When a company’s health insurance renewal arrives with a significant increase, the easiest response is often to accept the new rate, increase employee contributions, or ask the insurance broker to find a cheaper plan.
For CFOs, CEOs, HR leaders, business owners, and benefits managers, none of those should necessarily be the first step.
A health insurance renewal increase is a signal that the company’s healthcare strategy needs to be reviewed. Before accepting the new premium, employers should understand why costs increased, what is driving the change, and what alternatives are available.
Why Did Your Health Insurance Renewal Increase?
There is rarely one reason behind a health insurance increase.
Depending on the employer and plan structure, costs can be affected by medical claims, prescription drug spending, provider prices, plan design, employee demographics, high-cost claims, administrative expenses, and broader healthcare cost trends.
For a fully insured employer, much of this may appear simply as a new premium.
That does not mean the employer should accept the renewal without asking questions.
Your corporate health insurance broker should be able to explain the major factors behind the increase and provide enough information for management to evaluate whether the proposed renewal is reasonable.
Don’t Start by Cutting Employee Benefits
When healthcare costs rise, employers often consider increasing deductibles, copays, or employee contributions.
Those changes can reduce the employer’s immediate expense, but they also shift more healthcare costs onto employees.
That may affect employee satisfaction, utilization, recruitment, and retention.
Instead, employers should first determine whether there are opportunities to address the underlying cost of the health plan.
Depending on the circumstances, that could involve reviewing the funding model, pharmacy strategy, provider network, plan design, vendor arrangements, or access to care.
Cost containment should not automatically mean reducing the value of the benefits employees receive.
Ask Your Broker to Explain the Increase
A good employee benefits broker should be able to answer a straightforward question:
What specifically caused our healthcare costs to increase?
Ask for an explanation of the major cost drivers and how they compare with previous years.
Employers should also ask whether the increase is primarily related to claims, prescription drugs, provider pricing, administrative costs, plan changes, or other factors.
If the only explanation is that “healthcare costs are going up,” ask for more detail.
CFOs and business owners need information they can use to make a financial decision – not simply a new premium to approve.
Look at Your Claims and Utilization
For employers with access to claims and utilization information, the renewal is an opportunity to understand what is happening inside the health plan.
Look for patterns rather than focusing only on one large claim.
Questions worth examining include:
- Are a small number of high-cost claims driving a large portion of spending?
- Are prescription drugs becoming a larger part of total healthcare costs?
- Are certain services being used more frequently?
- Are employees accessing appropriate primary or preventive care?
- Are there opportunities to improve access to lower-cost, high-quality care?
The answers can help determine whether the company needs a different strategy rather than simply a different insurance carrier.
Review Your Pharmacy Benefits
Employers should not evaluate their medical plan and ignore pharmacy spending.
Prescription drug costs can have a substantial effect on an employer’s overall healthcare budget, particularly when specialty medications and other high-cost drugs are involved.
Benefits managers and CFOs should understand how their pharmacy benefit is structured and whether the current arrangement provides sufficient transparency.
That includes reviewing the pharmacy benefit manager relationship, pricing arrangements, incentives, and the overall role pharmacy spending plays in the company’s health plan.
A health insurance renewal may be the right time to conduct a more comprehensive pharmacy review.
Consider Whether Your Funding Model Is Still Appropriate
A renewal increase can also be a reason to revisit how the health plan is funded.
Some employers remain fully insured for many years without evaluating whether another approach could better fit their organization.
Depending on the company’s size, claims history, financial objectives, and risk tolerance, alternatives may include level-funded or self-funded arrangements.
A change in funding is not automatically a solution to rising healthcare costs. It can introduce different financial responsibilities and requires careful evaluation.
However, employers should at least know whether these alternatives are worth considering.
Look at the Entire Healthcare Supply Chain
Your health insurance carrier is only one part of the healthcare system supporting your employees.
Depending on the plan, other organizations may include a third-party administrator, pharmacy benefit manager, provider network, stop-loss carrier, care-navigation provider, and other vendors.
Each arrangement can affect the company’s overall healthcare costs.
This is why simply asking another insurance company for a quote may not address the real problem.
A comprehensive employer healthcare review should consider the entire plan and the relationships involved in delivering and administering benefits.
Don’t Automatically Shop the Renewal
Shopping the market can be appropriate, but it should not be the only strategy.
If the company changes carriers every time the renewal increases, it may end up moving between insurance products without addressing the underlying reasons healthcare costs continue to rise.
The better question is:
What can we change about our healthcare strategy before deciding whether we need a different carrier?
That could mean evaluating plan design, funding, pharmacy benefits, provider arrangements, care access, employee contributions, or other cost drivers.
Only after those questions are addressed can an employer make a more informed decision about whether changing carriers makes sense.
What Should CFOs Ask Before Approving a Renewal?
Before signing a renewal, company leaders should ask their employee benefits advisor:
- What caused our increase?
- What are our largest healthcare cost drivers?
- How does our current plan compare with reasonable alternatives?
- Have you reviewed our pharmacy strategy?
- Should we consider a different funding model?
- Are our current vendors providing competitive value?
- What can we change without unnecessarily reducing employee benefits?
- What is the recommended strategy for the next 12 to 24 months?
These questions move the discussion from an annual insurance transaction to a broader healthcare strategy.
When Should an Employer Get a Second Opinion?
A second opinion can be valuable when an employer receives a substantial renewal increase but does not have a clear explanation for it.
It can also make sense when the current broker provides limited claims analysis, does not evaluate alternative funding strategies, offers little transparency around compensation, or primarily becomes involved during renewal season.
A second opinion does not necessarily mean an employer needs to change brokers or insurance carriers.
It can simply provide another perspective before the company commits to another year of healthcare spending.
How BeneSmart Helps Employers Evaluate Rising Healthcare Costs
BeneSmart works with CFOs, CEOs, HR leaders, business owners, and benefits managers that want to take a broader look at their employee healthcare strategy.
Its Benefit Cost Containment Blueprint examines areas that can influence an employer’s total healthcare spending, including funding strategy, pharmacy strategy, care access, vendor relationships, plan management, and other components of the health plan.
BeneSmart serves employers in Milwaukee, St. Louis, Kansas City, Springfield, Tampa, Orlando, Fort Myers, Naples, Dallas, Houston, Austin, Atlanta, and Augusta, with a particular focus on mid-sized employers and industrial businesses.
For an employer facing a significant health insurance renewal increase, BeneSmart also offers a Benefit Cost Containment Consult to help evaluate the current strategy and determine where further analysis may be warranted.
A Higher Renewal Does Not Have to Mean Less Value
A health insurance renewal increase can be frustrating, but it should also prompt better questions.
Before accepting a higher premium, employers should understand what caused the increase, examine the underlying healthcare data, review pharmacy and vendor arrangements, evaluate funding options, and determine whether the current benefits strategy is still appropriate for the business.
The objective should not simply be to find the lowest possible premium.
It should be to build a healthcare strategy that provides sustainable costs, appropriate risk management, and meaningful benefits for employees.