How Rx headwinds are reshaping plan design

As health plan sponsors prepare for 2026 open enrollment, they face familiar concerns of rising claims trends and labor costs, while also confronting new ERISA litigation risks tied to pharmacy benefit manager (PBM) contracts. A consistent theme runs through these challenges: Increasing and opaque costs charged by vendors that must ultimately be borne by employers and employees.

Three recent ERISA cases have alleged that plan sponsors breached fiduciary duty in the management and design of prescription drug benefit contracts. In Lewandowski v. Johnson & Johnson, Knudsen v. MetLife Group and Navarro v. Wells Fargo, plan participants asserted that fiduciaries failed to ensure prescription drug prices under health benefit plans were reasonable. 

While plan sponsors are generally aware of the Consolidated Appropriations Act (CAA) of 2021 pharmacy reporting requirements intended to enhance price transparency, many do not realize that fiduciary breach litigation is now targeting health plans in the same manner as prior ERISA suits over 401(k) investment fees. Although one case (Navarro) has been dismissed, the other two remain in the briefing stage. Employees are understandably worried about increasing health plan costs, joining employers who have faced this never-ending escalation of costs for decades. 

Read more:  Free legal advice helps employees navigate serious medical conditions

Health plan fiduciaries must recognize the escalating cost environment and act decisively to demonstrate compliance with fiduciary responsibilities. A two-phased strategy can help create cost-effective, employee-focused health plans while addressing unnecessary claims costs that benefit the employer and employees alike. Phase one focuses on immediate 2026 plan design, while phase two requires bold restructuring of provider and PBM contracts for long-term savings.

As part of the first phase, employers must balance meaningful benefits with affordability. Advisers should assist decision makers facing 2026 plan design decisions by recommending:

• Adoption of value-based care models over volume-based systems.
• Expanded telehealth for non-emergency chronic care.
• Steering employees toward high-quality, cost-effective providers through narrow networks or centers of excellence for procedures such as joint replacements.
• Bundled payments and reference-based pricing to further contain costs.
• Predictive analytics to identify high-cost claimants and future conditions.
• Review of stop-loss coverage in self-funded plans, with pharmacy oversight and tailored liability caps.
  

Read more: What leaders learned at this year's Benefits at Work

This second phase requires an extensive, months-long review and negotiation of healthcare provider and PBM contracts. Fiduciaries should begin now to demonstrate diligence in securing cost-effective benefits for employees. Advisers can help identify opportunities to remove layers of administration and pricing, replacing them with transparent, outcome-driven arrangements. They include the following:

1. Direct contracting and coalitions 
Direct contracting with hospitals and physician groups, facilitated by advisers, can secure favorable pricing and care management. Employer coalitions amplify negotiating leverage. Telemedicine and digital health platforms can expand access to cost-effective care for mental health, chronic disease management and primary care. Fixed-fee telemedicine contracts help stabilize costs, reduce absenteeism and improve convenience.

2. PBM contract overhaul
Pharmacy costs are outpacing general medical claims and litigation underscores the need for PBM contract scrutiny. Sponsors should prioritize due diligence, even before contract expiration, to ensure fiduciary compliance. PBM agreements often obscure rebate structures, spread pricing and formulary management. Employers should demand full disclosure of rebates, administrative fees and pricing methodologies. Failure to secure this clarity heightens fiduciary risk.

3. Restructuring PBM relationships
Plan advisers should help negotiate performance-based agreements with full rebate pass-through, transparent fee disclosure and enforceable audit rights. Unbundling services such as claims adjudication, specialty drug management and mail-order fulfillment reduces hidden revenue streams. PBM compensation should be tied to measurable outcomes such as reduced net plan costs and improved medication adherence. Rebates can be applied to offset premiums or expand preventive medication coverage, directly benefiting employees. Value-based formularies should prioritize clinically effective, cost-efficient drugs to balance access with affordability.

Read more:  How this benefit leader used a marketing tool to rethink his strategy  

Advisers play a critical role in guiding sponsors through these challenges, helping them balance affordability with participant needs while meeting ERISA fiduciary standards. Plan sponsors should ensure they take preliminary steps of auditing their current plan governance. They can leverage advisers to review vendor contracts starting with PBMs to negotiate any potential cost savings or transparency before the deep dive in the coming months. Plan sponsors who act now can deliver sustainable, high-value health plans for 2026 and beyond and meet fiduciary duties.