A 12% renewal increase doesn’t tell you where the money went.
For many employers, the annual health insurance renewal arrives with a familiar message: healthcare costs increased, claims were higher than expected, and next year’s premium is going up.
Maybe it’s 8%. Maybe it’s 12%. Maybe it’s considerably more. But the percentage itself doesn’t answer the most important financial question: Why?
A renewal increase tells you what the carrier wants to charge next year. It doesn’t tell you where healthcare dollars are being spent inefficiently, what is driving the increase, or whether there are opportunities to better control those costs.
That distinction matters. Not every employer has the same problems, and there is no single healthcare strategy that works for every organization. But before accepting another increase as simply the cost of doing business, there are several areas worth investigating. Here are five places to start.
1. Pharmacy Spending
Prescription drugs can represent a significant portion of an employer’s healthcare spend, but simply knowing the total pharmacy cost isn’t enough. The better questions are: What are we paying for—and why?
Employers should understand factors such as:
- Which medications are driving the greatest spend?
- How much of the pharmacy budget is attributable to specialty medications?
- Are lower-cost therapeutic alternatives available when clinically appropriate?
- How is the pharmacy benefit manager being compensated?
- Are rebates and discounts benefiting the plan?
- Are employees being given tools to make informed decisions about their prescriptions?
The goal isn’t to interfere with appropriate medical care or automatically choose the least expensive medication. The goal is visibility.
If pharmacy spending is increasing significantly, employers should understand what is driving that increase and whether their current pharmacy strategy is effectively managing it.
2. Poor Healthcare Navigation
Employees make healthcare purchasing decisions every day. Unfortunately, they are often expected to make those decisions with very little information.
- Where should they go for imaging?
- Should they use urgent care or the emergency room?
- Which provider offers the service they need?
- What will it cost?
- Is there a higher-value option available?
When employees don’t have the information or support to navigate the healthcare system effectively, the plan may pay significantly different prices for similar services depending on where care is received.
That doesn’t mean employees are doing something wrong. It means the healthcare system is extraordinarily difficult to navigate.
A strong benefits strategy should consider whether employees have access to meaningful guidance before expensive healthcare decisions are made, not simply an insurance card and a provider directory.
3. Unnecessary Facility Costs
Where healthcare is delivered can matter almost as much as what healthcare is delivered.
The same type of service may have dramatically different costs depending on whether it is performed at a hospital facility, outpatient hospital department, independent imaging center, ambulatory surgery center, or another appropriate setting. Consider services such as:
- MRIs and other diagnostic imaging
- Lab work
- Infusions
- Certain outpatient procedures
- Routine diagnostic testing
The appropriate location will always depend on the patient’s medical needs. But employers should still ask whether their health plan gives employees the information and incentives necessary to identify high-quality, cost-effective options when alternatives exist.
A plan can negotiate a discount and still pay too much. The question isn’t only, “What discount did we receive?”
It is also: “What was the actual price we paid?”
4. Plan Design Misalignment
Sometimes the problem isn’t one expensive claim. It is a plan design that doesn’t align with the employer’s workforce, financial objectives, or employee behavior.
Deductibles, copays, coinsurance, prescription benefits, network structure, employer contributions, and other plan features influence how employees interact with healthcare.
A plan that worked five years ago may not be the right plan today. Employers should periodically ask:
- Does our plan design encourage employees to seek appropriate care?
- Are employees delaying necessary care because they don’t understand their benefits or fear the cost?
- Are we incentivizing high-value healthcare decisions?
- Does our contribution strategy still make sense?
- Does the plan reflect how our workforce actually uses healthcare?
Plan design should be intentional.
Renewing the same structure year after year isn’t a strategy simply because it is familiar.
5. Lack of Claims and Data Visibility
This may be one of the most important areas for an employer to investigate. You cannot effectively manage what you cannot see.
Depending on the funding arrangement and available reporting, employers may have varying levels of access to information about their healthcare spending.
The question is whether the information available is sufficient to make meaningful decisions. Employers should seek to understand things such as:
- Major claims drivers
- Pharmacy trends
- High-cost service categories
- Utilization patterns
- Potentially avoidable costs
- Emerging risk
- Year-over-year trends
This does not mean employers should have access to employees’ private medical information. It means decision-makers should have appropriate, compliant aggregate information that helps them understand how plan dollars are being used.
If the only meaningful financial information arrives shortly before renewal, it becomes extremely difficult to manage healthcare proactively. By then, most of the spending has already happened.
The Renewal Increase Is the Result—Not the Explanation
When an employer receives a double-digit renewal increase, the instinct is often to immediately ask: “Can we get a better quote?”
Sometimes shopping the market is appropriate. But there is another question that should come first: “What is actually driving our healthcare spend?”
Because changing carriers without understanding the underlying cost drivers may simply move the same problems to a different insurance contract.
- Not every employer will discover a major pharmacy issue.
- Not every organization has excessive facility costs.
- Not every plan design needs to change.
- And not every employer will have access to the same level of claims information.
That is precisely why the process should begin with investigation rather than assumptions.
Before accepting another increase, determine where the money is going, which costs are manageable, which are not, and where a different strategy may produce a better outcome.
Your Healthcare Plan Is a Financial Strategy
For most employers, healthcare is one of the largest expenses outside of payroll. It deserves the same level of financial scrutiny as any other major operating expense.
That means moving beyond: “What is our renewal?” and beginning to ask:
- “What are we buying?”
- “What is driving the cost?”
- “Where do we have visibility?”
- “Where do we have control?”
- “And what should we investigate before we agree to spend more?”
A 12% renewal increase doesn’t tell you where the money went.
Request an IBT Benefits Strategy Review and let us identify what is actually driving your healthcare spend
IBT Consulting helps employers evaluate the financial drivers behind their employee health plans and explore strategies designed around their workforce, risk, and business objectives.
IBT Consulting | Innovative Benefits Team
Every employer deserves a healthcare strategy—not another renewal.