You open the renewal letter. The number is higher than last year. Again.

Maybe your broker says “the market went up.” Maybe they point to a couple of large claims. Either way, the message is the same: pay more, get the same thing.

If this feels familiar, you’re not alone. Businesses across the country face the same cycle every year, and most never learn that there are real alternatives.

The annual increase isn’t random

When your premiums climb year after year, sometimes well into the double digits, it’s not because healthcare suddenly got that much more expensive overnight. It’s because of how the traditional insurance model works.

In a fully funded plan, you pay a fixed premium to a carrier. The carrier pools your money with thousands of other businesses, pays out claims, takes a cut for administration, and keeps whatever’s left as profit. Next year, they recalculate based on the pool’s overall performance, and your rate goes up accordingly.

Here’s the part that stings: even if your team was healthy and your claims were low, you can still get hit with a big increase. You’re sharing risk with the entire pool, and you’re paying for other companies’ bad years.

Three forces pushing your rates higher

1. Medical inflation is real, but it’s not the whole story. Healthcare costs do rise faster than general inflation. New drugs, new procedures, hospital consolidation: these are genuine cost drivers. But underlying medical trend accounts for only a portion of what employers see at renewal. If your renewal increase is well above underlying medical trend, something else is going on.

2. You’re subsidizing the pool. In a fully funded arrangement, healthy groups subsidize less healthy ones. Carriers price based on the average, not on your specific experience. If your team is younger, healthier, or more careful about utilization, you’re likely overpaying. You’d never know it, because you don’t see the data.

3. You’re only shown one option. Your carrier profits from the spread between what you pay and what it pays out in claims. If your renewal only shows the fully funded quote, nobody is testing whether another structure would cost less. That’s how the default renewal works, and it’s easy to change: ask for the alternatives.

The information gap that keeps you stuck

Here’s what makes this cycle so hard to break: with a fully funded plan, you don’t see your own claims data. The carrier owns it. You pay premiums in, and the only number you ever see is next year’s rate.

That means you can’t answer basic questions like:

  • Are we overpaying relative to our actual claims?
  • Which cost drivers are we actually exposed to?
  • Would we have saved money last year under a different structure?

Without that information, you’re making one of your largest budget decisions in the dark. And unless you ask, the renewal may only show you the fully funded option.

What growing businesses are doing differently

The businesses that break this cycle tend to do three things:

They get visibility into their numbers. Even before switching plan structures, they request a summary of claims experience from their carrier (you’re entitled to it in many states). This alone changes the conversation.

They explore alternative plan structures. Level-funded and self-funded plans give employers access to their claims data, the potential to benefit from good years, and real control over plan design. Level-funded plans tend to fit groups of 25 to 500+ employees, and the larger the company, the better they tend to work.1 Smaller groups can still qualify with some carriers, so it’s worth asking.

They ask what their advisor compared. Which structures were priced, and why did the advisor land on this one? Brokers are also required to disclose their compensation in writing before you buy, renew, or change plans, and reading that is routine. Any pay model can work; the options you’re shown and the service after the sale tell you more.

The renewal doesn’t have to be a guessing game

If you’re tired of opening that envelope and hoping for the best, there’s a better way. It starts with understanding what’s actually driving your costs, and whether the structure you’re in is still the right one for your business.

We put together a guide specifically for this moment. It covers the warning signs that you’re overpaying, the questions to ask your broker at renewal, and a step-by-step framework for evaluating your options.

Get the full playbook. Download The Rate Shock Survival Guide: a free, practical guide built for business leaders who are done accepting double-digit increases as inevitable. Get your copy here.

Footnotes

  1. Kingsfoil Health, Rate Shock Survival Guide. States that the level-funded sweet spot is 25 to 500+ employees, and that level funding tends to work better the larger the company. ↩