Bloomberg reported this week that one of the nation’s largest health insurers, The Cigna Group, will eliminate prescription drug rebates in its fully insured commercial health plans in 2027. Starting in 2028, the insurer will expand what it calls a “rebate-free model” as an offering to clients of its pharmacy benefits business. The policy changes promise to save money for some patients, particularly while in the deductible phase of their insurance. Patients may also have lower out-of-pocket costs for medications once their coverage phase begins. But questions linger, including the extent to which rebates are being replaced and how much adoption we’ll see by plan sponsors who contract with Cigna.
In its press release, Cigna says that Evernorth, its health services division of which the pharmacy benefits manager Express Scripts is a part, will “transition toward a new model where discounts negotiated with drug companies are available upfront to Americans buying their medications.” In this context, Cigna asserts it will offer “transparent, rebate-free pharmacy benefit services.” In other words, this could be viewed as a point-of-sale discount program, in which reduced prices apply at the pharmacy counter when patients pick up their prescriptions.
Prescription drug rebates have long been a focal point of healthcare policy discussions and political debate. Critics maintain that rebates drive up list prices of pharmaceuticals and therefore patients’ out-of-pocket costs.
Rebates are payments from drug manufacturers to pharmacy benefit managers in exchange for moving market share toward products with preferred positioning on formularies or lists of covered drugs. When a patient fills a prescription for a drug that carries a rebate, the pharmaceutical manufacturer remits an amount to the PBM, according to terms stipulated in the contract. Subsequently, the PBM passes through part of the rebate to the patient’s plan sponsor, while keeping a portion as profit. PBMs can pass through up to 100% of these payments to those with whom they contract. The percentage of pass-through depends on the parameters of the signed agreements.
While rebates may help PBMs, health plans and employers financially, they are generally not directly passed through to patients filling their prescription at the pharmacy counter. Additionally, patients’ out-of-pocket costs are often calculated based on percentages of list prices that are can be substantially higher than the net prices negotiated between PBMs and plan sponsors.
Cigna’s newly announced policy appears aimed at addressing the criticism of lack of pass-through of rebates and corresponding lower costs to patients. The company says Evernorth will compare multiple pricing options and charge patients the lowest cost. Specifically, Drug Channels writes that Evernorth will be “using a `lowest of’ pricing rule among: the pharmacy’s cash price, the manufacturer’s direct-to-consumer price, the coinsurance amount based on the net price, or the copay.”
Without elaborating, Cigna states that it “plans to integrate this model with new direct-to-patient programs when they become available to ensure the lowest costs are always widely available to Americans.” This could be in reference to the Trump administration’s launch in 2026 of the direct-to-consumer TrumpRx platform where certain drugs will be offered at discounted prices. The federal government platform will serve as a virtual marketplace where pharmaceutical companies can make their products available at discounted prices.
Cigna affirms that “in most cases, the Evernorth-negotiated cost is the best, but there are instances where the cash discount cost is lower, particularly for Americans in high-deductible health plans.”
Many patients would then see lower out-of-pocket costs in the deductible phase of their prescription drug benefit. And amounts spent on discounted medicines would count towards their deductible. Additionally, once coverage kicks in, patients’ co-insurance would be based on a drug’s net and not list price, which would further lower their expenses. Ultimately, Cigna projects that its change in policy will reduce the monthly cost for a brand-name prescription by an average of 30%.
Cigna says its new model will initially apply in 2027 to roughly two million members of its fully insured plans, or those for which the company is responsible for the full cost of healthcare across medical and pharmacy benefits. It will become the standard model available for all Evernorth pharmacy benefits clients beginning in 2028.
This isn’t the first time that a large insurer’s PBM has proposed a supposedly rebate-free model. UnitedHealthcare did so seven years ago. But the initiative did not gain traction among clients.
Ultimately, PBMs work at the behest of employers and health plans with whom they contract. Despite the frequent critique leveled at the traditional rebate system, plan sponsors have grown accustomed to it and many still prefer back-end rebates as a way to lower their net costs and temper premium growth for their enrollees. Independent experts acknowledge that replacing the traditional rebate system would likely lead to (modestly) higher premiums paid by plan enrollees.
So, the question becomes, will plan sponsors adopt Cigna’s model en masse? Cigna seems to think so. On a third quarter earnings call this week, the health insurer said it expects their standard offering will be adopted by 50% of their pharmacy benefits customers by the end of 2028. Time will tell if this verifies.