Data-Driven Renewals: Strategies for Fully Insured Businesses to Better Predict Health Benefit Costs

I was recently involved in a pointed discussion with a prospective client about transparency in the health insurance renewal process, and the CEO I was engaging with mentioned that the company wanted more transparency to better prepare for the company's health benefits renewal in early 2025. For businesses offering health benefits through a fully insured plan, one of the ongoing challenges is preparing for unpredictable renewal costs and a very one-sided negotiation that heavily favors the health insurance carrier. That is especially true if there are fewer than 100 employees that subscribe to a company's health benefits plan. However, many executives are misinformed because there are options to access much needed data to level the proverbial playing field and negotiation.

With the exception of the market disruptions caused by COVID in 2020, health benefits have been a roller coaster ride since 2020 increasing 7-10% annually on average; that means an average business may have seen their health benefit costs rise a staggering 30-40% between 2021 and the end of 2024. In case you needed help putting that into context, the average rate of inflation from 2021 to 2024 is ~5% (bls.gov). Furthermore, in case you weren't aware, health benefits are often the 2nd largest part of the operating budget. With all that in mind, how can a business compete? Without access to their employees' medical claims data, businesses face difficulties predicting their health benefit renewal rates and managing their annual budgets effectively. However, there are ways for fully insured businesses to gain better insights into claims or reduce aggregate benefits costs, supporting more accurate planning and potentially more strategic benefits management.

A few options available:

1. Consider Level-Funded Health Plans

Level-funded health plans combine elements of both fully insured and self-insured arrangements. While still operating under the protection of a fully insured plan, level-funded arrangements allow for fixed monthly payments, helping employers avoid the unexpected spikes in claims costs that may exist in a traditional self-funded model. The major advantage here is that level-funded plans often include access to basic claims data that a traditional fully insured plan might not provide

With level-funded plans, employers may receive high-level claims information, showing aggregate data on costs, claims categories, and utilization patterns without identifying individual claims or patients. This data can offer insights into overall health trends within the employee population, helping employers make more informed decisions around renewal time.

2. Utilize a Health Reimbursement Arrangement (HRA)

Another valuable option for fully insured businesses is implementing a Health Reimbursement Arrangement (HRA) as a supplement to their existing group health plan. HRAs allow employers to set aside tax-advantaged funds for employees to reimburse healthcare expenses, such as copays, deductibles, or even premiums in some cases. Furthermore, HRAs can be structured in ways that cover first or last dollar spent by the employee.

While HRAs don’t provide direct access to claims data, they offer a form of indirect insights. Employers can monitor how funds are being utilized, providing a clearer picture of employee healthcare spending trends. This information can be particularly useful for planning and budgeting as it sheds light on where healthcare dollars are going, allowing businesses to better tailor their benefits strategy and anticipate renewal needs.

3. Leverage an Individual Coverage HRA (ICHRA) for Flexibility and Insight

Individual Coverage HRAs (ICHRAs) offer a different approach by allowing employers to reimburse employees for health insurance premiums on individual market plans, rather than a traditional group plan. Under an ICHRA, employees can select individual health insurance that best suits their needs, while the employer funds the HRA for premium and out-of-pocket reimbursements.

ICHRAs enable employers to offer customized health benefits without managing a group health plan and give employees the freedom to choose coverage that best suits them. While employers don’t receive direct claims data, they do gain a clearer understanding of cost management and risk avoidance by decoupling from traditional group plan renewals and, by extension, unfavorable employee demographic underwriting considerations. This flexibility can lead to more predictable benefits expenses, aligning closely with employee needs and contributing to more stable budgeting over time.

Conclusion

Gaining insight into claims data under a fully insured arrangement can be challenging, but options like level-funded plans, HRAs, and ICHRAs provide pathways to better budgeting. With these strategies, businesses can take greater control over their health benefit expenses, driving both cost efficiency and employee wellness.

By implementing the right approach, fully insured employers can maximize their health benefits investment and reduce the uncertainty that often accompanies the renewal process. Please reach out with questions if you'd like to learn more about your health benefit or any other insurance need.