The U.S. Department of Labor announced on May 5 that it is expanding the Federal Employees’ Compensation Act (FECA) pharmacy benefit program to cover claims under the Longshore and Harbor Workers’ Compensation Act (LHWCA), Black Lung Benefits Act, and Energy Employees Occupational Illness Compensation Program Act (EEOICPA). The expansion itself matters for self-insured maritime and harbor employers. But the number behind it matters for every self-insured WC program: since restructuring its pharmacy benefit management (PBM) contract with Optum in 2018, FECA’s annual drug expenditures fell from $226.2 million to $39.8 million by calendar year 2025, an 82.4% reduction.
Who it affects
The Longshore expansion directly touches self-insured maritime, defense base, and harbor employers who will now operate under the same structured PBM framework that produced FECA’s results. But the benchmarking signal reaches further.
WC pharmacy spend typically runs 12% to 18% of total medical costs for self-insured employers. Programs without structured PBM contracts routinely spend 40% to 60% more per claim on pharmacy than those with formulary and rebate controls in place. That gap represents medical severity that actuaries are pricing into reserve estimates, and much of it may be addressable.
The reserve mechanism: medical severity
The FECA program demonstrated that structured PBM management, specifically manufacturer rebate pass-throughs, formulary standardization, clinical safety protocols, opioid prescribing reduction, and systematic fraud, waste, and abuse detection, can compress pharmacy severity by a magnitude that shifts the medical cost trend line.
For self-insured programs, the reserve effect is direct. Pharmacy costs are a component of medical severity in the workers’ compensation loss triangle. When pharmacy spend per claim drops, medical severity drops, and that favorable development should begin appearing in paid loss triangles within two to three accident years of implementation. The question is whether your current severity assumption reflects what your program is actually spending on pharmacy today, or whether it is trended forward from older accident years that predate your current PBM controls.
What the Longshore expansion signals
Self-insured LHWCA employers will now have pharmacy claims routed through the same Optum-managed PBM structure. That introduces formulary controls, rebate pass-throughs, and clinical protocols that most Longshore employers have not had. Early results from this cohort, expected by mid-2027, will provide the first direct data point on how quickly structured PBM restructuring flows through to WC medical severity for employers outside the federal system.
What this means for your next review
Before your next reserve study, ask your actuary what percentage of your WC medical costs is pharmacy and how that compares to NCCI or WCRI benchmarks for your state mix. Then ask whether your medical severity assumption is based on current PBM performance or trended forward from pre-control accident years. If you do not have a structured PBM contract with formulary controls and manufacturer rebate pass-throughs, the gap between FECA’s 82.4% reduction and typical self-insured pharmacy management is a measure of addressable severity sitting inside your reserves.