How Your Healthcare Renewal Works And What You Can Do About It

💸 Healthcare Renewal Season is Here.

For an early-stage founder, this can be jarring. The prospect that their benefits budget can be unpredictably increased each year is daunting, especially when there’s already enormous scrutiny on their burn rate.

Most entrepreneurs can be frustrated by this process - and rightfully so - but the best defense is a good offense, and that means understanding how the process works along with how to combat against rising healthcare costs.

So how does it work?

Each year, insurance carriers (medical, dental, vision, life, & disability) take a fresh look at their premiums and plan options. This gives companies a chance to tweak their offerings, ensuring they provide the best plans for their employees and their families.

This renewal process kicks off at the end of the insurance plan year. The timing can vary depending on whether you’re in the open market or on a PEO (Professional Employer Organization).

For those on a PEO, renewals typically start 2-3 months before the plan year ends, which can be mid-year (June, July, October, and November are common). For example, if you renew your benefits November 1st, you’re likely to receive your renewal increase the first or second week of August.

If you’re in the open market, your renewal will align with your original plan start date, most commonly in January (1/1).

Okay, seems simple enough. So let’s break down what exactly goes into this process by reviewing the why, the what, and the how:

✍ Why Renewals Happen:

• Compliance: Carriers update their plans to meet new federal or state guidelines. Examples include new Mental Health Parity Rules, IRS changes to inflation-adjusted limits for HSAs & HDHPs, & more.

• Cost Adjustments: Carriers reassess and often increase premiums to reflect healthcare industry costs and company population risks. We’ll get into what that means in a second.

• Employee Choices: Employees get a chance to change their benefit elections, add dependents, or opt-out. Unlike a qualifying life event (QLE), which can happen throughout the year, this gives an employee an opportunity to make a change based on their expected

• Company Adjustments: Companies can refine, enhance, or diminish their benefits package and communicate the changes effectively to their team. This is important to do annually as company needs, population, location, & finances change year over year, and great teams adjust accordingly.

📈 What Market Trends Are Inflating Costs:

Now that we know “why” renewals happen, let’s dive into what affects the renewal increases themselves. I’ve listed out the top trends from both my own individual research as well as my personal experience as a health & life insurance producer for early-stage startups:

• Inflation and Workforce Shortages: Still somewhat recovering from the pandemic, significant supply chain disruptions & labor shortages impacted the healthcare industry directly. Inflation led to higher wages, which led to higher costs, which are now passed to the consumer & picked up by the insurer.

• Hospital Contract Costs: Increased costs due to ongoing contract negotiations. Aetna recently went through this with NY Presbyterian which scared the living daylights out of patients utilizing the hospital. However, these contract negotiations, which include higher reimbursement rates to cover rising operational costs, are standard and happen ever 3-4 years. Consider this: the carriers need the hospitals as much as the hospitals need the carriers. Inevitably, an agreement is struck.

• Consolidation: A merger of large hospital systems mean greater bargaining power on behalf of the providers, allowing them to negotiate higher prices with insurers. Insurers then pass these costs down in the form of higher premiums and out-of-pocket costs to the patients. Not to mention corporate buyers (think Amazon & OneMedical) acquiring many physician practices and dictating prices.

• Specialty Pharmaceuticals: Prescription drug spending continues to climb, specifically driven by the increased utilization of GLP-1 drugs and higher acuity inpatient/outpatient utilization. Much of the inpatient/outpatient was driven by deferred care since the pandemic.

• New Therapies: Approval of new cell and gene therapies is pushing pharmacy trends to new highs, with new drugs typically priced higher. For instance, gene therapies for conditions like hemophilia and spinal muscular atrophy can cost millions of dollars per treatment. These high costs stem from advanced technology & research.

📉 How to Deflate Renewal Costs:

Okay, we’ve dissected the “why” and the “what.” I’ll acknowledge that some of the above factors are frustrating, especially when you deep dive into the economics behind them. But it’s important that startups focus on what they can control. Here are my suggestions:

• Value-Based Care: Implement a program where employees receive incentives for choosing healthcare providers who offer high-quality care at lower costs. This could include reduced premiums (such as a High Deductible Health Plan with an Health Savings Account) or bonuses for participating in wellness programs that track health outcomes.

• Preventive Care: Remember, annual health screenings, vaccinations, and wellness check-ups are considered “preventive care,” which under ACA are free when delivered by your in-network doctor. Educate your employees about these offerings and encourage their usage. Preventive health means lower costs down the road.

• Telehealth: Partner with a telehealth provider to offer virtual consultations for non-emergency medical issues. Again, education & promotion of these services along with training on how to use the platform is key to ensuring your employees understand their value. Not only is the convenience fantastic (time, travel costs, appointment making, etc.) but co-payments are typically lower than an in-person doctor visit.

• In-Network Providers: Startups often have remote teams. This means being thoughtful about the medical carrier you partner with is critical. Ensure you’re evaluating carriers with a national presence and using their doctor look-up tool to confirm that employees will remain in-network with their doctor’s of choice. Employees landing out-of-network (and not realizing it) means they’ll be paying significant out-of-pocket costs, and you can bet the employer will be the victim of their frustration.

• Generic Prescriptions: Utilize generic and bio-similar prescriptions whenever possible. Provide cost comparisons to show the savings and ensure that your pharmacy benefits plan prioritizes these options. Often, this can be done through an Employee Advocate or resource center. Some white-glove PEOs do this and some carriers provide somewhat similar support through their own offering. Often, the value of these programs are diminished if employees are unaware of their available resources.

• Supportive Culture: Foster a culture of communication, support, and safety to promote physical and mental health. Encourage open feedback & discussion about health & wellness, provide resources such as an Employee Advocate, Employee Assistance Program, and mental/emotional wellbeing services (or even days off!). Being comfortable to seek help is key to creating an environment of psychological safety. Think of it as a “Blue Zone” within your organization!

This fantastic PWC Study gives a look into what we should expecting as we head into 2025.

"PwC is projecting an 8% year-on-year medical cost trend in 2025 for the Group market and 7.5% for the Individual market, driven by inflationary pressure, prescription drug spending and behavioral health utilization.”

This isn’t an insignificant increase. I’m advising my clients to budget 8-10% for their healthcare increase every single year to be safe, and this aligns with what we’re seeing in the open-market. Now, keep in mind that this will vary by company, based on the factors we discussed above.

For PEOs, this could also be very different. From a purely benefits standpoint, early-stage companies usually partner with a PEO to access higher quality benefits than available to them at their size and insulate themselves from the unpredictable renewal increases in the open-market. Often, these advantages can nullified if your PEO partner isn’t providing the level of service, employee support & communication, benefits quality, and year over year renewal experience that is touted in the initial evaluation process.

I’d encourage any early stage startup that is concerned about mitigating healthcare costs to evaluate their options to ensure they’re doing right by their employees & their families.

❓️ Questions to ask yourself this renewal cycle:

Debating whether it’s worth going through the effort of quoting a new broker or PEO, or weighing the cost/benefit analysis of change management? You’re not alone. Here’s what I’d suggest you ask yourself before you dive into an evaluation:

• What am I trying to accomplish with my benefits strategy? How do I weigh quality vs. cost in my decision criteria?

• What do my employees want/need/expect? Have I done a benefits survey to identify this?

• How do I compare to the industry benchmark? When was the last time I evaluated this?

• Am I focused on retention or acquiring talent? Does my benefits package reflect one or the other?

• How am I measuring the effectiveness of my offering? What utilization metrics do I have available to me?

• Are there any gaps in how my team is educated around their benefits?

• Where is my current team located and where will my future hires be? Do my current carriers have a sufficient network to support remote growth?

• What kind of guidance am I being provided by service team around best practices, cost-containment strategies, and employee support?

• How am I supporting my employees in the areas of emotional wellbeing & family care?

• What’s the cost of doing nothing this renewal cycle?

If you’re heading into your healthcare renewal cycle and want to discuss alternatives, benchmark your current offering, or just walk through a benefits analysis, please reach out!

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