Healthcare costs continue to rise, and medical spending will likely hit $485 billion by 2025. Pharmacy benefit carve out savings are now vital for businesses trying to manage their healthcare expenses. Recent data shows that high healthcare costs forced 38% of employees to put off medical care in 2024. This situation demands economical solutions.
While Pharmacy Benefit Managers (PBMs) currently administer prescription drug coverage for over 275 million Americans, traditional models often fail to deliver optimal cost efficiency. For organizations seeking to reduce healthcare expenses, a Pharmacy Benefit Carve Out strategy offers a compelling alternative. This targeted approach allows your company to strategically separate pharmacy benefits from your broader healthcare package, potentially unlocking significant savings while maintaining quality prescription coverage for your employees.
What is a pharmacy benefit carve-out and why is it gaining traction in 2025?
Pharmacy benefit carve-out lets you split prescription drug benefits from your main health plan. You can work directly with a Pharmacy Benefit Manager (PBM) instead of bundling these services with your medical insurance provider. This approach is different from a carve-in model that packages medical and pharmacy benefits together through one insurer.
Several compelling factors make pharmacy carve-out programs a hot trend in 2025. Recent data shows employers can cut prescription drug spending by 20-40% using this strategy. Specialty drugs now eat up more than half of all employer pharmacy costs while making up just 2% of prescriptions. This makes controlling costs crucial.
The market continues to move toward independent benefit management. About 64% of employers now work with a PBM carve out. On top of that, 52% of employers want to switch their PBM in the next 1-3 years. This shows growing frustration with traditional setups.
Key advantages of pharmacy carve-out plans include:
- Greater transparency – Direct access to claims data and pricing information
- Better cost control – Knowing how to negotiate terms directly with PBMs
- More flexibility – Customization of formularies and clinical programs
- Better oversight – More visibility into pharmacy spending patterns
Carve-in plans often hide true costs, are harder to customize, don’t focus enough on drugs, and usually get smaller drug price discounts than carve-out plans. While carve-in plans are simpler to manage, the money saved through carve-out models is too good to pass up.
Traditional PBM structure faces heavy pressure in 2025, especially when major PBMs face strict regulatory scrutiny. Employers just need options that offer more transparency and value. So, the pharmacy benefit world sees a fundamental change toward models that give plan sponsors more control and visibility.
How do carve-outs compare to traditional PBM models in cost and control?
A comparison of cost structures and control mechanisms shows pharmacy benefit carve-out programs consistently perform better than traditional PBM models. Recent studies show carve-out arrangements deliver average savings of 30% on total pharmacy spend. Some employers have experienced cost reductions as high as 32%.
These financial advantages come from several key differences:
- Transparent pricing models – Carve-out arrangements typically use pass-through pricing where all discounts and rebates go directly to the client. This eliminates the profit “spread” present in traditional models
- Better negotiating power – Direct PBM relationships create stronger bargaining positions, especially when utilizing coalition purchasing power
- Customized formulary design – Tailored drug lists can focus on affordable alternatives that reduce expenses without compromising care
- Complete rebate access – Traditional PBMs often keep portions of manufacturer rebates. Carve-outs generally pass through 100% of these savings
The numbers speak for themselves. All but one of these companies have chosen the carve-out approach: 85% of Fortune 500 companies, 90% of Fortune 250 companies, and 94% of Fortune 100 companies. This proves its effectiveness at scale.
Carve-outs provide improved control mechanisms beyond cost savings. You get access to detailed claims data and utilization reports. This helps you learn about cost drivers and implement targeted interventions. Traditional models bundle pharmacy data with medical information, which makes it hard to track pharmacy spending patterns.
Notwithstanding that, carve-out arrangements need certain administrative considerations. The coordination between separate vendors needs additional oversight. Some research points to potential risks of care fragmentation if not managed properly. These concerns can be reduced through effective coordination strategies.
When should employers consider switching to a pharmacy carve out program?
You need to assess your current pharmacy benefits setup to determine if a carve-out model works better for your organization. Several signs point to the right time to make this change.
These signs show that a pharmacy benefit carve-out might help:
- Rising specialty drug costs are consuming your pharmacy budget (specialty medications now represent over 50% of pharmacy costs despite accounting for only 2% of prescriptions)
- Lack of transparency into your rebates and pricing arrangements
- Limited control over customizing formularies or implementing targeted clinical programs
- Inability to access detailed pharmacy data for decision-making
- PBM satisfaction levels have dropped from 8.2 to 7.6 on a 10-point scale recently
Your organization’s need for greater financial control might be another reason to tap into a carve-out model. Pharmacy benefits make up about 20% of total healthcare spending and are expected to grow by 13% each year. Direct negotiations with PBMs can lead to big savings.
The annual benefits renewal cycle gives you a perfect chance to assess a carve-out strategy. Most experts say you should do a complete PBM review every three to five years. They also recommend yearly pricing checks to stay competitive.
Self-funded employers find that carve-out plans are a great way to get customization, adaptability, clinical expertise, and financial oversight. These advantages help them respond to industry changes fast while delivering better member experiences.
Organizations should switch when their current setup lacks transparency, restricts flexibility, or doesn’t manage costs well enough. The final choice depends on your organization’s needs, resources, and if you’re ready to handle a separate vendor relationship. Many organizations see the potential 30% cost reduction as worth the extra administrative work.
Conclusion
Pharmacy benefit carve-out programs help businesses tackle rising healthcare costs. Companies save 20-40% on prescription drug spending. These programs give you better transparency and control over benefit management.
Success stories are everywhere. A whopping 94% of Fortune 100 companies use this approach, which proves it works at scale. Their results come from working directly with PBMs, getting full rebate access, and creating custom formulary designs that cut costs without affecting care quality.
Several factors affect the choice to use a carve-out strategy. Specialty drug costs keep rising. Pricing lacks transparency. Formulary customization options remain limited. These issues, plus expected 13% yearly increases in pharmacy spending, make 2025 a crucial year to review benefit strategies.
Want to get a handle on your rising healthcare costs? Our pharmacy benefit carve-out strategies can help your business save money in 2025. Merritt Business Solutions’ expert PBM services can streamline your employee benefits and reduce extra costs. Reach out today for a custom consultation.
Your company should get the most from its healthcare spending. Pharmacy benefit carve-outs give you this chance through analytical insights, better cost control, and flexible benefit management. These advantages help your company manage healthcare costs while keeping quality employee benefits intact.
