Founder & CEO, JS Benefits Group | Forbes Business Council Contributor | Co-Host, Executive Leaders Radio
For many employers, the annual health insurance renewal is still treated as a transaction.
The renewal arrives. The percentage increase is reviewed. The broker negotiates with the carrier. Leadership decides how much of the increase the company will absorb and how much will be passed along to employees.
Then everyone moves on to the next business priority.
But healthcare is too significant a business expense to manage that way.
A renewal percentage tells an employer what is happening to the premium. It does not necessarily explain why.
A 7% renewal may look considerably better than a 12% renewal. But if the organization doesn’t understand what is driving its healthcare spending, negotiating the increase lower may simply postpone the underlying problem.
The more important question for CEOs and CFOs is:
What is driving our healthcare costs, and is our current strategy still the best way to manage them?
That question changes everything.
A Renewal Is a Signal, Not a Strategy
The annual renewal is important, but it should be viewed as a financial signal rather than the entire healthcare strategy.
Leadership should be asking:
- What is driving the increase?
- How has utilization changed?
- Are pharmacy costs accelerating?
- Are a small number of high-cost claims materially affecting the plan?
- Has the employee population changed?
- Is the current plan design still appropriate?
- Are employees absorbing more cost without receiving greater value?
- Are there alternative funding arrangements worth evaluating?
These questions create a much more productive conversation than simply asking whether the carrier will reduce the renewal percentage.
The goal isn’t to win the renewal negotiation.
The goal is to make better decisions about the organization’s healthcare strategy.
That starts with having a broader employee benefits strategy that connects healthcare costs with workforce needs, plan design, employee experience and the organization’s broader business objectives.
CEOs Need to Understand What Is Driving the Cost
Healthcare can be difficult to manage because the biggest expenses aren’t always obvious from the headline renewal number.
A relatively small number of high-cost claims can have a significant impact on an employer’s overall plan performance.
Pharmacy spending can change rapidly as specialty medications, new therapies and utilization patterns affect the cost of a plan.
Provider utilization can shift.
The demographics of the workforce can change.
And a plan that worked well several years ago may no longer be appropriate for the organization today.
None of this means that CEOs need to become insurance experts.
It means they need to ask better questions.
A CEO doesn’t need to know every detail of a health plan.
But leadership should understand the major factors affecting one of the company’s largest employee-related expenses.
Stop Confusing Premium Negotiation With Cost Management
Negotiating an insurance renewal can be valuable.
But negotiating the renewal is not the same thing as managing healthcare costs.
An employer may negotiate a proposed increase from 12% down to 9%.
That sounds like a win.
But what if the underlying claims trend remains unchanged?
What if pharmacy costs continue increasing?
What if the plan design is contributing to unnecessary spending?
What if the employer is continuing to pay for a structure that no longer fits its workforce?
The organization may have negotiated a better number for one year without changing the factors that produced the increase in the first place.
True cost management requires a deeper examination.
The objective should be to understand the drivers of spending, evaluate alternatives and determine which changes can create sustainable improvement.
The Data Matters—But Only If You Use It
Employers have access to more healthcare information than ever before.
The challenge is turning that information into useful decisions.
Claims data can reveal utilization patterns.
Pharmacy data can identify significant cost drivers.
Plan participation can provide insight into employee behavior.
Demographic information can help employers understand how their workforce is changing.
But more data doesn’t automatically produce better decisions.
A 100-page report isn’t useful if leadership doesn’t know what action it should drive.
The real value comes from identifying the information that matters and connecting it to a specific business decision.
If a handful of claims account for a disproportionate share of plan spending, leadership should understand that.
If pharmacy is becoming a larger percentage of total healthcare spending, leadership should understand that.
If employees are struggling to navigate the plan, leadership should understand that as well.
The goal isn’t simply to collect data.
The goal is to make better decisions because of it.
Don’t Make Employees the Default Cost-Control Strategy
When healthcare costs increase, one of the easiest responses is to shift more of the cost to employees.
Increase the deductible.
Increase employee contributions.
Increase out-of-pocket exposure.
Sometimes those changes are appropriate.
But they should not automatically become the first solution.
An employer may be focused on reducing its overall healthcare expense.
An employee experiences that decision very differently.
The employee sees a larger payroll deduction, a higher deductible, a larger prescription bill or more money required before insurance begins paying.
Repeatedly shifting costs to employees can eventually affect how employees perceive the value of their benefits.
That matters because healthcare is part of the employee experience.
Employers need to balance two objectives:
Financial sustainability for the organization.
Meaningful affordability for employees.
The strongest benefits strategies recognize both.
Plan Design Should Be Challenged
One of the most overlooked opportunities in benefits is simply asking whether the current plan still makes sense.
Businesses change.
Workforces change.
Healthcare changes.
Yet employers sometimes keep the same plan structure year after year because changing it feels complicated.
The deductible is familiar.
The carrier is familiar.
The network is familiar.
The contribution structure is familiar.
But familiarity isn’t the same thing as effectiveness.
A company that has grown from 75 employees to 300 employees may have very different needs.
A workforce may have become older, younger, more geographically dispersed or more diverse.
The company’s financial objectives may have changed.
The healthcare environment certainly has.
Employers should periodically evaluate:
- Deductibles
- Copayments
- Coinsurance
- Provider networks
- Prescription benefits
- Employer contributions
- Employee contributions
- Funding arrangements
- Benefits communication
- Navigation and support
The objective isn’t to make the plan more complicated.
It is to make the plan more intentional.
Alternative Funding Deserves a Serious Evaluation
Another question CEOs should ask is whether the way the health plan is funded still makes sense.
Fully insured coverage can provide predictability and simplicity.
For eligible employers, level-funded and self-funded arrangements may provide different opportunities depending on the organization’s size, risk tolerance, claims experience and financial objectives.
There is no universal answer.
An alternative funding arrangement isn’t automatically better.
But neither should it be dismissed simply because the organization has always been fully insured.
The right approach is to evaluate the options based on the organization’s circumstances.
That means looking at the numbers, understanding the risks and determining whether the potential benefits justify the change.
Healthcare Cost Management Shouldn’t Happen Once a Year
Perhaps the biggest mindset shift employers can make is moving healthcare cost management beyond the annual renewal.
The renewal shouldn’t be the beginning of the conversation.
It should be one checkpoint in an ongoing process.
Throughout the year, leadership should be asking:
What changed?
What are we learning?
Where are costs moving?
Are employees using the plan effectively?
Are vendors delivering measurable value?
Are there emerging risks?
What can we address before the next renewal?
Effective healthcare cost management isn’t about finding one magic solution.
It is about continuously evaluating the factors that influence healthcare spending and making informed decisions before problems become more expensive.
The CEO, CFO and CHRO Need the Same Conversation
Healthcare has traditionally been viewed primarily as an HR responsibility.
That model is becoming harder to justify.
Healthcare affects the company’s financial performance, compensation strategy, recruiting, retention, employee experience and long-term planning.
That means the CEO, CFO and CHRO should have a shared understanding of what the organization is trying to accomplish with its benefits program.
The CFO may be focused on financial sustainability.
The CHRO may be focused on employee experience and retention.
The CEO may be focused on the organization’s broader competitive position.
All three perspectives matter.
The benefits strategy has to connect them.
When those conversations happen separately, organizations can solve one problem while creating another.
Reducing employer costs by significantly increasing employee out-of-pocket exposure may create retention problems.
Improving benefits without considering long-term affordability may create financial problems.
Negotiating a renewal without addressing the underlying cost drivers may simply delay the problem.
The best decisions balance all three.
Healthcare Is Also a Talent Strategy
Healthcare shouldn’t be viewed only through the lens of cost.
Employees don’t experience their benefits as an accounting entry.
They experience them through their paycheck, their doctor’s appointments, their prescriptions, their deductibles and their ability to afford care.
That makes healthcare part of the employee value proposition.
A company can have a strong compensation package and still struggle to retain employees if its benefits are confusing, unaffordable or difficult to use.
That doesn’t mean employers should simply spend more.
It means they should evaluate the value they’re receiving from the money they’re already spending.
The right question isn’t:
“Are we spending enough?”
It is:
“Are we spending intelligently?”
Technology Can Support Better Healthcare Decisions
Technology can play an important role in improving benefits administration, communication and decision-making.
Benefits platforms can simplify enrollment.
Integration can reduce administrative work.
Employee-facing tools can make information easier to access.
Analytics can help employers monitor utilization and spending.
But technology should support strategy—not replace it.
A new platform won’t fix a poorly designed benefits program.
A dashboard won’t determine the right funding arrangement.
And more data won’t automatically lead to better decisions.
Employers should first determine what they are trying to accomplish.
Then they can select the technology and tools that support those objectives.
The Question CEOs Should Ask at the Next Renewal
When the next renewal arrives, leadership should resist the temptation to begin with the percentage.
Instead, ask:
“Why are our healthcare costs changing, and is our current strategy still the best way to manage them?”
That question opens a much deeper conversation.
It can lead to an examination of:
- Claims
- Pharmacy spending
- Utilization
- Plan design
- Funding arrangements
- Employee affordability
- Provider networks
- Benefits communication
- Technology
- Vendor performance
Most importantly, it moves the organization away from simply reacting to an annual renewal.
It moves the organization toward proactively managing healthcare.
The Best Renewal Strategy May Be to Stop Treating Renewal as the Strategy
Employers cannot control every healthcare cost.
They cannot control every diagnosis, prescription or medical event.
But they can control how they respond.
They can decide whether to simply accept the renewal or investigate what is driving it.
They can decide whether to continue the same plan design or challenge it.
They can decide whether to shift more costs to employees or explore other options.
They can decide whether healthcare remains an annual HR exercise or becomes an ongoing leadership priority.
The employers that manage healthcare most effectively in the years ahead won’t necessarily be the ones that negotiate the lowest renewal every year.
They will be the ones that understand their data, challenge their assumptions, evaluate their options and make healthcare decisions with the same discipline they apply to other major business expenses.
Healthcare isn’t just an insurance renewal.
It is a business decision.
About the Author
Jennifer Schaefer, MBA, ChFC, CLU, RHU, REBC, SHRM-SCP is the Founder and CEO of JS Benefits Group, an employee benefits consulting firm that helps employers develop competitive benefits programs, manage healthcare costs and make informed decisions about their workforce.
Jennifer works with employers on employee benefits strategy, health plan design, healthcare cost management, cost containment, employee retention, benefits technology and compliance. She is a Forbes Business Council Contributor and Co-Host of Executive Leaders Radio, where she discusses employee benefits, leadership, workplace trends and the future of work.
