,938 nationally for self-insured plans, within a single plan year. The mechanics: the employer pays all claims up to the deductible threshold, and the stop-loss carrier reimburses costs above it. Several dynamics are specific to high-cost drugs. At renewal, stop-loss carriers may laser a known high-cost member by raising their individual deductible or excluding them from coverage. Some carriers now specifically carve out GLP-1 medications or other high-utilization drug categories from stop-loss reimbursement, so employers adding new drug coverage should verify what their contract covers. Specialty drugs can also be administered under either the pharmacy benefit or the medical benefit depending on whether they are self-administered or clinic-administered, and some stop-loss contracts apply different terms to each channel. Employers should model their actual specialty drug cost distribution against their stop-loss deductible at every renewal to understand where the plan’s real exposure sits.
The Costliest Specialty Drugs: What They Treat and What They Cost
The chart below shows the highest-cost specialty and biologic drugs by average cost per patient, ranked from most to least expensive. Cancer therapies dominate the top of the list, but treatments for autoimmune conditions, MS, and inflammatory disease also appear, reflecting how broadly specialty drug spending is distributed across a workforce.
- Darzalex Faspro (daratumumab/hyaluronidase) | $170,800 avg. annual cost per patient. Janssen (J&J). Multiple myeloma, a blood cancer. The highest-cost drug on the list by average patient cost. The subcutaneous formulation allows home administration, increasing the likelihood it flows through the pharmacy benefit rather than the medical benefit.
- Keytruda (pembrolizumab) | $158,200 avg. annual cost per patient. Merck. FDA-approved across more than 40 cancer indications including lung, melanoma, head and neck, and bladder cancers. One of the most prescribed oncology drugs globally and one of the most common high-cost pharmacy claims in large employer plans.
- Yervoy (ipilimumab) | $149,800 avg. annual cost per patient. Bristol-Myers Squibb. Melanoma and in combination with Opdivo for lung and other cancers. Combination Yervoy plus Opdivo therapy is among the highest per-patient drug cost regimens in common use.
- Enhertu (trastuzumab deruxtecan) | $139,800 avg. annual cost per patient. AstraZeneca / Daiichi Sankyo. HER2-positive and HER2-low breast and gastric cancers. A significant recent clinical advance for patients with cancers that previously had limited options after first-line treatment.
- Opdivo (nivolumab) | $135,600 avg. annual cost per patient. Bristol-Myers Squibb. Melanoma, lung, kidney, bladder, and other cancers. Frequently used in combination with Yervoy, compounding cost significantly when both are prescribed together.
- Ocrevus (ocrelizumab) | $106,200 avg. annual cost per patient. Genentech. Relapsing and primary progressive multiple sclerosis. MS therapies are a persistent specialty drug cost driver because patients remain on therapy for years, making each diagnosed member a multi-year plan cost.
- Entyvio (vedolizumab) | $56,600 avg. annual cost per patient. Takeda. Moderate-to-severe Crohn’s disease and ulcerative colitis. Inflammatory bowel disease therapies are among the most common specialty drug claims in employer plans because the conditions are prevalent in working-age adults.
Biosimilars: The Cost Opportunity Most Employers Are Not Fully Using
A biosimilar is a biologic drug that is highly similar to an already-approved reference biologic, with no clinically meaningful differences in safety, purity, or potency. Biosimilars are not generic drugs in the traditional sense, because biologic drugs are complex proteins manufactured from living cells and cannot be chemically replicated exactly. But they go through an FDA approval pathway that confirms their clinical equivalence to the reference product, and they cost significantly less. The biosimilar market has expanded rapidly as major biologic patents have expired. Humira, the world’s best-selling drug for much of the past decade, now has multiple biosimilar competitors in the U.S. Stelara has followed. The oncology biosimilar pipeline is maturing, with more approvals expected in the next two to three years.
The chart above shows what biosimilar substitution looks like in dollar terms. For Humira, the net price after rebates and negotiated discounts is $2,370 per box. The biosimilar Yusimry has an estimated net price of $635, a 73% reduction. For Stelara, the reference drug net price is $7,636 per box. The biosimilar Starjemza has an estimated net price of $4,010, a 47% reduction. For an employee on monthly Humira therapy, the difference between the reference drug and the biosimilar is approximately $21,000 per year in net plan cost. For a Stelara patient, the annual difference is approximately $43,500. Across even a small number of members on these therapies, biosimilar substitution is one of the highest-return cost management interventions available.
Plan sponsors have four main tools to drive biosimilar adoption: preferred formulary placement (putting the biosimilar on a lower tier and the reference drug on a higher tier), step therapy for new patients, automatic substitution where state law permits, and formulary exclusion of the reference drug entirely. The most important variable in any biosimilar strategy is whether your PBM has a financial incentive to keep the reference drug preferred. A PBM earning a large rebate on Humira has a direct financial reason to keep Humira on the preferred formulary, even when the biosimilar costs the plan less on a net basis. Independent PBMs operating on pass-through pricing remove this conflict entirely, because all rebates return to the plan and formulary decisions are made without a competing financial interest.
What Employers Should Be Asking About Their Pharmacy Benefit
High-cost drug management requires active decisions about PBM contract structure, formulary design, specialty pharmacy strategy, and stop-loss alignment. The questions worth asking at every renewal:
- Is your PBM contract pass-through or spread-based? A pass-through model means you pay exactly what the pharmacy receives and all rebates come back to the plan. A spread-based model means the PBM earns revenue that is not visible in the administrative fee. Request full compensation disclosure under the CAA requirements.
- Are you receiving all available biosimilar savings? Ask your PBM for a net cost comparison of each reference drug plus rebate against the available biosimilar net price. The answer will tell you whether your formulary is designed around the plan’s cost interest or the PBM’s rebate interest.
- What is your specialty drug channel strategy? Are specialty prescriptions being filled through your PBM’s affiliated specialty pharmacy? Carving specialty to an independent pharmacy or using a white-bagging program for clinic-administered drugs can generate meaningful cost differences.
- How does your stop-loss deductible interact with your specialty drug exposure? Model your actual specialty drug claims against your stop-loss threshold. If most of your high-cost drug claims fall below the deductible, the plan is absorbing those costs without triggering reimbursement.
- Does your formulary have appropriate Tier 4 controls? Step therapy, prior authorization, and quantity limits on specialty drugs reduce cost without eliminating clinical access. Without these controls, high-cost therapies can be approved and dispensed without any plan-level review of whether a lower-cost alternative exists.
Know How Your Pharmacy Benefit Compares
Pharmacy is now one of the two or three most consequential cost management decisions in health plan design. The employers managing it well are not restricting access to the medications their employees need. They are ensuring that the structure of the benefit, the PBM contract, the formulary design, and the stop-loss coverage work together in the plan’s interest, and that every dollar spent on high-cost drugs is spent as efficiently as possible.
Mployer’s benefits rating evaluates pharmacy benefit design as part of the Medical pillar score, benchmarked against a custom cohort matched by size, region, and industry. Knowing where your pharmacy benefit stands relative to employers who actually look like you is the starting point for making better decisions.
See how your benefits package compares to your custom cohort at MployerAdvisor.com.
Sources
Mployer Insights: Average Spend by Setting, Prescription Structure, and High-Cost Specialty Drugs. Source: Mployer Insights analysis.
MedOne Pharmacy Benefit Solutions: Biosimilar substitution impact data for Humira/Yusimry and Stelara/Starjemza. MedOne is a leading independent PBM focused on improving health outcomes and reducing net costs for self-funded employers. [email protected].
Mployer 2025 and 2026 Employee Benefit Plan Design Study, covering 50,000+ employer plans. Individual stop-loss avg $141,938 self-insured.
Consolidated Appropriations Act of 2021, Section 202: broker/consultant compensation disclosure requirements for group health plans.
FDA Biosimilar approval framework: 42 U.S.C. Section 262(k).
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