Should Employer Plans Pay for Trendy Weight Loss Drugs?
June 22, 2023Jay Kirschbaum
Updated – August 2, 2023
The Wall Street Journal updated its earlier article, which we discuss below. The article, dated August 2, 2023, notes that some employers are limiting access to weight-loss drugs such as Wegovy (the name for the Ozempic analog specifically branded for weight-loss purposes). The article discusses a major university and a major hospital system as two examples of employers that have determined the cost to be “excessive” relative to the benefits of the drug.
The recent update by The Wall Street Journal serves as a testament to the ever-shifting dynamics of the healthcare sector. The spotlight on limiting access to weight-loss drugs underscores the importance of a thorough evaluation process for employers navigating these complex considerations within their healthcare benefits strategies.
With the promotion of expensive prescription drugs to assist with weight loss, some employers are wondering if their group medical plans are required to pay for those drugs. Generally, employer medical plans are permitted to cover or exclude various treatments or services (with some exceptions), provided they specify those exclusions in their plan documents and summary plan descriptions (SPDs). Fully insured plans have less leeway, as most will conform to the state insurance mandates for health coverage. Weight loss drugs, if prescribed by a physician to treat a specific medical condition, such as hypertension or diabetes, can be covered by an employer plan on a tax-free basis as a qualified medical expense. Employers will want to determine how that coverage fits into their overall compensation and benefits package, the financial impact, and corporate culture.
A recent Wall St. Journal article discusses options for getting health insurance to cover the cost of Ozempic (which will be branded as Wegovy when prescribed for weight-loss purposes) or other new weight-loss drugs. The article cites a cost of approximately $900/month for the drugs and notes that health plans are not keen on paying those costs. One reason might be that other recent data indicate that ongoing treatment, possibly indefinitely, is required to maintain weight loss. An article discussing the overall market size demonstrates how much that cost might be. According to analysts from Morgan Stanley, “some 25% of people with obesity will engage with doctors on their disease, up from 7% today. In turn, the analysts expect around 55% of those patients to be prescribed a new anti-obesity drug.” Data from the National Institutes of Health showed that 42% of adults are classified as obese. If that is applied to an employer population, assuming the employer population is average, an employer with 100 employees might have 40 or so employees that are obese. If 25% of those employees seek medical intervention from their physicians and 55% are prescribed a weight loss drug, that is about 22 employees being prescribed one of these drugs at a cost of $19,800 per month for the group if they take the drugs. Certainly, some, perhaps most, will stop taking the drugs at some point, but there is a potential that this single drug could cost the employer, in this example, $237,600 per year for the group. These drug treatments seem to be au courant and with the seemingly unlimited funds spent to advertise them, healthcare plans will likely encounter increased costs.
Given that large potential cost, what options are there for employers?
Can employer plans pay for Ozempic/Wegovy (and other drugs), or can account-based plans be used for reimbursement?
Typically, to obtain a prescription for any of these drugs, a physician must be consulted. Therefore, some specific conditions will have to be treated, such as diabetes or hypertension. If there is a specific diagnosis and the drugs are prescribed to treat that condition, they will meet the definition of a medical expense under Section 213 of the Internal Revenue Code. Most employer plans cover all expenses defined by Section 213 and only carve out some they do not want to cover. So, unless your plan specifically excludes coverage for these drugs if a physician prescribes them and meets the other requirements of your plan (if they require pre-authorization or the like) your plan would cover them.
In addition, as we discussed in a recent blog, they are also likely reimbursable under any account-based plans (HSAs, FSAs, HRAs or Archer MSAs) that you might maintain. The risk to the employer for reimbursements under these types of plans is much more limited. Employers will likely be less inclined to limit these types of plans.
Must employer plans pay for this treatment?
The general rule for all employer plans is that they are free to cover expenses the employer determines should be covered. There are exceptions. For example, fully insured plans will generally be forced to cover a list of treatments that are mandated by the state in which the insurance contract is filed. Those lists vary from state to state. In addition, the ACA requires all group medical plans to cover preventive treatments with no out-of-pocket expense. (The definition of “preventive” has just been challenged in federal district court, but it has meant that any treatment that is graded as an A or B by the US Preventive Care Task Force would be included as a mandated treatment under the ACA requirements). Employers concerned with the cost exposure should analyze whether they want to cover these drugs. Since they seem somewhat effective, at least in the short term, each employer needs to consider the costs and benefits of that coverage. Of course, if the employer maintains a fully insured plan, the insurance carrier is likely making those determinations.
Employers that maintain self-funded plans have more leeway to determine what their plans will cover. They can decide what options are available and under what conditions. ERISA would permit those plans to provide coverage for Ozempic or other weight loss drugs or not if the specifics are communicated to the plan participants. That means that the information is provided in the plan document and SPD.
Is there a less expensive, or more permanent, alternative?
According to GoodRx, the average cost of bariatric surgery ranges from $9,500 to $20,000, depending on the type of surgery. A sleeve gastrectomy is on the low end and a Biliopancreatic Diversion with Duodenal Switch (BPD/DS) is at the high end. These surgical interventions can be a one-time fix. However, before most plans will pay for the surgery the individual has to meet specific requirements, including a BMI of 40 or greater or 35 or greater with certain co-morbidities (such as diabetes). According to some sources, there is long-term success with bariatric surgery. The University of Iowa summarizes the research: “Clinical studies show that, following surgery, most patients lose weight rapidly and continue to do so until 18 to 24 months after the procedure. Patients may lose 30 to 50 percent of their excess weight in the first six months and 77 percent of excess weight as early as 12 months after surgery.
Another study showed that patients could maintain a 50 to 60 percent loss of excess weight 10 to 14 years after surgery.” In addition, the underlying medical conditions such as diabetes, hypertension, sleep apnea, lower back pain, and others are significantly relieved.
The procedures come with side effects and possible complications such as malabsorption and malnutrition that must be managed throughout the patient’s lifetime. So, the trade-offs must be considered.
Ozempic (and the others) also come with side effects. The common GI side effects include nausea, vomiting, diarrhea, and constipation. Less common are pancreatitis, vision changes, hypoglycemia, kidney problems, allergic reactions, gallbladder problems and thyroid tumors or cancer. According to JAMA, the mean weight loss was 5.9% at 3 months and 10.9% at 6 months. It did not measure long-term success (not surprising since the drugs have been around for a short time), but that compares to a weight loss of around 50% of excess weight for 90% of the patients for the surgical interventions, according to the Cleveland Clinic. However, just as bariatric surgery is often restricted in employer plans, employers can consider whether to have sensible, medically informed, restrictions for the weight-loss drugs as well.
How might weight loss drugs fit into an employer’s health management strategy?
Employers that maintain self-funded group health plans may consider a broader look at weight management, such as offering wraparound care, like lifestyle management programs focusing on weight management. Healthy lifestyle practices such as nutrition, fitness, and mental health ensure employees have the resources to continue to manage their weight-loss. Obesity is often a precursor to other chronic conditions like diabetes, hypertension, and musculoskeletal concerns. Relying specifically on a weight-loss drug to change behavior is not a long term solution. By offering programs that help change behavior, such as healthy eating, fitness, and mental health resources, you encourage your employees to learn how to live a healthy lifestyle.
Many employers that maintain fully insured plans may find that their coverage will include the weight-loss drugs or not depending on the state that insurance is governed by, or individual determinations made by the insurance carriers. Employers with self-funded plans will have more flexibility to consider the cost and benefits of the coverage. This is not strictly a financial decision, however. Employers will take in the totality of their compensation and benefits strategy and corporate cultures before making that determination.