Ethica State Law Alert
On July 1, 2025, Illinois House Bill 1697, also known as the Prescription Drug Affordability Act, was signed into law. Key provisions of this Act applicable to employer sponsored group health plans and Pharmacy Benefit Manager (PBM) contracts, including PBM audit and transparency requests, are effective as of January 1, 2026.
These key provisions for employers offering prescription drug coverage in Illinois are outlined below:
- Spread Pricing: PBMs cannot charge plans more than the amount it pays the pharmacy for prescription drugs and keep the difference as profit.
- Steering: Health insurers (fully insured plans) and PBMs are prohibited from limiting consumer choice of pharmacies by forcing patients to use PBM owned pharmacies through financial incentives.
- Pass-Through Rebates: PBMs must pass-through ALL manufacturer rebates to health plans. Disclosure requirements of rebates and fees to the Illinois Department of Insurance are required annually.
- Audit: PBM contracts with insurers or group health plan sponsors must allow for an annual audit of the PBM’s rebate and fee records.
- Required PBM Fees: PBMs must submit an annual fee of $15/covered individual in plans administered by the PBM in Illinois. Although payable by the PBM, this fee will most likely be passed on to group health plan sponsors. (Effective September 1, 2025.)
- ERISA Preemption Reminder: Group health plan provisions of HB 1697 apply to fully insured and self-funded ERISA plans. ERISA generally preempts state laws that attempt to regulate self-funded ERISA plans. On-going legal challenges to state PBM laws such as HB 1697 should be monitored to determine applicability of network restrictions, benefit design or coverage requirements.
Next Steps:
Consult with Ethica Pharmacy Advisors and the PBM to determine compliance with HB 1697. HB 1697 does not provide for direct penalties against employer plan sponsors. However, Illinois enforcement action against any PBM could cause issues with plan administration and will invoke plan sponsor ERISA fiduciary duty concerns.
The information provided is a summary of laws and regulations relating to employee benefit plan compliance. This information should not be construed as legal advice. In all cases, employers should consult with their own legal counsel.
