As health insurance renewal season approaches, many employers are preparing for another difficult year.
National forecasts point to continued healthcare cost increases. PwC projects a 9% medical cost trend for the commercial group market in 2027—the highest in nearly two decades. However, national averages do not always reflect what an individual employer experiences. Depending on claims, pharmacy utilization, demographics, funding arrangement and carrier competition, some employers may face renewal increases of 20%, 30% or even 40%.
When an increase of that size arrives, it can feel like the employer has only two choices: absorb the additional cost or pass more of it to employees. In reality, there may be other strategies worth evaluating—but employers need enough time and information to evaluate them properly.
What Is Driving Higher Health Plan Costs?
A major renewal increase is rarely caused by one factor. It is usually the result of several pressures affecting the plan at the same time.
High-Cost Claims and Ongoing Conditions
A small number of serious claims can have a significant effect on an employer’s health plan.
Cancer treatments, complex surgeries, neonatal care, chronic conditions and other ongoing medical needs can quickly increase total plan spending. For fully insured and level-funded groups, carriers may also account for expected future costs when evaluating known ongoing conditions.
Employers cannot—and should not—prevent employees from receiving necessary care. However, understanding the types of claims affecting the plan can help identify opportunities for care management, early intervention and more informed plan decisions.
Specialty Medications and GLP-1 Drugs
Pharmacy spending continues to be one of the fastest-growing components of employer healthcare costs.
Specialty medications can cost thousands—or even hundreds of thousands—of dollars per patient. At the same time, demand for GLP-1 medications for diabetes and weight management has increased rapidly.
These treatments can produce meaningful health outcomes, but employers need a clear strategy for coverage, eligibility, prior authorization, clinical oversight and long-term cost management. Simply covering or excluding a medication without examining the broader impact may create unintended consequences.
Higher Hospital and Provider Prices
The cost of receiving care continues to rise.
Hospital consolidation, higher labor costs, expensive medical technology and negotiations between providers and insurance carriers all influence what health plans pay. Even when employees use roughly the same amount of care, the plan may spend more because the price of each service has increased.
The same procedure can also vary significantly in price depending on the facility, provider and network arrangement.
Increased Utilization
Employers may also experience more doctor visits, procedures, behavioral health services, diagnostic testing and prescription use than they did in previous years.
Some utilization reflects care that was delayed in prior years. Other increases are connected to chronic conditions, mental health needs, new treatment options or employees becoming more engaged in their healthcare.
The challenge is not simply reducing utilization. It is helping employees receive the right care, in the right setting, at a sustainable cost.
Claims Experience and Carrier Underwriting
For smaller and midsized employers, the experience of a relatively small number of plan members can materially affect the renewal.
Carriers may evaluate recent claims, ongoing conditions, demographic changes, industry risk and expected future utilization. Underwriting methodology can also change from year to year, making it important to understand not just the renewal increase, but how the carrier developed it.
Limited Carrier Competition
Employers operating in markets with fewer viable carrier options may have less negotiating leverage.
A carrier may appear competitive on price but have limitations related to network access, provider contracts, pharmacy management or employee disruption. A meaningful market evaluation should consider total cost, access and long-term sustainability—not just the lowest initial premium.
What Can Employers Do About a Major Renewal Increase?
There is no single strategy that works for every organization. The right approach depends on workforce demographics, risk tolerance, financial position, claims experience and business objectives.
However, several steps can help employers make a more informed decision.
Begin the Renewal Process Earlier
A difficult renewal is much harder to address when the employer sees it for the first time shortly before open enrollment.
Starting early creates time to:
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Review current plan performance
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Identify major medical and pharmacy cost drivers
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Ask carriers meaningful underwriting questions
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Evaluate funding and plan design alternatives
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Model employee and employer contributions
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Communicate changes appropriately
The goal is not merely to receive the renewal earlier. It is to complete as much strategic work as possible before the renewal arrives.
Review Medical and Pharmacy Data
Employers should look beyond the top-line renewal percentage.
Depending on the group’s size and funding arrangement, useful information may include:
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Large and ongoing claims
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Chronic-condition prevalence
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Emergency room utilization
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Inpatient and outpatient costs
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Site-of-care patterns
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Specialty-drug spending
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GLP-1 utilization
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Generic and biosimilar opportunities
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Employee engagement with existing programs
Data does not eliminate difficult claims, but it can reveal whether the proposed strategy addresses the plan’s actual cost drivers.
Challenge the Renewal
Employers should ask their advisor and carrier to explain the increase clearly.
Questions may include:
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How much of the increase is related to medical claims?
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How much is related to pharmacy spending?
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Are there known ongoing claims included in the projection?
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What trend and pooling factors were applied?
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Did the carrier make underwriting or rating changes?
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Are network or provider-contract changes affecting the cost?
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What concessions or alternative options are available?
A renewal should be treated as the beginning of the conversation—not automatically as the final offer.
Evaluate Alternative Plan Designs
Plan design changes can help control costs, but employers should be careful not to rely entirely on higher deductibles and greater employee cost-sharing.
Options such as tiered networks, alternative copay structures, high-performance networks, reference-based strategies or new plan choices may create savings. However, every change should be evaluated for employee affordability, access and disruption.
The objective should be to improve the value of the plan, not simply transfer more cost to employees.
Consider Level Funding or Self-Funding
Level-funded and self-funded arrangements may provide employers with greater transparency and control over plan costs.
These arrangements can offer access to claims data, alternative networks, pharmacy strategies and other cost-management tools that may not be available under a traditional fully insured plan.
They also introduce additional risk and complexity. Stop-loss coverage, contract terms, reserves, cash flow, claims volatility and administrative support all need to be carefully reviewed.
Alternative funding should be evaluated as a long-term strategy—not simply as a reaction to one difficult renewal.
Examine Pharmacy Contracting
Employers should understand how their pharmacy benefit is structured.
Important considerations may include rebates, administrative fees, formulary management, specialty-pharmacy requirements, prior authorization, manufacturer assistance and the actual net cost of medications.
A plan with an attractive stated discount may not necessarily produce the lowest total pharmacy cost. Employers should evaluate the complete economics of the arrangement.
Use Care Navigation and Cost-Containment Strategies
Employees often do not know that the price and quality of healthcare can vary significantly by provider and facility.
Care-navigation programs can help employees identify appropriate providers, compare options and avoid unnecessarily expensive care settings. Depending on the plan, employers may also evaluate centers of excellence, second-opinion programs, chronic-condition management and specialty-care navigation.
These strategies are most effective when employees understand them and receive support using them.
Avoid Making Decisions Based Only on the Renewal Percentage
The lowest renewal is not always the best long-term decision.
Switching carriers may create disruption without addressing the underlying drivers of the plan. Increasing deductibles may reduce premiums but make healthcare less affordable for employees. Moving to an alternative funding arrangement may create opportunity, but only when the employer understands and can manage the additional risk.
A better approach is to evaluate the renewal in the context of the organization’s workforce, financial goals and long-term benefits strategy.
Start the Conversation Before the Renewal Arrives
A 20%–40% increase can create tremendous pressure, but employers are not necessarily without options.
The most successful strategies usually begin well before the final renewal decision. By reviewing the data, asking better questions and evaluating the full range of funding, pharmacy, network and care-management solutions, employers can make decisions based on more than price alone.
At Dillingham Benefits, we help employers understand what is driving their health plan costs and evaluate strategies that fit their workforce and business objectives. If you are concerned about your upcoming renewal, now is the time to begin the conversation.
Sources: PwC, “Medical Cost Trend 2027: Behind the Numbers”; Business Group on Health, “2026 Employer Health Care Strategy Survey.”
