HR leaders and plan sponsors need to understand who the PBM actually serves
Your company's pharmacy benefit manager (PBM) is probably disclosing more about its fees and rebates than it ever has. That does not mean your employees are getting the best deal at the pharmacy counter — and as the plan fiduciary, that distinction is now your legal problem as much as your broker's.
That is the argument of Raechele McMahan, senior vice president of Payer Solutions at Prescryptive Health in Chicago, who says the wave of new federal transparency requirements landing on employers in 2026 is necessary but insufficient. Disclosure, she argues, is not the same as controland HR leaders who conflate the two are leaving significant cost and care quality on the table.
"A PBM can say they're going to disclose a rebate," McMahan said. "That doesn't necessarily mean you have a choice or control to change that process."
The regulatory backdrop is shifting fast. On January 30, 2026, the Department of Labor (DOL) issued a proposed rule requiring PBMs and affiliated brokers and consultants to disclose their compensation — including rebates, spread pricing, and administrative fees — to fiduciaries of self-insured group health plans subject to the Employee Retirement Income Security Act (ERISA). The Consolidated Appropriations Act, 2026 (CAA 2026), signed in February 2026, adds further rebate pass-through and reporting requirements, with key provisions taking effect for contracts entered into or renewed from January 1, 2029, for calendar-year plans.
For HR directors and benefits managers, both developments carry a message that goes beyond compliance: you are now expected to actively evaluate whether your PBM arrangement is reasonable — not just receive the disclosures and file them away.
The disclosure gap: what plan sponsors are not seeing
The rebate structure at the center of PBM economics looks straightforward on a benefits summary — the PBM negotiates rebates from drug manufacturers and passes them back to the plan. In practice, McMahan says, how much actually reaches the employer depends heavily on the size of the group and what is buried in the contract.
"Just because a drug manufacturer is paying, let's say, a 50 percent rebate, it doesn't mean that those sub-10,000 group employers are getting the benefit of that 50 percent rebate," she said.
The problem compounds for PBMs that own their own specialty pharmacies. Sixty-six PBMs now operate in the United States, according to the National Association of Insurance Commissioners (NAIC), with Express Scripts, CVS Caremark, and OptumRx — the Big Three — processing approximately 79 percent of all US prescription claims in 2022, according to NAIC data. All three are owned by large insurance conglomerates and vertically integrated with their own dispensing arms. That integration, McMahan argues, creates a structural conflict: the same entity managing your formulary also profits from routing prescriptions through its own pharmacy network.
"There are levers that are turned on and off on how do you kind of ramp up what will get approved and then go through the specialty pharmacy dispensing arm," she said.
Even PBMs that advertise full rebate pass-through do not necessarily solve the underlying problem. The question HR leaders and their benefits managers still cannot reliably answer is whether their employees are being routed to the lowest net-cost option — or to the option that maximizes the PBM's margin. Under most current arrangements, those two things are not the same.
The broker problem, and why HR needs to ask harder questions
Most HR leaders rely on their benefits broker or consultant to evaluate PBM options. McMahan's challenge is direct: the analytical tools most brokers use are not built to surface the problem.
"They have amazing analytic tools to ingest claims data. They have algorithms that sit on top of that. And they are mainly structured around what is the rebate and what is the discount of the drug," she said.
That framework is designed for a market dominated by the Big Three, and it tends to make Big Three PBMs look competitive on paper even when newer models could deliver better outcomes for the employer and the member. The concern is not limited to McMahan. Rick Kelly, national pharmacy lead and senior vice president of employee health and benefits at Marsh McLennan Agency in Raleigh, North Carolina, has identified the same structural issue: many broker consultants operate coalitions or consortiums with PBMs that function as quasi-joint ventures, creating compensation arrangements that can steer clients toward specific PBMs without the employer ever knowing.
The DOL's proposed rule is designed to change that. It would require brokers and consultants — not just PBMs — to disclose indirect compensation arrangements to plan fiduciaries. For HR directors who have always assumed their broker's PBM recommendation was independent, that requirement carries an implicit message: it may not have been.
"We need to get rid of where they're being incentivized to bring business to certain PBMs," McMahan said. "And we need to work with them on how they update their models to a new way of buying."
The practical upshot is this: asking your broker how they are compensated in relation to your PBM recommendation is now both a reasonable and a legally grounded question. Under ERISA, you are the fiduciary. The broker is not.
ICHRAs and the guardrails HR must build in
The push toward defined-contribution health benefits — giving employees a fixed amount to spend on coverage through individual coverage health reimbursement arrangements (ICHRAs) — is accelerating. For HR leaders, it represents an opportunity to control cost and extend flexibility. McMahan supports the direction but raises a warning that HR teams designing ICHRA programs need to take seriously.
When employees control their own health spending, they make trade-offs. McMahan's concern is that without appropriate guardrails, some of those trade-offs will be clinically dangerous.
"You shouldn't necessarily say, well, I'm going to take my money that I have, and I would really prefer to go get a weight loss GLP-1, even though I don't need it. But I don't really want to go get my medication that I should be taking for my multiple sclerosis," she said.
The ICHRA guardrail question is not just a benefits design issue — it is a duty-of-care question. HR leaders who deploy defined-contribution models without building in protections for members with catastrophic or chronic diagnoses are transferring financial risk to the employees least equipped to manage it. For a workforce that includes people with serious conditions, the stakes of a wrong spending decision can be irreversible.
McMahan's position is that ICHRAs need a built-in safety mechanism — what she describes as a "parachute" — for members facing devastating diagnoses, so that coverage for clinically necessary treatment is not competing with discretionary benefit choices within a fixed budget.
What HR leaders should be doing now
For HR directors and benefits managers at self-insured employers, McMahan's analysis translates into a set of concrete obligations — some of which the DOL and CAA 2026 will eventually mandate, and some of which good fiduciary practice demands right now.
First, ask your broker directly how they are compensated in relation to your PBM. If there is any indirect compensation — coalitions, consortiums, administrative fees from the PBM — it should be disclosed. If it is not, that is the answer.
Second, look beyond the rebate figure when evaluating your PBM. Whether your PBM owns specialty pharmacies, and whether its formulary decisions are influenced by its dispensing economics, matters as much as the headline discount rate. McMahan argues that employers under 10,000 covered lives are particularly exposed, since smaller groups often do not receive the full benefit of manufacturer rebates their PBM negotiates.
Third, if you are moving toward an ICHRA or defined-contribution model, build the guardrails in before you launch. The flexibility that makes ICHRAs attractive to HR leaders is the same flexibility that can leave a member with a serious diagnosis without adequate coverage for their most critical medications.
"Nothing is 100 percent," McMahan said. "But I believe that alignment will start getting into the right spot. We have to help them do their jobs better on how the industry has changed."
The regulatory environment is moving in one direction. The question for HR leaders is whether they wait for CAA 2026's January 2029 enforcement date to start asking these questions — or whether they start asking them now.
