Quarterly formulary changes and what they mean for your plan

Every pharmacy benefit operates on a formulary, which is the list of covered medications and the rules that apply to them. Those rules may include prior authorization, step therapy, and quantity limits. Formularies are not static. Throughout the year, medications can be added, removed, moved to a different tier, or subject to new coverage requirements.

Some employers first learn about formulary changes when an employee contacts HR with a question about coverage. By that point, the change may already be affecting access to a medication or increasing out-of-pocket costs. Regardless of employer size or funding arrangement, formulary changes can affect employee access to medications, pharmacy spending, and the overall benefits experience.

This article explains how formulary changes happen, why they occur, and what they can mean for employer-sponsored health plans. It also outlines practical steps employers can take when changes are announced and highlights several pharmacy benefit developments worth watching in 2027.

The drivers of formulary changes

Formulary decisions are typically guided by pharmacy and therapeutics committees made up of physicians and pharmacists. These committees regularly review clinical evidence, evaluate new therapies, and recommend where medications fit within a formulary. Most pharmacy benefit managers (PBMs) and health plans review their formularies throughout the year, with many changes taking effect at the start of each calendar quarter and larger exclusion updates often taking effect in January and July. New medications, coverage restrictions, and drug exclusions may be announced weeks or even months before they become effective.

New drugs entering the market are among the biggest drivers of formulary activity. Each new therapy requires a coverage decision, and PBMs and health plans evaluate factors such as clinical effectiveness, safety, and cost before determining how it will be covered.

Cost is another important factor. Formularies play a significant role in negotiations between PBMs and drug manufacturers. Preferred placement on a formulary can influence prescribing patterns and market share, which often leads manufacturers to offer rebates or other financial concessions in exchange for favorable coverage or to avoid exclusion.

The continued growth of biosimilars has also contributed to ongoing formulary changes. Many PBMs have adjusted their coverage strategies to favor lower-cost biosimilar alternatives over certain reference products, such as when CVS Caremark removed Humira from its major commercial template formularies in April 2024.

The cost and operational impact

Quarterly formulary changes can affect employers in two ways. Depending on how the plan is funded, employers may notice a cost shift and an added administrative workload.

Pharmacy already accounts for about 25% of large employers’ healthcare spending, according to the Business Group on Health’s (BGH) 2027 Employer Healthcare Strategy Survey. Nearly 300 insurers offering small-group coverage are requesting a median 14% premium increase for 2027, according to KFF, citing rising prices for hospital care, physician care, and prescription drugs. Formulary changes can increase costs for a plan, yet they are also a primary tool PBMs use to manage spending.

Consider a plan with several members taking a high-cost brand-name drug. A PBM adds a lower-cost alternative, either excluding the brand or moving it to a higher tier. If most members switch, the plan pays less per claim. If many members receive exceptions, switch to another expensive therapy, or delay treatment because of higher cost sharing, or if the preferred drug carries a smaller rebate than the brand, the cost can rise instead. Some drugs, including infused biologics, can also be billed under the medical benefit, so savings on the pharmacy side may be offset by higher medical benefit claims. Self-funded employers see the effect directly in their claims and may notice it within months. Fully insured employers typically feel it later, through the carrier’s renewal pricing. The final outcome can differ from one plan to the next.

Formulary changes can also raise notice questions for both fully insured and self-funded plans. If a midyear change alters information shown in the plan’s summary of benefits and coverage (SBC), such as tier cost sharing, the plan generally must notify participants at least 60 days before the change takes effect. However, because the SBC typically does not list individual drugs, many formulary changes will not trigger this requirement. A change that materially reduces coverage may still require a separate notice under the Employee Retirement Income Security Act after adoption. Employers should confirm with their advisor whether a specific change requires notice and who will provide it.

In either case, employees tend to turn to HR for help navigating formulary changes. Because employees generally cannot switch plans midyear in response to a formulary change, questions often focus on alternatives, exceptions, and cost within the current plan.

What to do when a change is announced

Advance notice of formulary changes is not always consistent. Some employers receive updates from their carrier or PBM before changes take effect. Others learn of a change only after employees receive their own notices.

When a change is announced, taking a few proactive steps can help minimize disruption and provide a clearer understanding of the potential impact:

• Review the list of affected medications, including those being added, excluded, moved to a different tier, or subject to new utilization management requirements.
• Determine how many plan participants may be affected. Self-funded employers may have access to claims reporting that can show utilization of affected medications. Fully insured employers typically do not have claims-level data, so they can ask their carrier how many members are affected or send a general notice to all plan participants.
• Share the carrier’s or PBM’s list of preferred alternatives, if available, so employees can discuss options with their providers.
• Notify employees of the process for requesting exceptions, transition fills, and continuation-of-therapy provisions to help reduce treatment disruptions.
• Evaluate any potential financial impact and discuss the changes with the carrier, PBM, and advisor.
• Ask the carrier or PBM how far in advance future changes will be shared.
• Direct employees with medication-specific questions to the carrier or PBM so HR does not need to collect personal health details.

Planning for 2027

Several developments are already shaping pharmacy benefit strategies and are likely to drive formulary activity in 2027.

One area to watch is how biosimilars are reshaping formularies. For example, several large PBMs have excluded Stelara from their formularies in favor of private-label biosimilars, with changes taking effect in 2025 and 2026. As additional biosimilars enter the market and more brand-name drugs face competition, employers can expect continued formulary adjustments designed to encourage the use of these products.

Glucagon-like peptide-1 (GLP-1) medications are likely to remain another focal point. Employers continue to balance employee demand for these drugs against their long-term cost implications, as new formulations and treatment indications become available. The share of employers covering GLP-1 medications for weight loss fell from 72% in 2025 to 60% in 2026, according to the BGH’s 2027 survey. CVS Caremark removed Zepbound from its commercial template formularies in July 2025 and added the drug back as a preferred option in October 2026. As coverage strategies continue to evolve, employers, carriers, and PBMs are still evaluating the role GLP-1 medications should play within long-term health benefit programs. Depending on the carrier and PBM, future changes may include new utilization management requirements, preferred product strategies, or adjustments to coverage eligibility.

Employers may also see continued attention on specialty medications, particularly in areas such as oncology, autoimmune conditions, and rare diseases. These therapies can entail significant costs even when used by relatively few participants, making them a common focus of formulary management efforts. Cancer remains the top condition driving employer healthcare costs, named by 70% of employers in the BGH’s survey. New specialty drug approvals often lead to additional prior authorization requirements, step therapy programs, and other measures intended to balance access and affordability.

Finally, PBM transparency and contracting practices are likely to remain in focus. New reporting and transparency requirements in the Consolidated Appropriations Act of 2026, signed in February 2026, are expected to influence how employers evaluate PBM relationships and pharmacy benefit strategies in the years ahead. Large self-funded employers will receive drug-level PBM reports at least every six months, and large fully insured employers can opt in. Most of the provisions apply to plan years beginning about 30 months after enactment, which is Jan. 1, 2029, for calendar-year plans. While these developments may not directly change formularies, they could affect how formulary decisions are communicated, reported, and evaluated.

Conclusion

Formulary changes are a routine part of pharmacy benefit management and can affect employers of any size, whether fully insured or self-funded. A change in coverage can influence employee access to medications, create new administrative responsibilities, and affect pharmacy spending in ways that may not be apparent until months after the change takes effect. Staying informed about market developments and maintaining regular communication with carriers and PBMs can help employers anticipate changes before they affect employees or impact plan costs.

Contact us for additional pharmacy benefit resources and guidance.

This Benefits Insights is not intended to be exhaustive, nor should any discussion or opinions be construed as professional advice. © 2026 Zywave, Inc. All rights reserved.