GLP-1 medications (glucagon-like peptide 1 such as Ozempic, Mounjaro, Zepbound, and Wegovy) have become popular topics of discussion since their arrival in the marketplace and appear to be a game-changer as an effective approach to driving weight loss. Although many employers already cover GLP-1 medications for conditions such as diabetes, significantly fewer employers are currently covering the drugs for purposes of weight loss (see International Foundation of Employee Benefit Plans GLP-1 Drugs: 2024 Pulse Survey Report).
With ever-growing interest in using GLP-1 medications to treat obesity and support weight loss, GLP-1 plan coverage decisions and the complexities of cost management are top of mind for many employers. Employers interested in providing this coverage will want to consider the following:
- Coverage Options. There are two common mechanisms employers can use: (1) coverage can be provided through a prescription drug benefit (e.g., major medical or standalone prescription drug coverage); or (2) by reimbursing costs of GLP-1s through a health reimbursement arrangement (HRA).
If coverage is provided through the prescription drug benefit, an employer will need approval from their insurance carrier and/or stop-loss carrier and may require a supplemental rider. In addition, employers will want to consider that the additional costs to the plan (based on anticipated utilization) could impact their future renewals.
On the other hand, there are nuances to utilizing an HRA for coverage that employers should keep in mind. For example, an HRA is entirely employer-funded and must be integrated with other major medical coverage (i.e., only those enrolled in major medical coverage can participate). Additionally, for participants enrolled in a high deductible health plan (HDHP), employers should be mindful that before receiving coverage for GLP-1 medications, the IRS minimum deductible must be met to maintain participants’ HSA eligibility. - Taxation. Coverage for GLP-1 medications for the treatment of diabetes is tax-free. However, to be tax-free for the treatment of obesity and/or weight loss, it must be for treatment diagnosed by a physician for a specific disease (such as obesity, hypertension, or heart disease). If not used for the treatment of a specific disease, any benefit will likely be taxable to the employee.
Further, while employers may want to support their workforces by providing access to GLP-1 medications to treat obesity and weight loss (which could also be a recruitment and retention tool), the high cost of coverage can certainly impact the overall sustainability of their plans. Because of this, many employers are considering what actions they can take to reduce plan costs. Potential actions for employers to consider could include the following:
- Restricting coverage to a subset of plan members. For example, limiting coverage to only those engaged in lifestyle modification programs (e.g., a trial of behavioral modification or dietary restriction for period of time); or limiting coverage to only those with a baseline BMI of at least 30 (or BMI of 27 with an obesity-related health condition).
- Implementing prior authorization to help decrease the likelihood of GLP-1 medication being approved for cosmetic rather than medically necessary purposes.
- Restricting providers who are permitted to prescribe such medications (e.g., primary care or endocrinology), creating a limited prescriber network.
- Implementing lifetime maximums for GLP-1 drugs for obesity and weight loss. It is important to note that lifetime and annual dollar limits are currently only permitted for drugs that are not essential health benefits under the ACA and that these medications are not considered essential health benefits by most state benchmark plans. That said, any lifetime maximum benefits should be monitored closely to maintain compliance under the ACA.
- Implementing a separate copay/cost share structure for specific drugs – e.g., putting drugs that treat obesity in a special tier with higher member costs. Employers should seek guidance from counsel if considering this approach to ensure compliance with certain regulations, such as HIPAA and the Americans with Disabilities Act (ADA).
As employers navigate this new era of weight loss drugs, the above considerations may be helpful when identifying plan strategies that best support their goals. The anticipated rise in costs have many employers concerned that it could jeopardize their plan’s long-term sustainability. That said, treating obesity and providing weight loss solutions could help keep employees healthier, which has the potential to save on healthcare costs in the long run.
We recommend that employers considering any of the above discuss the financial impact of their approach with their pharmacy benefits manager (PBM) or carrier.
Additional Resources
Connect with a Sequoia consultant to learn how Sequoia’s compliance services are integrated in our benefits services and tailored solutions. And if you’re already a Sequoia client, stay on top of your employer obligations with your Compliance Checklist that highlights important compliance dates, action items, and resources.
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