Ozempic and Wegovy: To cover or not to cover? That is the question

The stories about Ozempic, and other diabetes drugs that can also be used for weight loss, seem to be everywhere. The demand for the drugs has led to their shortage for the original purpose of treating diabetes. If they haven’t already, employers may soon have to make difficult decisions about whether or how their plans will cover the drugs for weight loss.

Demand for weight loss drugs, in spite of the cost

The news stories about the use of the drugs for weight loss purposes has driven demand in spite of the cost, which can be as much as $900/month.  It is unsurprising, therefore, that plan participants want their employer’s health care plans to cover the cost of the drugs.  But insurers and plans may make the coverage more difficult to get due to several factors, including the immediate cost, the ongoing cost of the plan, and whether the drugs will be effective long-term. Some recent data indicate that ongoing treatment, possibly indefinitely, is required to maintain weight loss.

Morgan Stanley discussed the potential for huge growth in demand in an article estimating that, “Some 25% of people with obesity will engage with doctors about their disease, up from 7% today. In turn, the analysts expect around 55% of those patients to be prescribed a new anti-obesity drug.” The National Institutes of Health (NIH) estimates that 42% of adults are classified as obese. Extrapolating these numbers can lead to substantial expenses for employer plans. If only 22 employees are prescribed one of these drugs at an estimated cost of $19,800 per month, that single drug could cost the employer, $237,600 per year for the group. These drug treatments seem to be catching on with various groups (and even Weight Watchers is getting into the weight-loss medication business after decades of its focus on diet and exercise). With the intense focus on these drugs, employer health care plans will likely encounter increased costs.

Given that sizable potential cost, what options are there for employers?

Employers have (some) options

Typically, to obtain a prescription for any of these drugs, a physician must be consulted. If there is a specific diagnosis, such as hypertension or diabetes, and the drugs are prescribed to treat that condition, they will meet the definition of a qualified medical expense under Section 213 of the Internal Revenue Code (IRC). That means that employer plans can cover the cost of prescribed medications as a tax-free benefit to employees.  Therefore, since prescriptions for Wegovy (as well as Ozempic) will likely meet the requirements of the IRC, most employer plans will cover the cost of the drugs tax free (perhaps with a deductible or co-pay for a part of the cost).  Most employer plans generally cover expenses defined by Section 213, if a physician prescribes them and if the prescription meets any other requirements of the plan (if they require pre-authorization, the use of mail order pharmacies or the like), the plan could properly cover their cost.

Additionally, the IRS clarified in FAQs updated on March 17, 2023, that the costs of nutritional counseling and weight-loss programs could be medical expenses and are, therefore, payable or reimbursable for account-based plans (health FSAs, HSAs, HRAs, and Archer MSAs) as medical expenses if the program treats a disease diagnosed by a physician (such as obesity or diabetes).

Must employer plans pay for weight-loss drugs?

Given the costs of the drugs and some evidence that the patients will need to take them indefinitely, some employers may wonder if it is worth covering these drugs. They may wonder if they must offer coverage for them.

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 Affordable Care Act (ACA) requires all group medical plans to cover preventive treatments with no out-of-pocket expense. The definition of “preventive” has recently 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 Services Task Force (USPSTF) would be included as a mandated treatment under the ACA requirements. The Department of Health and Human Services (HHS) has indicated that they will continue to permit plans to use the USPSTF standard without enforcement concerns.

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. They can decide what options are available and under what conditions. ERISA would permit those plans to provide coverage or not for Wegovy or other weight loss drugs if the specifics are communicated to the plan participants. That means that the information is provided in the plan document and summary plan description (SPD).

Analyzing how weight loss drugs fit into a health management strategy

Employers that maintain self-funded group health plans may consider a broader look at weight management, such as offering wraparound care or 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, employers may be able to encourage employees to learn how to live a healthy lifestyle without the use of drugs.

Related: Obesity is complicated: How best to cover, or not cover, the new weight loss drugs

oGenerally, employer group medical plans can cover or exclude various treatments or services (with some exceptions). The plan documents do need to include disclosures of any exclusions. While that applies to self-funded and fully insured plans, 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, corporate culture, and the totality of their compensation and benefits strategy to determine if they want to include that coverage in their group medical plan.

Jay Kirschbaum is Senior Vice President and Benefits Compliance Director at World Insurance.