By Jennifer Schaefer, MBA, ChFC, CLU, RHU, REBC, SHRM-SCP
Founder & CEO, JS Benefits Group | Forbes Business Council Contributor | Co-Host, Executive Leaders Radio
Healthcare is one of the largest expenses facing many employers, yet it is still often treated primarily as an annual insurance transaction.
A renewal arrives. Leadership reviews the percentage increase. The broker negotiates. Employees are notified. The company moves forward.
But for CEOs, CFOs and other senior leaders, the more important question is not simply, “What is our renewal?”
It is: “What is driving our healthcare costs, and are we managing them strategically?”
For employers, healthcare can affect profitability, workforce strategy, recruiting, retention and employee satisfaction. That makes it a business issue—not simply an HR or insurance issue.
For companies looking at their benefits strategy, JS Benefits Group approaches employee benefits as a broader business and cost-management strategy rather than simply a renewal exercise.
The Renewal Percentage Doesn’t Tell the Whole Story
A 10% or 15% renewal increase may get everyone’s attention, but the percentage alone does not explain why costs are changing.
Leadership should understand what is happening underneath the number.
That can include:
- Claims utilization
- High-cost claimants
- Prescription drug spending
- Specialty medications
- Chronic conditions
- Emergency-room utilization
- Hospital admissions
- Employee demographics
- Plan participation
- Network performance
- Contribution strategy
- Plan design
Two employers receiving the same renewal increase could have completely different underlying cost drivers.
One may have a temporary high-cost claim situation. Another may have a persistent utilization problem. A third may have significant pharmacy exposure.
Those situations require different strategies.
Negotiating the Renewal Isn’t the Same as Managing Healthcare Costs
One of the biggest misconceptions I see is that negotiating with the carrier is the same thing as managing healthcare costs.
It isn’t.
A broker can negotiate aggressively, but if the underlying plan structure remains unchanged year after year, the employer may simply be negotiating over the size of an increasingly expensive bill.
Real cost management requires understanding the data and determining which elements of the plan can actually be changed.
That could involve plan design, employee contributions, provider networks, pharmacy strategy, funding arrangements, utilization management or alternative approaches to financing healthcare.
The objective isn’t necessarily to find the cheapest plan.
The objective is to create the best overall economic and employee-value outcome.
Data Should Drive the Conversation
Healthcare decisions become much more productive when leadership has access to meaningful claims and utilization information.
Instead of asking only, “What will our premium be next year?” executives should be asking:
What is actually driving our spending?
Are our largest claims recurring or isolated?
Where are pharmacy costs increasing?
Are employees using high-cost services unnecessarily?
Is our plan design encouraging the behavior we want?
Are there alternative funding models worth evaluating?
These questions move the conversation away from simply accepting a renewal and toward understanding the economics of the benefit program.
Alternative Funding Deserves a Serious Evaluation
For some employers, traditional fully insured coverage remains the appropriate solution.
For others, alternatives such as level-funded or self-funded arrangements may deserve consideration.
A level-funded strategy, for example, can provide certain employers with greater transparency and potential opportunities to manage healthcare spending differently than under a traditional fully insured arrangement.
But alternative funding isn’t automatically better.
The decision should be based on the employer’s size, claims experience, risk tolerance, financial objectives, employee population and overall benefits strategy.
The important point is that employers should understand their options before assuming the status quo is their only choice.
Employers evaluating these approaches can learn more about level-funded health plans and alternative funding strategies as part of a broader benefits review.
Don’t Solve Every Problem by Shifting Costs to Employees
Another common response to rising healthcare costs is to increase employee deductibles, copays or contributions.
Sometimes that is appropriate.
But cost shifting is not the same as cost management.
Employees ultimately experience the benefit strategy through their paychecks, deductibles, out-of-pocket expenses and access to care.
If an employer repeatedly shifts more costs to employees without addressing the underlying drivers of healthcare spending, the organization may create another problem: dissatisfaction, reduced perceived value of benefits and potential challenges with recruiting and retention.
Healthcare strategy therefore requires balancing two objectives:
Managing the employer’s financial exposure while maintaining meaningful value for employees.
Healthcare Should Be an Executive-Level Conversation
Healthcare does not have to become a CEO’s full-time job.
But senior leadership should understand enough to ask the right questions.
The CEO, CFO and CHRO should ideally have a shared understanding of what the organization is trying to accomplish with its benefits program.
Is the priority cost reduction?
Predictability?
Recruiting?
Retention?
Employee engagement?
Risk management?
A combination of these?
The answer should influence the strategy.
Benefits technology can make administration easier. Benchmarking can provide context. Data can identify trends.
But none of those things replaces strategy.
The Bigger Question for Employers
The most important question may be surprisingly simple:
Are we managing our healthcare costs, or are we simply paying for them?
Employers that treat healthcare as an annual renewal transaction may miss opportunities to improve the financial and employee-value performance of their benefits program.
Employers that treat healthcare as an ongoing business strategy can begin looking beyond the renewal percentage and examining the factors they can actually influence.
That requires better questions, better data and a willingness to evaluate alternatives.
Healthcare is too large an expense—and too important to the workforce—to leave entirely to an annual renewal conversation.
About the Author
Jennifer Schaefer, MBA, ChFC, CLU, RHU, REBC, SHRM-SCP is Founder & CEO of JS Benefits Group, an employee benefits consulting firm helping employers develop strategic approaches to healthcare costs, plan design and employee benefits. Jennifer is a Forbes Business Council Contributor and Co-Host of Executive Leaders Radio.
Learn more about Jennifer Schaefer and her work in employee benefits strategy.
Website: https://jsbenefitsgroup.com/
