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The Challenges Facing Self-Funded Employers

>> Read on to have all your carving-out questions answered.

Employers have long been promised that the ongoing vertical integration in the pharmacy benefits industry would lead to a more consistent, efficient healthcare model that would result in lower costs for their benefits plans. The reality of it has been different: Employers in those bundled pharmacy arrangements are finding themselves leaving money on the table.

As drug costs and utilization of high-cost specialty medications continue to rise, employers are quietly losing the little leverage they had. Carriers are trying to impose out-of-reach thresholds and excessive penalties for employer groups who want to carve out the pharmacy benefit. And without the negotiating leverage of large companies, small and mid-size companies continue to face a financial, service, and clinical disadvantage. 

But instead of settling for what their carrier delivers, employers have another option.

Self-funded employers in bundled arrangements can take steps to make sure their pharmacy benefits program is serving the best interest of their plan and their members – not the pharmacy benefit manager (PBM) or health insurance carriers. By carving out their pharmacy benefits, employers can flip the script and make benefit plan changes on their own terms.


What actually is “carving out”?

Carving out pharmacy benefits, in contrast to carving in, is a way for self-funded employers to gain more control over those benefits.

In a carved-in arrangement, the pharmacy benefit is bundled in with the medical benefit, which is usually run by a large health plan or a third-party administrator (TPA). In bundled arrangements, the employer has little visibility into the performance of their pharmacy benefit. They typically don’t have access to client-specific rates or rebates, or auditing rights. This means they don’t have oversight over their plan – and there’s no way to hold the plan accountable for the performance of their pharmacy benefit.

In a carved-out arrangement, the pharmacy benefit is peeled away from the medical benefit and managed outside of the health plan’s influence. Employers gain more visibility into their pharmacy contract. They have auditing rights, and typically discounts and rebates are guaranteed at the client level. Carving out also gives them access to critical data that provides necessary insight into how their plan is being run and how it can be tailored to meet their cost and member priorities.

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