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Key Takeaways:
The Ozempic, Semaglutide, and GLP-1 Problem For Employers
Since the Food and Drug Administration first approved semaglutide (a type of GLP-1 drug) as an injectable weight loss medication in 2021, the demand for brand name versions like Ozempic and Wegovy has skyrocketed. With skyrocketing demand has come skyrocketing prices, however, and neither the demand for these prescriptions nor their price points appear likely to come down any time soon.
Much of the demand for these drugs is a direct result of just how effective they have been, at least in the short term. What remains to be seen is how effective these medications will ultimately prove to be in reducing the incidence of tangential, obesity-related conditions in the long term, and what range of associated healthcare cost savings can be expected as a result.
This represents the central dilemma of semaglutide coverage, which is whether the uncertain future benefits justify the substantial upfront costs.
Further complicating the issue is the uncertainty surrounding future benefits. These are amplified for employers, which also have to account for turnover risk when weighing long-term investments in the health of employees who may no longer be with the organization by the time those benefits are realized.
Taken together, these factors are inspiring an increasing number of employers to rethink their approach to semaglutide coverage and how it fits into their larger organizational mission, not just in terms of their health plans but also in terms of talent attraction, retention and workforce management.
Employer Semaglutide and GLP-1 Coverage By The Numbers
According to the Kaiser Family Foundation (KFF), only about 18% of all large firms (defined here as those with 200 or more employees) offered semaglutide and/or other similar GLP-1 medications for weight loss purposes in 2024.
The proportion of employers offering these medications tends to increase as employer increases in size as well, with KFF’s data indicating that about 16% of employers that have between 200 and 999 employees offering semaglutide and/or other GLP-1 coverage for weight loss, while 24% of employers with between 1,000 and 4,999 employees cover these prescriptions, and 25% of employers that have 5,000 or more employees do so.
Data from Mercer, on the other hand, points to much more widespread adoption of GLP-1 medication for weight loss, with 44% of large employers (defined here as those with 500 or more employees) offering semaglutide and/or GLP-1 coverage in 2024 - a 3% increase up from 41% in 2023. An even larger proportion (64%) of the largest employers (defined here as those with 20,000 or more employees) covered these medications in 2024, up from 56% in 2023 representing 8% year-over-year growth.
Although these figures do not allow for an apples-to-apples comparison, they clearly represent a fairly wide coverage range, with KFF reporting much lower rates of semaglutide and GLP-1 coverage than Mercer, but this data discrepancy can perhaps be explained in part by the 31% of KFF survey respondents who stated they did not know whether their employers largest health plan covered these medications for weight loss treatment.
The International Foundation for Employee Benefit Plans (IFEBP) survey was somewhere in between KFF and Mercer, estimating that about 34% of US employers (no employee count specified) offered GLP-1 drugs for weight loss purposes in 2024, which is up 8% from 26% in 2023.
Data from the same IFEBP survey indicates that GLP-1 drug costs as a proportion of total annual claims are increasing, with GLP-1 expenses accounting for an average of 8.9% of total annual claims for US employers, up from 6.9% in the 2023 survey.
In total, 21% of employers reported that GLP-1 medications were responsible for 2% or less of total claims, while 47% of employers reported that GLP-1 medications amounted to 10% or more of total annual claims.
Rising GLP-1 Costs Lead To Health Plan Changes
Demand for these medications has led to substantial financial losses according to data released by a number of entities in the healthcare industry that are all telling very similar stories about how semaglutide and GLP-1 prescriptions for weight loss are affecting their bottom lines.
Many insurers took a GLP-1-related hit last year, for example, Blue Cross and Blue Shield of Massachusetts recorded losses amounting to nearly $115 million dollars just in the first 3 quarters of 2024, which corresponded with an approximate 250% increase in GLP-1 claims over the same period.
Hospital systems were comparably affected, for example, UPMC out of Pittsburgh posted an even larger loss of about $370 million over the same term, which it attributed to increased medical utilization and pharmacy costs, while Highmark Health - also of Pittsburgh - despite avoiding operational losses, reported a significant decline in operating gains in 2024 relative to 2023, which administrators blame on high prescription drug costs - most notably GLP-1s.
According to the Chief Pharmacy Office at UPMC, the “costs are unsustainable” due to the “explosion in demand” and many organizations are implementing additional cost controls in an attempt to suppress some of these quickly ballooning expenditures.
For insurers and care providers alike - the path forward of least resistance seems to involve increased prior authorization in the short term while the supply chain becomes better capable of meeting demand over time.
But for employers who must also take into account the role that their health plans play in terms of talent attraction and retention, controlling costs via adding additional obstacles and further limiting access to an increasingly popular weight loss option can be counterproductive and risk increased turnover.
How Are Employers Adapting?
These high cost and high demand dynamics have led to two separate trends among US employers - some employers are dropping GLP-1 coverage for weight loss and others are expanding GLP-1 coverage for weight loss, and the difference is largely driven by how one calculates and weighs the potential long-term health benefits in the cost-benefit analysis.
Even for employers betting that the potential long-term health benefits associated with GLP-1 utilizations and weight loss - including reduced risks for cardiovascular and kidney disease - will ultimately outweigh the substantial upfront costs, those rising upfront costs are becoming problematic.
In a previous piece covering semaglutide and other GLP-1 medication, we discussed some of the ways that employers are adapting in order to offer these drug treatments to employees without exposing the health plan to out-of-control costs, including implementing lifetime caps, minimum BMI caps, and limiting access to cheaper GLP-1 options:
Just as many private health insurers may come to increasingly rely on prior authorization and reduced access to these prescriptions to rein in costs, many employers may likely implement similarly tightened restrictions over the next few years.
While reducing the number of potential employees with access to these medications can be an effective safeguard against overrun expenses, it also limits how effective those health plans may be as talent retention and attraction tools.
Should the popularity of GLP-1 treatment for weight loss maintain its current trajectory, the next evolution of GLP-1 access for self-insuring employers may involve both restricted access for employees based upon qualifying criteria (e.g. BMI threshold exceeded, payment cap not exceeded, etc.) and also expanded access in the form of perks or incentives for employees who do not otherwise qualify for coverage.
What Comes Next?
Access to some GLP-1 drugs is already starting to improve as a result of pharmaceutical and insurance companies exploring new cost-saving approaches and proactively working with legislators to bring down some of these expenses.
Just a few months ago in December 2024, for example, drugmaker Eli Lilly teamed up with a telehealth platform to offer a non-semaglutide GLP-1 alternative for weight loss directly to consumers for less than half the price that Ozempic and Wegovy in many cases.
Drugmakers are also making significant headway in developing and releasing generic versions of GLP-1 medications, with the FDA approving the first 2 generic GLP-1 drugs in November and December 2024, respectively, although neither of those drugs has weight-loss-specific uses.
It will still be a while before generic semaglutide medication becomes available, as it most likely won’t hit the market for another 5 or 6 years in 2030 or 2031.
There is a $4.1 billion facility in the works where significant quantities of Ozempic and Wegovy can be manufactured, which will increase the available supply of these drugs and hopefully bring down the sticker price, but it will be at least 3 or 4 years before these products would be available.
On the public front, the Department of Health and Human Services recently added both Ozempic and Wegovy to the list of drugs covered under Medicare Part D which will be subject to price negotiations in 2025. Although these negotiations won’t directly apply to prescription prices for private buyers, they may still set a benchmark that results in lower prices across the board. Even then, the new Medicare prices and any related private market impacts won’t come to be for another 2 to 3 years in 2027 or 2028.
In short, there are a number of potential changes in the supply chain that are likely to reduce upward pressure on prices for semaglutide and GLP-1 medications in the years ahead, but that supply-side price relief may not come all at once and could even conceivably be outpaced and canceled out by upward price pressure due to growing demand.
Mployer’s Take
The effectiveness of some GLP-1 medications as a weight loss drug has been pretty clear for several years, though the long-term tangential benefits of GLP-1-assisted weight loss will likely take another 5 to 10 years, at least, to be more fully assessed. Additionally, it will likely also take 5-plus years before the GLP-1 weight loss prescription costs normalize and find their equilibrium in the market.
As a result, there is a potential 5-plus year window of uncertainty before the cost-benefit uncertainty is effectively settled. With employers currently split and trending in diverging directions around their coverage of GLP-1 for weight loss, there is an opening for employers to establish a significant advantage over competitors who approach GLP-1 coverage differently.
Given that some studies are already showing significant healthcare cost savings associated with tangential GLP weight loss benefits, however, the odds that long-term benefits exceed the short-term costs of covering GLP-1 weight loss medication seem to be going up.
For example, one study found that GLP-1 use for weight loss across approximately 2,000 patients with heart failure and/or specific cardiovascular diseases reduced annual healthcare expenditures by $7,500 to around $9,000 dollars per person.
The opportunity for those kinds of cost savings makes GLP-1 coverage seem like an easy choice for employers.
At the same time, however, it is easy to see why employers that focus on short-term costs and/or the scope of the potential demand want to severely restrict access to these medications for weight loss purposes if not eliminate coverage entirely.
That perspective is especially understandable considering that more than half of US adults could be eligible for GLP-1 use either for diabetes, obesity, or heart conditions - the overall population who may want/need access to these drugs is large enough to be cause for concern for any payer - even those as large and well-funded as the US government.
Demand calculations based on the total number of potentially eligible, qualifying candidates that could benefit from any given medication, however, are not necessarily fair reflections of demand.
One recent Morning Consult poll, for example, found that 62% of respondents claimed they would rather make a diet change than use an injectable weight loss drug in order to lose weight, and that preference was even stronger among certain demographics, including men, baby boomers, residents of the Northeastern part of the country, post-graduate degree holders, and people earning more than $100,000 annually.
People can and do change their minds, of course, and there are certainly many people who may come around to the idea of utilizing GLP-1 as the user base grows and the effectiveness of the drugs becomes more apparent.
However newfound perspectives do not often emerge in mass overnight, and the process of millions of individuals reevaluating a personal position and reversing course takes time, just as increasing the supply of these drugs takes time and just as collecting evidence on long-term cost savings takes time.
In light of those potential long-term healthcare savings and the encouraging numbers we’ve seen on that front so far, however, assuming that demand doesn’t spike in line with worst-case scenario forecasts over the next few years, the trend toward covering semaglutide and GLP-1 for weight loss purposes with some restrictions seems likely to pick up momentum barring unforeseen events.
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