The Employee Retirement Income Security Act (ERISA) was designed in 1974 to protect workers’ pensions and employer-sponsored benefits. Half a century later, it still governs a vast portion of the American health care system—particularly employer-sponsored insurance, which covers roughly 160 million Americans. But while medicine, markets, and patient expectations have evolved dramatically, ERISA’s regulatory framework has not kept pace.
Reform is no longer optional; it is essential. And central to that reform conversation is the evolving role of pharmacy benefit structures (PBS), including pharmacy benefit managers (PBMs), plan sponsors, and emerging service platforms that shape how drugs are accessed, priced, and reimbursed.
At its core, ERISA preemption—its sweeping override of state laws—was intended to create uniformity for employers operating across multiple states. That goal made sense in a simpler era. Today, however, ERISA preemption often shields opaque intermediaries from meaningful oversight, particularly in the prescription drug supply chain. States attempting to regulate drug pricing practices, spread pricing, or rebate arrangements frequently find their efforts constrained by ERISA’s broad reach. The result is a regulatory gray zone in which costs rise, accountability blurs, and patients are left navigating a system few understand.
This tension is now playing out in real time through a wave of federal and state legislative proposals. In Washington, bipartisan momentum is building behind efforts to directly integrate PBS actors into ERISA’s fiduciary framework. The proposed PBM Fiduciary Accountability, Integrity, and Reform (FAIR) Act would, for the first time, classify PBMs as ERISA fiduciaries—requiring them to act in the best interest of plan sponsors and beneficiaries, disclose compensation structures, and avoid self-dealing. This represents a fundamental shift: PBS entities would no longer operate as loosely regulated vendors but as legally accountable stewards of employer health benefits.
At the same time, Congress has begun advancing broader transparency mandates. Recent federal reforms included in the Consolidated Appropriations Act of 2026, alongside proposed Department of Labor rules, would significantly expand disclosure requirements for PBMs serving ERISA plans—particularly around fees, rebates, and conflicts of interest. Additional proposals such as the Pharmacy Benefit Manager Transparency Act and the Prescription Pricing for the People Act aim to further scrutinize pricing practices and competitive behavior. Together, these efforts signal a growing recognition that ERISA cannot remain agnostic about how pharmacy benefits are managed.
Meanwhile, states are not waiting. In the wake of the Supreme Court’s Rutledge decision, which upheld certain state-level PBM regulations, legislatures have moved aggressively to fill perceived federal gaps. California’s SB 41, signed into law in 2025, imposes new oversight on PBM reimbursement and network practices while attempting to avoid direct conflict with ERISA’s preemption clause. Other states have gone further: Arkansas enacted a first-in-the-nation law to restrict vertical integration by prohibiting PBMs from owning pharmacies, a move that has already triggered significant legal challenges and could reshape national policy debates. Across the country, legislatures are exploring restrictions on spread pricing, mandates for rebate pass-through, and limits on pharmacy steering—often pushing the boundaries of what ERISA allows.
This growing patchwork underscores a central problem: ERISA’s preemption framework is increasingly out of sync with modern health care realities. While uniformity remains important, rigid preemption can prevent states from addressing clear market failures. At the same time, inconsistent state laws risk fragmenting employer-sponsored coverage and undermining the efficiencies ERISA was designed to protect. The current system satisfies neither goal.
This is where PBS entities come into sharper focus. Originally conceived as administrative tools to help employers manage prescription drug benefits efficiently, these organizations now wield enormous influence over which medicines patients receive, how much they pay, and which pharmacies they can use. Their evolution has been rapid and largely unchecked. What began as claims processors are now powerful negotiators, formulary designers, and financial intermediaries embedded deeply within vertically integrated health care conglomerates.
To be clear, PBS entities can—and often do—deliver value. They negotiate discounts, manage utilization, and can steer patients toward cost-effective therapies. But their incentives are frequently misaligned with those of patients and plan sponsors. Revenue streams tied to rebates, spread pricing, and proprietary formularies can reward higher list prices and limit transparency. Employers, the very stakeholders ERISA was meant to protect, often lack clear insight into how their pharmacy benefits are managed or how savings are distributed.
ERISA reform must therefore begin with transparency and fiduciary clarity. The FAIR Act points in the right direction, but it should be part of a broader modernization that explicitly brings pharmacy benefit arrangements within ERISA’s fiduciary framework. Plan sponsors should have a clear, enforceable right to access complete, auditable data on drug pricing and PBS compensation. Fiduciary duty must be more than a theoretical concept—it must be operationalized.
Second, policymakers should revisit the scope of ERISA preemption as it applies to PBS oversight. A more calibrated approach—one that preserves national uniformity while allowing targeted state regulation of abusive practices—would reflect the realities of today’s marketplace. Federal legislation could explicitly define the boundaries, reducing litigation while encouraging innovation.
Third, reform should foster competition by supporting new PBS models that prioritize transparency over complexity. Pass-through pricing, independent fiduciary PBMs, and employer-led purchasing coalitions are already emerging as viable alternatives. Updating ERISA to accommodate and encourage these models would help realign incentives across the system.
Fifty years ago, ERISA brought order to a fragmented benefits landscape. Today, it must evolve again—this time to address the opaque and increasingly powerful role of PBS entities. The legislative activity unfolding at both the federal and state levels is not a threat to ERISA’s legacy; it is a signal that reform is overdue.
The question is no longer whether ERISA will change—but whether policymakers will shape that change thoughtfully or allow it to be driven by piecemeal regulation and litigation. For the sake of employers, patients, and the sustainability of the system itself, the answer should be clear.
Peter J. Pitts, a former FDA Associate Commissioner, is President of the Center for Medicine in the Public Interest.
