Half of workers may struggle to get insurance coverage for obesity medications

Companies are expanding access to the new blockbuster weight-loss drug for their employees, but employer size could make a big difference in early access. Small businesses and their employees are often caught in the middle when it comes to this burgeoning health insurance market.

Small businesses employ roughly half of the workers in the U.S. labor market and are adding jobs at a faster pace than large businesses. According to the U.S. Bureau of Labor Statistics, small business employment accounted for 53% of the 12.2 million net job creation by all employers since the first quarter of 2021, consistent with long-term trends.

The blockbuster obesity drugs, called GLP-1 agonists, cost about $1,000 per month on average and are usually taken for long periods of time. These weight-loss drugs are available in a growing number of sources on the market, as pharmaceutical companies ramp up production and use cases continue to grow. Clinical trials have shown they can help with a variety of conditions, from sleep apnea to heart disease risk. But many of the 100 million obese American adults can’t afford drugs like Novo Nordisk’s Wegovy and Eli Lilly’s Zepbound out of pocket and turn to their employers for help.

A survey of 205 companies conducted by the International Employee Benefits Fund last October found that 76% of respondents offered coverage for diabetes medications called GLP-1, but only 27% covered weight-loss medications. However, 13% of plan sponsors said they were considering covering weight-loss medications. But covering these drugs can be difficult for small businesses that rely on off-the-shelf plans offered by insurers. Plans that cover GLP-1 drugs exist, but the cost can be too high for many small businesses.

Shawn Greminger, president and CEO of the National Healthcare Purchasers Coalition, a nonprofit buyer-led organization, said there is strong demand from employees for insurance and that small and mid-sized employers want to offer it, but there are trade-offs. Companies must consider the impact on wages and other benefits they want to offer. “The money for businesses has to come from somewhere,” he said.

In some cases, small employers may want to cover the cost of weight loss drugs but are forced to accept that they cannot offer the coverage they want because the prices are simply too high and they are shut out of the market.

“The price of these drugs means you have to do a cost-benefit analysis that many small and medium-sized companies, and even some of the larger companies, can’t do,” Greminger said. “Even if they wanted to.”

Here are some issues that small business employers and employees need to understand when considering using expensive weight loss drugs as part of employee benefits.

A deal is currently being brokered for the annual perk. Although the sign-up period for health insurance doesn’t begin until the fall, employers should be having renewal discussions with their benefits broker or agent now, and those discussions should include weight-loss medications. “Small business employers should tell their broker they want to be able to offer weight-loss medications to their employees and ask for help finding the right insurer or the right plan,” said Gary Kushner, chairman and president of Kushner & Co., a benefits design and administration firm.

The market is changing rapidly, and while your insurer may have said “no” when you asked about covering weight-loss drugs last year, it’s worth asking them again because they may have been forced to change their offerings for competitive reasons, said Kate Moher, president of national employee health benefits at Marsh McLennan Agency, which advises employers on plan design and benefits programs. “You should be asking this question every year,” she said.

Your insurance premiums may increase. To get weight-loss drugs, many small businesses would have to switch insurers, likely paying more. “If one insurer doesn’t cover it and the other does, it’s probably going to cost you more,” Kushner said.

Employers also need to determine how much of that cost is reasonable to pass on to employees without placing an undue burden on workers who may not need those drugs. “If 20 percent of the population is taking them, everyone’s premiums are going to go up whatever percentage point they have to cover that cost,” Greminger said.

Small businesses should consider a “captive health” plan. Generally speaking, Moher says, any company with 50 or more employees may want to consider using a captive health insurance plan such as Roundstone, Pareto Health, Stealth or AmWinds, which allow a group of companies that can’t self-insure like most large companies do to pool resources and jointly design a group health insurance plan.

While this approach may give small businesses and their employees more flexibility, employers still have to consider costs and qualifications, Moher said. It’s also not something businesses can change every year like they can with a traditional insurer. “This is a long-term commitment, and you can’t just walk away,” Moher said.

These plans are designed with a long-term perspective, as all participants as member-owners agree to spread the risk, and are an approach that can lower costs and reduce volatility over the long term. However, if a business owner is looking for a quick fix or wants to wait to see how the market develops over the next year, this is probably not the right model for them.

GLP-1 drug-only insurance options may also work for some small businesses. Companies such as Vida Health, Calibrate, Found Health and Vitality Group offer these services separately from the employer’s main insurer, Gremminger said. Employers need to do the math to determine whether it’s more cost-effective and whether the option truly meets the employee’s needs.

Use your FSA to cover the cost of weight loss medications. If insurance coverage options aren’t an effective solution at this time, small employers may have some other options available to help employees cover the cost of weight loss medications. For example, they could consider contributing to an employee flexible spending account or health savings account. They could also consider a health reimbursement arrangement (HRA), which is an employer-funded plan that reimburses employees for qualified medical expenses.

But each of these options comes with strict rules and requirements. With an FSA, for example, the IRS limits employer contributions based on employee contributions, which still likely wouldn’t be enough to cover the long-term cost of these drugs. “Does an FSA help? Sure. But does it solve the problem? No,” Kushner said.

And it’s not an action you should take without first getting approval from legal counsel. “You’ll need guidance from an ERISA lawyer to make sure you’re meeting all the standards,” Moher says. “It’s a creative approach, but you need to make sure you’re meeting all of the compliance requirements.”

For now, the end result may be very disappointing for small businesses and their employees, given the cost and limited options, but it’s important to know that there are about 20 drugs awaiting approval. If approved, costs will likely come down, Moher said. “This may be a short-term issue until more GLP-1 drugs are approved.”