Self-Funded Pharmacy

Self-funded employers have the option to carve out their pharmacy benefit from their medical plan, contracting directly with a PBM rather than using the PBM bundled with their medical carrier. This decision involves tradeoffs between cost control, administrative complexity, and integration with medical benefits.

Carved-In vs. Carved-Out

A carved-in pharmacy benefit is managed by the medical carrier's affiliated PBM as part of the overall health plan. A carved-out benefit involves a separate, direct contract with an independent PBM. Most fully insured plans use carved-in pharmacy. Self-funded employers can choose either approach, and the choice significantly affects cost, transparency, and operational complexity.

Advantages of Carve-Out

Carving out pharmacy gives the employer direct control over PBM selection, contract terms, and pharmacy benefit design. This typically results in more competitive pricing (because the employer is negotiating directly rather than accepting bundled terms), greater transparency into PBM economics, broader PBM selection options, and the ability to switch PBMs independently of the medical carrier.

Challenges of Carve-Out

Carved-out pharmacy creates additional administrative responsibilities. The employer must manage a separate vendor relationship, coordinate accumulator data between medical and pharmacy benefits to ensure deductibles and out-of-pocket maximums are tracked correctly, and reconcile reporting across two systems. Clinical integration between medical and pharmacy data requires deliberate coordination that is automatic in a carved-in model.

When to Consider Carve-Out

Carve-out generally makes sense when your medical carrier's bundled PBM does not offer competitive pricing or transparency terms, when your plan is large enough to justify the administrative overhead (typically 1,000+ employees), and when you have pharmacy benefits expertise internally or through a consultant.