New Drug-Middleman Fee Disclosures Are Final. Most Small Employer Health Plans Were Left Out

In January, the Labor Department proposed making pharmacy benefit managers disclose their pay to every self-insured employer health plan ^[2]. The final version, published Nov. 2, covers only self-insured plans tied to 100 or more employees or participants ^[1]. If you run a small business that offers health coverage, especially through a level-funded plan, this rule mostly passes you by. What you’re still owed is worth knowing anyway.

What changed on Nov. 2

Pharmacy benefit managers, or PBMs, are the companies that run a health plan’s prescription drug benefit. They build pharmacy networks, negotiate drug rebates with manufacturers, set the formulary (the list of covered drugs) and process claims ^[1]. The department calls them the “middlemen” in the drug supply chain ^[1].

The Employee Benefits Security Administration, the part of the Labor Department that oversees employer benefit plans, announced the final rule on Oct. 29 ^[3]. It requires PBMs, and brokers or consultants affiliated with them, to disclose their direct and indirect compensation to the person responsible for a covered plan ^[1]. That includes manufacturer rebates, spread compensation (the gap between what the plan pays and what the pharmacy gets) and payments clawed back from pharmacies ^{[1, 3]}. Covered plans get disclosures before a contract is signed or renewed, follow-ups every six months (or quarterly on request), and the right to audit the numbers ^[1].

The legal hook is ERISA section 408(b)(2), the exemption that lets a plan pay a service provider at all. If the disclosures aren’t made, the arrangement can become a prohibited transaction, and the provider can face a civil penalty ^[1]. A broker or consultant counts only if it expects at least $1,000 in compensation ^{[1, 4]}.

The rule takes effect Jan. 4, 2027, and applies to plan years beginning on or after July 1, 2027 ^[1].

How we got here

The proposal came out Jan. 30, 2026, with comments due March 31 ^[2]. Days later, on Feb. 3, the Consolidated Appropriations Act, 2026 was enacted, and it rewrote the same section of ERISA ^[1]. That law also created ERISA section 726, which will require PBMs to send detailed drug-spending reports every six months to self-insured plans of employers with at least 100 employees, starting with plan years beginning on or after Aug. 3, 2028 ^[1]. From that same date, PBMs must pass manufacturer rebates, fees and other payments through to the plans they serve ^[1].

A few commenters argued the new law made the department’s project unnecessary and asked it to withdraw the proposal ^[1]. The department went ahead, saying its disclosures come at contracting time and during the contract, while section 726 reports look back at drug spending after the fact ^[1].

Other commenters asked the department to line its rule up with that law ^[1]. Others warned that smaller employers with limited resources would struggle to analyze the detailed disclosures and could face more litigation risk for having received them ^[1]. The department agreed, saying the disclosures “may be most useful to responsible plan fiduciaries of larger employers, who are more likely to have compliance staff” ^[1]. So it borrowed section 726’s size lines.

Does this apply to you?

You’re covered by the new rule only if all of these are true ^[1]:

• Your group health plan is self-insured, meaning the plan pays claims rather than an insurance company. Level-funded plans count as self-insured, even though their stop-loss coverage makes them feel like insurance.
• Your business averaged at least 100 employees on business days in the prior calendar year, counted under the same rules as the ACA employer mandate in Section 4980H. Or the plan, if it’s an association or multiple-employer plan, averaged at least 100 participants.
• Your plan sponsor isn’t itself in the drug supply chain, like a drug maker or wholesaler.

Fully insured plans are out entirely, for now. The department says it is reserving more detailed rules for those plans for future action ^[1].

The department estimates about 131,102 self-insured plans with 100 or more participants are affected ^[1]. It also estimates there are 953,420 small, level-funded ERISA plans ^[1]. Those are left out. The rule’s own words on level-funded plans: they “tend to rely on TPAs and issuers to carry out their claims, administrative, and pharmacy benefit management functions” ^[1].

Left out doesn’t mean left with nothing. Smaller plans’ PBMs and brokers “will still need to follow the statute,” the department says ^[1]. That means the general disclosures already in ERISA: the services provided, whether anyone is acting as a fiduciary, and the direct and indirect compensation the provider expects, delivered before a contract is signed, extended or renewed ^[1]. In 2028, section 726 adds a summary document for plans of every size ^[1].

Hypothetical one. Say you run a hypothetical 40-person machine shop with a level-funded plan through a third-party administrator. You’re below the 100-employee line, so the new disclosures, semiannual reports and audit rights don’t apply ^[1]. You can still ask, in writing, for the statutory compensation disclosures at renewal ^[1].

Hypothetical two. A hypothetical regional pest control company averaged 120 employees last year and self-insures with stop-loss coverage on a calendar-year plan. It’s covered. Its first plan year under the rule starts Jan. 1, 2028, according to Crowell & Moring’s reading of the dates ^{[1, 5]}.

Hypothetical three. A hypothetical 25-person accounting office buys a fully insured small-group policy. Nothing in this rule reaches that plan ^[1].

Here’s the short version: under 100 employees, or fully insured, and the detailed disclosures aren’t coming to you.

What to do now

First, know your funding type. The department notes that level-funded arrangements are built to feel like fully insured coverage, with predictable spending, but are actually self-funded ^[1]. If you’re near 100 employees, get the count done the 4980H way. That’s the same section behind the employer mandate penalties in July’s column on the 2027 affordability numbers, though this rule’s line sits at 100 employees, not 50.

Then ask for what you’re already owed. The department has given PBMs and plans temporary good-faith enforcement relief on the statute’s disclosures from Feb. 3, 2026, until the rule’s applicability date ^{[1, 5]}. That’s relief from enforcement, not a reason to stop asking. The checklist has the steps.

What I’m keeping an eye on

The section 726 summary document. It reaches plans of every size from the same August 2028 start as the larger reports, but the agencies still have to define its contents through guidance ^[1].

Fully insured plans. The department reserved detailed rules for them, with no date ^[1]. One commenter pointed out that smaller employers’ average individual deductible is $2,631, against $1,670 at larger employers ^[1].

— Sally