Your CFO probably knows your cost of labor.
They know payroll, taxes, operating expenses, and margins. They know how revenue is trending and where the business is over or under budget.
But ask this question: What is our true healthcare cost per employee—and why is it changing?
For many employers, the answer isn’t nearly as clear.
HR may know the monthly premium. Finance may know the total benefits expense. Leadership may know that the renewal increased 8%, 12%, or 20%. But none of those numbers, by themselves, explain what is actually happening inside the healthcare plan. And that’s the problem.
Healthcare Is Too Large an Expense to Measure Only at Renewal
Employee benefits have traditionally lived within HR—and for good reason. HR manages enrollment, employee questions, eligibility, communication, compliance, and the day-to-day administration of the plan. But healthcare is also a significant financial expense. That makes it a leadership issue.
A CFO wouldn’t accept a major increase in another operating expense without asking what caused it. Yet employers are often presented with a health insurance renewal and expected to make a decision based primarily on the percentage increase and a handful of alternative quotes.
A renewal tells you what someone wants to charge you next year. It doesn’t necessarily tell you why your healthcare costs are moving.
Leadership needs more than a renewal percentage. They need visibility.
Start With Total Healthcare Spend Per Employee
There isn’t one magic number that tells a CFO everything they need to know about an employee benefits plan. But total healthcare spend per employee is an excellent place to start.
More importantly, leadership should understand what is causing that number to move. Depending on the funding arrangement and data available, that can mean examining several financial indicators:
- Employer healthcare contributions: What is the company actually spending per enrolled employee?
- Employee contributions: How much of the cost has shifted to employees, and what effect might that have on affordability and participation?
- Medical claims: What types of claims are driving spending, and are there identifiable trends?
- Pharmacy costs: How much of the plan’s healthcare spend is attributable to prescription drugs, particularly specialty medications?
- Healthcare utilization: Where are employees receiving care? Are there patterns involving emergency rooms, hospitals, specialists, imaging, or other high-cost settings?
- Large claims: Are a small number of claims materially affecting plan performance?
- Stop-loss costs and performance: For applicable self-funded arrangements, what are we paying for protection against large claims, and how is that coverage performing?
- Administrative and vendor expenses: What are we paying beyond the actual cost of healthcare?
- Enrollment and participation: How are changes in employee demographics, enrollment, dependent participation, and plan selection affecting cost?
Not every employer will have immediate access to every one of these data points. That itself can be an important finding. You cannot manage what you cannot see.
The Premium Increase Is an Outcome, Not an Explanation
Suppose your renewal comes back with a 14% increase. What does that tell your CFO? It tells them the plan is projected to cost more. But it doesn’t answer the questions leadership should be asking:
Why did costs increase? Was it:
- Medical claims?
- Pharmacy?
- A handful of catastrophic claims?
- Higher utilization?
- A change in enrollment?
- Plan design?
- Hospital or facility costs?
- Vendor expenses?
Or is the increase being influenced by factors that have little to do with the employer’s actual experience?
Those are very different problems and they may require very different strategies. Simply shopping for a lower premium doesn’t necessarily address any of them.
HR and Finance Should Be Looking at the Same Dashboard
This is where the relationship between HR and Finance becomes especially important. HR understands the people side of the benefits program. Finance understands the economics of the business. A strong healthcare strategy requires both.
Instead of benefits being discussed primarily during renewal season, leadership should periodically review the plan through a financial and operational lens.
Imagine a quarterly conversation where HR, Finance, leadership, and the benefits advisor can answer:
- What are we spending?
- What is driving the spend?
- What changed since the last review?
- Where do we have opportunities to intervene?
- What should we be watching over the next quarter?
That is a very different conversation from: “Our renewal is up 14%. Here are three carrier quotes.”
One is purchasing insurance. The other is managing healthcare economics.
Cost Per Employee Becomes More Powerful When You Track the Trend
Knowing that your organization spends a certain amount per employee is useful. Knowing how that number has changed over the last three years (and why) is far more valuable.
For example, imagine healthcare spend per employee is increasing while headcount remains relatively stable. Leadership should want to know what is behind the trend.
Or perhaps employer costs appear stable, but employee contributions, deductibles, and out-of-pocket exposure have steadily increased. The company’s expense may look controlled on paper while the burden has simply shifted to employees.
That can create another set of business concerns involving recruitment, retention, employee satisfaction, and access to care.
Cost containment should not simply mean moving more cost from the employer to the employee.
The objective should be to understand where the healthcare dollars are going and identify opportunities to improve the economics of the plan without losing sight of the people using it.
Your Funding Strategy Determines How Much You Can See—and Control
For some employers, particularly those in fully insured arrangements, detailed claims information may be limited.
Other funding strategies, including appropriately structured level-funded or self-funded plans, may provide substantially greater visibility into plan performance.
But greater visibility only matters if someone is actually using the information. Data sitting in a report doesn’t create a strategy. The real value comes from turning that information into questions, decisions, measurements, and action.
That might mean:
- Evaluating pharmacy arrangements.
- Examining where employees receive care.
- Reconsidering plan design.
- Improving employee healthcare navigation.
- Evaluating vendors or alternative funding strategies.
Or it might reveal that the current plan is performing better than leadership assumed. The goal isn’t to assume something is wrong. The goal is to know.
Benefits Should Be Managed Like a Business Expense
Healthcare is unusual because it sits at the intersection of finance and people. You can’t manage it exclusively as a spreadsheet. But you shouldn’t manage it without one either. Your benefits strategy should give leadership enough information to understand:
- What are we spending?
- Why are we spending it?
- What is changing?
- What can we influence?
- How will we know whether our strategy is working?
If those questions can’t be answered today, the solution isn’t necessarily another insurance quote. It may be time for a better measurement strategy.
From Renewal Meeting to Executive Strategy
At IBT Consulting, we believe employers deserve more than an annual conversation about premiums.
Our role is to help employers understand the economics behind their benefits plan, evaluate the available data, identify meaningful cost drivers, and build a strategy leadership can measure over time.
Because the question shouldn’t only be: “What is our renewal increase?”
Your CFO should also be asking: “What is healthcare costing us per employee, what is driving that number, and what are we doing about it?”
When HR, Finance, and leadership can answer those questions together, employee benefits stop being something the company simply renews. They become something the company can strategically manage.
Turn Your Benefits Plan Into Something Leadership Can Actually Measure
If your leadership team receives a renewal percentage but doesn’t have a clear picture of what is driving healthcare spending, let’s change the conversation request an IBT Benefits Strategy Review.
IBT Consulting | Innovative Benefits Team
Every employer deserves a healthcare strategy—not another renewal.