As GLP-1 medications become an increasingly significant cost driver for employer-sponsored health plans, plan sponsors are seeking creative solutions beyond conventional pharmacy benefit manager (PBM) channels. Direct-to-consumer reimbursement models have emerged as a compelling alternative, enabling participants to obtain these medications at reduced prices while shifting claims processing outside traditional PBM frameworks. Below, we outline the key legal and administrative considerations plan sponsors must address before adopting these arrangements.

Understanding the Direct-to-Consumer Framework

These programs generally operate by removing GLP-1 coverage from the plan’s standard formulary and redirecting participants to a specialized weight management vendor. The vendor conducts medical necessity evaluations, issues prescriptions, and manages ongoing utilization. Participants then fill prescriptions through direct-to-consumer pharmacies, often at prices significantly lower than those negotiated through PBMs, and submit for plan reimbursement.

The viability of this model largely depends on the unique dynamics of the GLP-1 market, which has developed a strong direct-to-consumer infrastructure. That said, plan sponsors should still take a close look at the cost-benefit tradeoffs, since vendor fees, administrative complexity, and compliance requirements could offset some of the anticipated savings.

Contractual Obstacles: PBM Exclusivity and Pricing Guarantees

A threshold issue for any plan sponsor is whether existing PBM arrangements permit formulary modifications. PBM contracts commonly include exclusivity provisions that may require all prescription drug claims, including those for GLP-1s, to flow through the PBM’s network. Removing GLP-1 medications from the formulary without proper authorization may violate these provisions and could jeopardize favorable pricing arrangements across the entire drug formulary, not just for GLP-1s.

Further, some PBMs maintain proprietary weight management programs or vendor partnerships for utilization management. Introducing a competing utilization management vendor could violate these arrangements, triggering penalties or voiding rebate guarantees. Plan sponsors should review PBM contracts early to evaluate these risks and negotiate necessary waivers.

Program Design Alternatives

1. Health Reimbursement Arrangement

Because these programs have the opportunity to provide significant cost savings to plan sponsors, some plan sponsors are willing to use employer funds to reimburse employees for some portion of their GLP-1 expenses, rather than have employees pay out-of-pocket. Regardless of how such a program is labeled, regulators will likely classify this employer-funded reimbursement arrangement as a health reimbursement arrangement (HRA) under applicable regulations. This classification may have important compliance implications.

To satisfy the Affordable Care Act’s (ACA) prohibitions on annual dollar limits and its preventive care mandates, an HRA reimbursing GLP-1 costs generally must be integrated with a major medical plan that meets minimum value standards. Integration also allows the program to leverage existing compliance infrastructure for ERISA, COBRA, and related obligations. Nonetheless, plan sponsors should evaluate how the new arrangement affects each of these requirements and ensure proper plan documentation.

Nondiscrimination testing is another factor to consider. IRS rules prohibit HRAs from disproportionately benefiting highly compensated employees, so plan sponsors should review eligibility criteria and benefit levels to ensure compliance.

2. Excepted Benefit HRA

As an alternative, plan sponsors may consider structuring the arrangement as an excepted benefit HRA (EBHRA). Because EBHRAs qualify as excepted benefits, they are not subject to the ACA’s market reform requirements and do not need to be integrated with a major medical plan. However, EBHRAs carry their own constraints: annual employer contributions are capped at a relatively modest inflation-adjusted limit ($2,200 for plan years beginning in 2026); employees must be offered a traditional group health plan (though enrollment is not required); and EBHRAs also remain subject to ERISA, COBRA, and the nondiscrimination rules applicable to self-insured health plans.

3. Health FSA

It is also worth noting that a health flexible spending account (FSA) may similarly be used to reimburse participants for GLP-1 prescription drug costs, provided the medications are prescribed to treat a medical condition rather than for purely cosmetic purposes. Plan sponsors considering an FSA-based approach should be mindful that health FSAs carry their own set of regulatory requirements, including annual contribution limits and use-or-lose rules, which may affect the practical utility of this option for higher-cost GLP-1 medications.

4. Carve-Outs

Some plan sponsors may prefer a carve-out structure where GLP-1 drugs remain covered under the group health plan but are processed outside the PBM arrangement. Under this approach, participants obtain prescriptions through the plan’s designated weight management vendor, purchase medications via direct-to-consumer pharmacies, and seek reimbursement under the plan’s standard claims procedures.

The carve-out model offers certain administrative simplicity compared to establishing a standalone HRA. However, because GLP-1 drugs remain a covered benefit under the group health plan yet are processed outside the PBM’s network, this arrangement may conflict with PBM exclusivity provisions. As a result, plan sponsors typically must obtain exclusivity waivers from the PBM before proceeding.

Special Considerations for HDHPs and HSA Eligibility

For plan sponsors maintaining high-deductible health plan (HDHP) options, direct-to-consumer GLP-1 programs may present additional compliance considerations. Coverage provided before a participant satisfies their annual deductible may constitute impermissible first-dollar coverage, disqualifying the participant from health savings account (HSA) contributions for the entire year.

Although HDHPs may provide preventive care without cost-sharing, whether GLP-1s qualify as preventive care depends on the specific facts. IRS guidance acknowledges that weight-loss medications may qualify as preventive care, but GLP-1s prescribed for underlying conditions, such as diabetes, cardiovascular disease, or sleep apnea, generally fall outside this safe harbor. Providing coverage on a pre-deductible basis in these situations could jeopardize HSA eligibility.

Plan sponsors should structure these programs with these requirements in mind. For HRA-based models, this may involve limiting reimbursements to preventive-use GLP-1s or delaying reimbursement until the participant satisfies at least the IRS minimum annual HDHP deductible. For carve-out structures, claims administration should ensure that deductible credits and cost-sharing accumulators are properly tracked to preserve HSA compatibility.

Practical Implementation Guidance

Direct-to-consumer reimbursement programs for GLP-1 medications present a potentially attractive cost-containment strategy, but they require careful implementation. Plan sponsors should:

• Review PBM agreements in advance to identify exclusivity clauses, pricing guarantees, and potential waiver requirements before engaging alternative vendors.
• Structure and document HRA or EBHRA arrangements carefully, ensuring proper integration with the group health plan (for standard HRAs) or compliance with excepted benefit requirements and contribution limits (for EBHRAs), to satisfy ACA requirements and align with existing ERISA and COBRA frameworks.
• Protect HSA eligibility for HDHP participants by incorporating safeguards such as preventive-care limitations or deductible-first reimbursement structures.
• Engage benefits administrators, legal counsel, and vendors early in the process to develop an implementation roadmap that balances cost containment with regulatory compliance and participant protections.

If you have any questions about the legal and administrative considerations surrounding GLP-1 coverage, please contact the authors.