Climbing healthcare costs encourage employers to consider alternative plans

There’s nothing more valuable than good health—literally.

Employers expect their healthcare costs to rise by a median of 9% in 2026, up from 8% in 2025, a Business Group on Health survey found. So it should come as no surprise, perhaps, that many are considering changes to their health plans.

“In this challenging environment, employers remain firmly committed to an ongoing investment in employee health and well-being,” Ellen Kelsay, president and CEO of Business Group on Health, said in a statement announcing the data’s release. “Yet they will need to make bold and strategic moves to contain costs, sometimes disrupting health care models along the way.”

In this e-book, you’ll learn about just a few of the moves employers are making to contain costs without cutting coverage, as well as the successes they’re enjoying, and challenges they’re encountering, along the way.

Chapter One

Why most employers are sticking with big 3 PBMs over alternatives

Back To Top

Alternatives are enticing, but change has proven to be difficult.

When an employee picks up a prescription at the pharmacy, they’re not typically aware of the complex negotiations that took place behind the scenes to land on a price for the medication.

But HR leaders are increasingly placing these negotiations on their radars, in part due to scrutiny surrounding pharmacy benefit managers (PBMs). These intermediaries work with both drugmakers and insurers to determine how much health plans pay for prescription drugs, and are seen as part of the cost of doing business for benefits teams that oversee health plans.

The PBM industry is dominated by three major players—CVS’s Caremark, Cigna’s Express Scripts, and UnitedHealth Group’s Optum Rx—but that competitive landscape is beginning to shift, prompting some employers to look elsewhere. We talked to benefits leaders and healthcare consultants about what that transition entails, and why most employers are still sticking with the Big 3.

PBMs under scrutiny

In recent years, PBMs have come under scrutiny for allegedly artificially inflating the cost of drugs, giving special perks to their vertically integrated pharmacies and insurance companies, and pocketing rebates.

The Federal Trade Commission (FTC) got involved in mid-2024 when it released a report claiming PBMs have an “outsized influence” on drug prices. The agency released a second report in January 2025 claiming PBMs marked up prices for cancer, HIV, and other medications by “thousands of percent.” The agency ultimately sued the Big 3 PBMs over insulin costs in late 2024, and so far has reached settlements with both Express Scripts and CVS Caremark.

The FTC’s involvement, along with a bipartisan legislative push to break up vertical integration and increase transparency, brought national attention to PBMs’ role in drug pricing and affordability and has allowed alternative PBMs to make some headway into the market.

In a September 2025 report from the trade group the National Alliance of Healthcare Purchaser Coalitions, 61% of 324 employers surveyed said they had either switched away from a Big 3 PBM in the past year or were considering switching within the coming three years.

Enter alternative PBMs

A handful of such PBMs have caught employers’ attention, including AffirmedRx, Rightway Healthcare, and Navitus Health Solutions.

The biggest difference between these companies and the Big 3 is how transparent they are about how they make their money. Instead of profiting from rebates, they typically operate on a fee-for-service model. And instead of profiting from spread pricing—which is when a PBM charges insurers more for a drug than it pays pharmacies and pockets the difference—they tend to pay pharmacies the same amount they bill insurers, experts previously told Healthcare Brew.

Some large employers have already made the change to these smaller, more transparent PBMs. Convenience store chain 7-Eleven switched to AffirmedRx in 2025, as did Purdue University in Indiana.

“Purdue sought a transparent PBM partner that clearly identified true costs, allowed the university control over prescription plan formulary decisions, and collaborated on wellness-focused programs,” spokesperson Trevor Peters told Healthcare Brew in a statement. “Since partnering with AffirmedRx, Purdue has updated its formulary, gained clear cost and utilization reporting, and launched a weight management program within its employer health clinic.”

7-Eleven did not respond to a request for comment.

Tyson Foods, which employs 116,000 people in the US, switched away from Caremark to Rightway in 2024, and drug manufacturer Eli Lilly, which employs 23,840 people in the US switched from Caremark to Rightway in early 2026.

What happens when employers leave the Big 3?

Although a number of major employers have switched to an alternative PBM in recent years, they’re not inclined to speak about the decision on the record. Neither Tyson Foods nor Eli Lilly, for example, responded to requests to speak with us for this piece.

This may be in part because of legal risk, experts told us. In recent years, employers including JPMorgan and Wells Fargo have been sued over their PBM contracts, with plaintiffs alleging they perpetuated excessively high premiums and out-of-pocket drug costs.

Benefits leaders who were involved with decisions to stop working with a Big 3 PBM told us they did so over cost-savings concerns as well as customer service.

Before transitioning from CVS Caremark to CapitalRx in 2019, one of the primary challenges the nonprofit employee benefits provider Teamsters Health and Welfare Fund of Philadelphia & Vicinity encountered was related to appeals of prior authorization denials, Maria Scheeler, the fund’s executive director, said. These appeals would often get routed through the Teamsters, and it wouldn’t be clear if a member’s prior authorization for a prescription medication was denied because they didn’t meet the qualification or if there was simply a missing component, such as a lab result, she said.

“It created a very difficult administrative burden for us because we basically had to start at the very beginning…So it took a lot of a heavy lift on our part, and that was one of the biggest issues that I had,” Scheeler explained.

The fund, which oversees about 13,000 covered lives, has saved money since making the switch, according to Scheeler. From 2019 to 2022, per member per month pharmacy costs were lower than what the fund’s actuaries projected, with 2022 costs coming in nearly 17% below what was expected, she said.

Just as significant has been the improvement in customer service, she added. Whereas the fund used to field calls regularly when members’ prescriptions were denied, CapitalRx often troubleshoots these issues before they reach the Teamsters. “Unfortunately, in this kind of industry, hearing nothing means it’s working,” Scheeler said.

A complex decision

There’s no question that increasing scrutiny surrounding PBMs, coupled with the arrival of new entrants like CapitalRx, has made the process of evaluating these pharmacy intermediaries more complex.

Whereas PBMs used to be strictly within the purview of HR benefits teams, today it’s not uncommon for legal and compliance, CFOs, and even CEOs to be involved in these decisions, Alysha Fluno, a national pharmacy practice leader with the consulting firm Mercer, said.

And while finances still tend to be the most important factor for employers when evaluating PBMs, the lowest bidder may not automatically win, given these teams are also considering fiduciary responsibility and diligence in the current environment, she added.

Still, the Big 3 remain the leading choice for many employers, in part because they fear disruption, sources told us. Getting the savings that alternatives promise may require employers to change their formularies to emphasize generic drugs or biosimilars over brand drugs, and carefully monitor dosage, Rob Andrews, the CEO of Health Transformation Alliance, whose members are primarily publicly traded companies, said. “If shifting to save $7.5 million means there’s going to be a lot of employee unhappiness, a lot of companies won’t do it.”

On the other hand, helping employees save money on their medications may override concerns about disruption, Elizabeth Mitchell, president and CEO of the Purchaser Business Group on Health, whose members include large employers like Walmart and Boeing, said.

If switching PBMs “reduces a premium the following year or reduces cost sharing, that is pretty well received,” she said. “No one’s attached to their PBM, right? No one goes around saying, ‘I really want Express Scripts.’ They care about getting their medication at a fair price.”

Chapter Two

Some employers are putting health insurance in workers’ hands. Here’s how it’s going.

Back To Top

What ICHRA adoption looks like, six years after it first hit the market.

In an era when eye-popping healthcare premiums are prompting employers to take a hard look at their benefits, some are considering an option that wasn’t even available 10 years ago. Rather than paying for a group health plan, they’re giving their employees money to buy their own through an individual coverage Health Reimbursement Arrangement (ICHRA).

ICHRAs, first made available in 2020, are still a fairly nascent strategy for employers looking to cut health costs.

Nationwide, about 200,000 employees and their dependents were given the option to enroll in an ICHRA in 2025, per the most recent data from trade and advocacy organization the HRA Council. The council’s executive director, Robin Paoli, told us that “growth continues to be strong” but official numbers likely won’t be out until June. The council is also working on compiling data on employees’ satisfaction with ICHRAs.

HR leaders at organizations that have switched from group health plans to ICHRAs in recent years told us their decisions were driven largely by cost in addition to concerns about employee choice. Transitioning to an ICHRA requires a fair amount of change management, they said, as it puts the onus on workers to manage their own health plans.

Making the ICHRA switch

Sales training company Janek Performance Group hadn’t considered offering ICHRAs until its HR team received word that its insurance carrier would not be renewing the firm’s group health plan this past January, according to Kim Norton, director of people and compliance.

When Janek consulted its broker about the issue, the company was presented with a group health plan that was expected to raise health expenses by 40%, Norton said, with a high deductible and out-of-pocket costs.

Norton said she and her team found this plan unacceptable for Janek’s staff. “As a small company, there’s no way that we would be able to shield our employees from that premium hike,” she said. “We’d have to pass some of that on to them.”

Instead, Janek elected to offer employees an ICHRA starting in March and cover 80% of the plan’s costs. Under this plan health costs have risen by a more palatable 15%, Norton said.

BrightView Health, which runs outpatient substance use disorder treatment centers in five states, decided to transition from a self-funded health plan to an ICHRA in 2025. The organization’s leadership team made the decision after they were “faced with some pretty significant premium increases” that were expected to drive health costs up 20% to 25%, according to Rachel Fitzgerald, an HR business partner with the company.

“The budget really was the driving factor, and how can we help absorb that cost, not just for us as an organization, but our employees as well?” she said.

Selling the chief financial officer on the ICHRA was easy, Fitzgerald said, given his concerns about various factors that can drive up costs on a self-funded plan—think prescription claims, stop-loss carriers, etc.

But Fitzgerald was most interested in the potential for an ICHRA to increase employees’ access to certain providers. “I knew so many employees that were not having success finding in-network providers” on the self-funded plan, she said. Switching to a model that gave employees the “power of choice” regarding their carriers might help close this access gap, she believed.

Managing through change

Both Norton and Fitzgerald identified certain positive impacts from the ICHRA switch. Some employees were able to join health plans they didn’t previously have access to, while others no longer had to travel as far to see an in-network provider. Costs to the workers vary, though Norton said at least one of her employees is actually paying less—just $7 a month under the ICHRA plan, compared to more than $100 previously.

But companies may face an uphill battle acclimating employees to ICHRAs before they realize the value of these plans.

When Norton’s team first told its employees they’d be switching from a group plan to an ICHRA, “it was quite shocking,” she said, adding that the average Janek employee has been with the company for five years and had grown accustomed to the group plan. Some of them, she said, had never heard of the Affordable Care Act (ACA) marketplace. Others had health issues and wanted to know what an ICHRA would mean for their care.

“There was definitely a lot of emotion for several of our pretty key employees,” Norton said, though many employees have become more comfortable as they’ve become more educated about their options, she added.

The company partners with an ICHRA administrator, Zorro. It is one of several tools on the market that can educate employees, help them select their plan, and facilitate payments. In meetings with Zorro, employees can see which carriers and plans are available in the region where they’re based. The transition has been fairly simple from an administrative perspective, Norton said, as costs are deducted directly from employees’ payroll, just as they’d be for a traditional group plan.

Recently, “I would say the tide is turning, with feedback being a lot more positive,” Norton said. New hires, she added, “were very excited to have a local option” when they onboarded.

“Organizational readiness” is a major factor employers must consider when mulling the switch to an ICHRA, Maya Perl, co-founder and chief customer officer of Zorro, told us. “It’s a big shift for organizations…it takes a lot of education, it takes a lot of change management.”

Transitioning to an ICHRA may require more work than anticipated, Matt McGough, a policy analyst at national health policy and research nonprofit KFF, told us. Employees sometimes still feel more comfortable reaching out to their HR department for help, even if third-party support is an option, he explained.

BrightView’s ICHRA has “definitely increased the work that we have to put into the health benefits itself,” Fitzgerald said. She noted that her remit once included both payroll and benefits, and she didn’t believe she could handle both of those areas now, given the time and energy required to address employees’ questions about their ICHRA plans. Having a coordinator that can field day-to-day questions about employees’ plans has helped, she added.

Unanswered questions

Factors like geography and fluctuations in the market can weigh on an ICHRA’s success, sources told us. In some areas, individual health insurance plans can be more expensive, lower in quality or variety, or aren’t taken by many providers, McGough said.

“There are areas of the country where an ICHRA is definitely more ripe to grow,” McGough said.

Jack Hooper, who leads Take Command Health, an ICHRA administrator that counts BrightView as a customer, echoed this. “There are some regions where it’s like, ‘Oh, man, the group plan’s got to be really bad for an ICHRA to make sense,’” he said. Take Command leans on impact and opportunity analyses to determine whether employees’ choices will look favorable under an ICHRA, he added.

Transitioning to an ICHRA doesn’t totally get employers off the health insurance rollercoaster ride, either.

The individual health insurance market is facing drops in enrollment and spikes in premiums following the Jan. 1 expiration of enhanced premium tax credits. Many insurers chose to exit unprofitable geographic markets or reduce ACA marketplace benefits in 2026, lowering enrollees’ options.

More plans are expected to exit in 2027, too. Cigna, for instance, announced in April it would no longer offer marketplace insurance beginning next year, impacting 369,000 people.

“ICHRA is sort of being pitched as ‘this guarantees predictability,’” Katherine Hempstead, senior policy officer at health philanthropic organization the Robert Wood Johnson Foundation, said. “I don’t really think that’s true.”

Chapter Three

Employers are teaming up directly with providers to cut a better deal on healthcare

Back To Top

Frustrated by increasing friction between health systems and insurers, some employers are negotiating their own contracts with providers.

In recent years, escalating hospital-insurer disputes have left many patients, providers, and employers feeling powerless.

A dispute between New York’s Mount Sinai and Anthem Blue Cross Blue Shield is one of the latest examples of these squabbles cutting off healthcare access. About 9,000 Mount Sinai physicians went out of network for about 200,000 Anthem patients after the two sides couldn’t agree on pricing. That disruption lasted from March 1 until April 13, when they finally signed a contract.

Add insurer-hospital tension to rising healthcare costs from both hospitals and payers, sprinkle in frustration with third parties like pharmacy benefit managers—healthcare continues to be a complicated headache, particularly for self-funded employers that have their own money on the line.

So, some employers are taking health insurance into their own hands, bypassing carriers and inking contracts directly with providers. The specifics of direct contracts can vary, but typically refer to arrangements in which employers negotiate prices for procedures and medications directly with healthcare systems. The arrangements also typically allow access to healthcare data that employers can use to plan and manage costs.

“There doesn’t have to be inherent friction between employers and hospitals, but there will be if we can’t get our incentives aligned,” Claire Brockbank, director of union 32BJ’s health benefits fund, told us. The union represents over 185,000 property service workers primarily in the Northeast.

What’s in it for employers?

Companies could be drawn to direct contracts because they would likely gain more control over how their healthcare budget is spent, sources told us.

Employers spent an average of $20,143 on employee health premiums in 2025, according to KFF, up from $12,687 one decade prior. But even as their health costs grow, businesses may have limited leverage to pursue direct agreements with providers, Elizabeth Mitchell, president and CEO of the coalition Purchaser Business Group on Health, said. That’s because some health plan contracts restrict employers’ ability to do direct contracting.

“More and more of our employers [are] insisting on retaining those rights and defining what they want from their provider partners,” Mitchell, whose organization represents large employers such as Costco and Microsoft, said.

Ultimately, Mitchell said she’s observed a growing recognition that “it is not the health plans’ money; it is a self-insured employer’s money. It is their workforce, and they should be able to do whatever they want to do with it.”

This consideration played a role in 32BJ’s Dec. 2025 decision to contract directly with Northwell Health, the largest healthcare provider in New York, with the expectation to save $46 million in the first year.

When speaking with providers, the union sought out a partner that would keep in mind “it’s not anybody’s money but our money, on behalf of our workers,” Brockbank told us.

The promise of reduced costs is another major factor driving employers to direct contracting, sources told us. Members of the Health Transformation Alliance, a cohort of self-insured employers, typically “pay anywhere from 8% to 12% less at the same hospital for the same procedure” when they use direct contracting because bureaucratic network requirements are no longer there, CEO Robert Andrews said.

Duly Health and Care, a multispecialty physician medical group based in Downers Grove, Illinois, moved from a group health plan to a direct contract managed by Imagine360, an independent third-party administrator, this year. In doing so, the company hopes to reduce costs and drive better outcomes, CHRO Paul Dumas said.

Duly’s health costs were expected to increase by 19.6% in 2026 if it had stayed with its previous carrier, which was one of the big four that dominate the market. That’s significantly higher than other industry estimates, which range from 6% to upwards of 9%. As of June, six months after Duly switched to direct contract, that estimated expense exposure had gone down to just 2%, he said. Employee premiums went up by 2%–3%, he added. “We’re still getting the same level of outcomes at a significantly less cost to the employer.”

Dumas attributed the success of the new plan thus far to the fact that Duly has greater transparency into and control over pricing, as well as the ability to steer workers toward more cost-effective treatments, like primary care. (The company also had an advantage in negotiating this plan because it essentially contracted with itself; the majority of Duly employees receive care from Duly providers, according to Dumas.)

“We spend over $100 million on healthcare,” he said of the decision to switch to a new contract. “It’s not something I can manage passively.”

The hospital perspective

Employer-provider relationships can have key benefits for health systems, too.

Privately insured patients are a health system’s largest source of revenue and effectively subsidize the cost of providing care to Medicare, Medicaid, and uninsured patients, Michael Stubee, VP of payer strategy for Central Florida-based nonprofit healthcare system Orlando Health, told us.

Orlando Health works with employers via vetted third parties to design health plans in which the system is the exclusive in-network provider. In exchange, employers get discounts.

This relationship directly brings more revenue to the health system and allows for other types of flexibilities, too, Stubee said.

Within this dialogue, employers can bring concerns, like if a school district’s employees aren’t able to make it in for a doctor’s appointment during school hours. Orlando Health can then open early hours or after-hours slots, Stubee said.

Employer relationships also allow Orlando Health to advocate for its own priorities, like lower plan deductibles. (High-deductible health plans are a significant contributor to unpaid medical debt and a major problem for the health system, Stubee said.)

“We would much rather have a direct dialogue with employers and have the ability to solve problems as we go rather than have, necessarily, large public spats or, frankly, consternation about the way we do business,” Stubee said.

The downsides of direct contracts

While there are surely some upsides to direct contracting for both employers and healthcare systems, this solution isn’t without downsides.

The seemingly simple question, “What insurance card do I put down for this appointment?” for example, doesn’t always have a clear answer under a direct contract, Andrews said. Employees are typically accustomed to providing a health insurance card from a carrier such as UnitedHealthcare, but when an employer has a direct arrangement with a provider, they may provide a company-branded card for certain services.

While this may seem somewhat minor, “if you’re an HR person, it’s a huge deal,” Andrews said. “If the card isn’t familiar and it doesn’t get accepted, you’ve got yourself a bad day.”

Such issues are typically fixable by working with a partner such as a third-party administrator, he noted. Securing such partners, he continued, represents another major challenge for HR teams interested in direct contracting. These contracts require more bandwidth than traditional health plans, he said, meaning HR teams may have to engage additional partners, either internally or externally.

And then there’s the issue of getting employees used to the new plan. The change management challenges of direct contracting have been “significant,” Dumas said.

“There was an education period in communication with employees because it’s not branded as a Blue Cross Blue Shield or an Aetna,” he said. Dumas said Duly invested significant time and effort into educating employees about the new plan. He said it was important to clarify to workers that while they had changed the network and healthcare partner, the company had designed their specific health plan to largely remain the same. He told us “the vast majority of employees have continued seeing their previous providers.”

Boeing has similarly put resources into helping workers make the most out of its direct contracts, Kathy Mullins, the company’s VP of total rewards, said via email. “A key challenge is communicating to employees the need to use specific provider networks for optimal benefits, which we accomplish through mailings and dedicated websites,” she said, adding that Boeing has direct arrangements with health systems and advanced primary care providers in regions including Puget Sound, San Antonio, and St. Louis.

“One of the hardest things with these types of plans is the fear of the unknown,” Ahmed Marmoush, founder and CEO of Handl Health, which provides healthcare pricing data to insurance brokers, said. Whenever employers are contemplating changes to their healthcare plans, they’re often afraid that workers will interpret these changes as sacrificing quality, particularly if there’s a cost-saving element, he said.

As such, Marmoush emphasized “the importance of a good communication strategy when it comes to changing people’s health insurance.” Employers should pursue a variety of ways to communicate changes to employees, from phone calls to all-hands, and do so well in advance of open enrollment, “so people understand the trade-offs,” he said.

There’s no one-size-fits-all approach to healthcare, not even for employers. And as costs continue to climb, it’s not unlikely that they will increasingly pursue these and other coverage options. For more on this and other trends shaping healthcare benefits, check out HR Brew’s total rewards coverage.