Another double-digit renewal lands, and the explanation arrives in a sentence: claims were high.
That may be true, but it still leaves the most important questions unanswered. Who got paid? Which costs were fixed? Were pharmacy rebates returned? Who keeps the surplus when claims run below expectations?
Much of the avoidable waste in an employer health plan sits in the financial structure surrounding care. Vendor compensation, fixed fees, data access, pharmacy contracts, and plan design all shape the final cost.
Understanding those mechanics gives employers greater flexibility, transparency, and control over their healthcare spend. It can also create something many leaders assume is out of reach: lower costs and better benefits at the same time.
The conversation begins with a question every employer should ask: Where is all the money going?
Advisors: Learn more about the benefits of offering your clients self-funding through a group captive with Roundstone.
A Premium Reveals Very Little
A fully insured renewal reduces a complicated financial system to one number. Employers see the total premium and percentage increase, yet the details beneath that number often remain hidden.
Administrative expenses, risk-transfer costs, claims, pharmacy spending, network access, vendor compensation, and carrier margins all sit inside the total. Without visibility into those components, leadership can’t tell which costs are necessary and which represent avoidable waste.
Renewal percentages can create another blind spot. A 7% increase sounds manageable until the organization examines the amount to which that percentage applies. An employer with an already inflated cost per employee can celebrate a “good” renewal while continuing to overspend.
The better question is:
What are we paying for, and what value are we receiving?
Follow the Money
Every partner in a health plan needs to earn revenue. What varies is the method.
A third-party administrator (TPA) may charge a clear fee for administering claims and supporting members. A pharmacy benefit manager (PBM) may earn money through administrative fees, spread pricing, or retained rebates. A cost-containment vendor may charge for every employee, even when only a small portion of the workforce uses its service.
These arrangements affect how much of the healthcare dollar reaches employees and providers. They also reveal whether a partner benefits from better plan performance.
Employers should ask every vendor:
- How do you get paid?
- Does your revenue increase when our spending increases?
- Do you retain rebates or other compensation?
- What measurable value will you deliver?
- Who receives the savings when the plan performs well?
The answers help leadership separate productive expenses from financial layers that add cost without creating comparable value.
The fixed-versus-variable distinction deserves particular attention. A fixed per-employee fee raises the plan’s cost whether employees use the service or not. A variable arrangement generates an expense when a member needs the service or when the solution produces savings.
Fixed fees can support valuable services. Each one still needs a clear purpose, measurable performance, and a positive effect on the member experience. Otherwise, a collection of “solutions” can become another source of waste.
CFOs: Learn how self-funding through a group captive allows employers to provide better benefits that cost less.
Better Benefits Can Lower Costs
When expenses rise, many employers increase deductibles, copays, and employee contributions. The spreadsheet shows immediate savings, but the long-term claims experience can tell a different story.
Higher out-of-pocket costs may cause employees to delay appointments, skip medications, or avoid routine care.
Here’s how that can affect claims:
- A missed diabetes visit can contribute to an emergency room claim.
- An unaffordable specialty copay can interrupt treatment that becomes more expensive later.
- Delayed behavioral healthcare can allow a manageable need to grow into a crisis.
Strategic plan design improves access to care that keeps people healthier.
For example:
- Lower costs for primary care, essential medications, and chronic disease management can help employees seek treatment earlier.
- Care navigation can guide members toward appropriate providers and settings.
- Pharmacy programs can reduce the price of expensive medications while lowering or eliminating the employee’s copay.
The savings can then support the workforce in other ways. Employers may hold employee contributions steady, strengthen mental health coverage, add fertility benefits, or improve access to primary care.
Demand Useful Data
Employers can’t manage a plan they can’t see.
Claims reporting shows which conditions, services, and vendors drive spending. Deidentified data can reveal patterns in emergency room use, chronic disease, specialty pharmacy, cancer care, maternal health, and musculoskeletal treatment while protecting individual privacy.
The value comes from acting on those patterns.
For example, if emergency room use is climbing, the plan can improve access to primary or urgent care.
If specialty drugs are driving pharmacy spending, the employer can evaluate sourcing and assistance strategies.
If a vendor promises strong savings, reporting can show whether those savings materialized.
Useful data should help HR managers and finance leaders understand what happened, why it happened, and what they can do next. A dense spreadsheet without analysis simply replaces one form of opacity with another.
Year-round reporting also changes the renewal process. Leadership can evaluate emerging risks, vendor performance, and plan design several months ahead of open enrollment. Decisions become part of a long-term strategy instead of a rushed response to a late renewal.
HR managers: Learn how Roundstone supports you every step of the way to make switching to self-funding easy.
Think Beyond One Renewal
A health plan is often one of an organization’s largest expenses, yet many leadership teams examine it only once a year.
A multiyear view shows how annual decisions compound. It captures cumulative savings, employee contributions, benefit stability, vendor performance, and the financial effect of plan design changes.
Self-funding through a group medical captive supports this longer horizon. Employers retain control of their plan design and claims data while pooling risk with other organizations. Stop-loss insurance protects the plan from large claims.
When performance is better than expected, participating employers can benefit from the surplus.
The structure also gives leadership room to act:
- An employer that finds excess pharmacy spending can change its pharmacy strategy.
- A company with high emergency room utilization can improve access to lower-cost care.
- A plan with an underperforming vendor can replace it.
See What Your Renewal Leaves Out
A renewal tells you what the plan will cost. It rarely shows who earns money from that cost, which fees produce value, or what your organization has the power to change.
In our free on-demand webinar “The Hidden Cost of Healthcare: Exposing Waste and Plan Design,” Roundstone founder and president Mike Schroeder and Capital Group Benefits president Jay Booth examine the questions employers should ask about vendor compensation, claims data, pharmacy spending, and plan design.
Watch the webinar to learn how to examine the fees, pharmacy contracts, and claims data behind your renewal and ways that can take control of your employee benefit plan.
Frequently Asked Questions
Where does waste hide in an employer health plan?
Waste can appear in opaque pharmacy pricing, retained rebates, duplicated vendor fees, unused programs, inefficient care, and compensation arrangements that reward higher spending. Limited claims data makes these costs harder to identify and address.
What claims data should an employer demand?
Employers should receive timely, deidentified reporting that identifies major cost drivers, utilization patterns, pharmacy spending, vendor performance, and emerging risks. The reporting should also include clear recommendations for action.
How does a group medical captive help employers control costs?
A group medical captive gives small and midsize employers access to self-funding while pooling risk. Employers gain greater control over plan design, access to claims data, and the ability to retain unused claims funds when the plan performs well. Roundstone works with employers starting at 25 enrolled W-2 employees, with an ideal range of 50 to 500.
