Baynes & White's Yvonne Elsdon suggests employers should move away from open formularies to control rising drug costs
In 2026, benefits costs won’t be drifting up in small, manageable increments. In fact, plan sponsors can expect costs to rise even more.
That’s according to Yvonne Elsdon, a senior consultant at Baynes & White. She suggests prescription drugs, mental health benefits and long-term disability claims will be the main biggest cost threats facing plan sponsors in 2026.
Notably, the explosion in specialty medications - particularly designer drugs, gene therapies, and GLP-1 treatments - has created a situation where individual claims are reaching levels employers never anticipated. Open formularies, where virtually any drug can be covered, expose plans to escalating costs that employers can’t realistically sustain.
“Drugs are a huge cost driver,” said Elsdon. “All these new designer drugs are going off patent, but they're finding new things to go on patent, and I think the real risk is with these expensive drugs. If you have an open formulary and any drug can be covered, that's a big risk to the plan.”
Elsdon argues that GLP-1 drugs need tighter controls, whether they’re being prescribed for weight loss or diabetes. She believes coverage should only be granted after prior authorization, with clear clinical criteria in place, including a BMI threshold that indicates obesity and proof that the patient is making lifestyle changes alongside medication.
For her, relying only on prescriptions is not enough because being overweight or obese is mixed various factors like mental health, habits and genetics. To achieve lasting results, she emphasized that plan members “need to be doing more than just taking a pill or doing a needle to actually have sustained weight loss.”
On the claims side of things, she acknowledged most employers rely on pooling arrangements, so insurers absorb claims above a certain threshold. But she suggests that pooling with insurers only goes so far. Employers still absorb significant costs below pooling thresholds, and individual cases can sharply distort experience for smaller groups.
Meanwhile, a handful of high-cost drug users can quickly push spending higher, with claims reaching well into six figures, added Elsdon.
"I have a client with about 70 people, and their pooled claims are at $281,000. That's crazy. We weren't seeing that in previous years with new drugs coming out. Costs are really going up as are more expensive cancer drugs and for Crohn's and autoimmune disease. People never used to have autoimmune diseases. Now it seems common," she said.
To address these challenges, Elsdon recommends moving away from open formularies and toward managed formularies that employ step therapy - requiring employees to try lower-cost treatments before accessing expensive options. She asserts that employers lack the expertise to build their own drug plans, underscoring specialist firms with pharmacists and medical expertise should handle this function instead.
She believes this would not only help control rising drug costs but that employees would barely notice the change because it only affects a small number of high-cost cases.
She highlighted one client who moved from full reimbursement down to 80 per cent coinsurance but compensated by doubling their health spending account contribution. Because the HSA is a defined contribution, "the cost to the employer was limited," she said, while most employees with average claims ended up in roughly the same financial position.
Additionally, under a managed formulary, drugs are subject to prior authorization and step therapy, so patients start with lower-cost options and only progress to more expensive treatments if needed.
While Elsdon sees increased mental health coverage as positive in principle, she highlighted that actual usage is now driving substantial costs, especially in larger workforces where total claims can surpass six figures. In her view, younger employees are far more willing to use mental health benefits and acknowledge their importance, while many older workers still carry a “suck it up, buttercup” mindset and are less likely to seek support.
For long-term disability, she warns that both employees and employers are now shouldering very high costs because most LTD plans run to age 65, even though modern work patterns don’t match that model.
With people changing jobs more often, she suggests shortening LTD coverage periods to five or ten years to make premiums more affordable, even if it’s not ideal. She also flags mental health as a major driver of LTD claims: these cases are increasing, hard to adjudicate, and once someone has been off work for a long stretch, the odds of them returning to their job drop sharply.
As more expensive therapies hit the market, she expects a feedback loop: higher claims push insurers to raise pooling charges and premiums, which then further increases overall plan costs.
Alongside plan design, she thinks employers should deliberately tap into manufacturer-sponsored support programs that subsidize expensive drugs. Introducing co-insurance can help redirect part of the cost burden to these programs instead of the benefits plan, since many high-cost therapies qualify for such assistance and don’t always need to be fully funded by the employer.
To that end, Elsdon argues employers can’t realistically absorb the full impact of very high-cost drugs on their own and that public programs should help carry part of the load. She pointed to Ontario’s Trillium Drug Program as an example of where some of the expense can be shifted, even though its coverage is narrower and less generous than most group plans.
“It's not ideal because they don't cover everything and they have a much more limited formulary than most group plans. But if it's the case of being able to afford to have benefits or not afford to have benefits, maybe putting in drug caps is something to look at and should be considered,” said Elsdon.
She ultimately urges employers to look beyond any single tactic and review multiple levers, from drug caps to managed care formularies. The bigger point, she stressed, is that "employers shouldn’t accept that the status quo is going to work for you long term," she said, while also flagging generic substitution as an overlooked source of savings, noting that many clients have never made the switch despite the potential upside.
While tighter plan controls will leave some employees without coverage for certain drugs, Elsdon underscored that “there are other avenues of getting that coverage and they need to explore all of them."
