Every January renewal cycle triggers a familiar routine for employers managing healthcare expenses: carriers announce premium hikes, and financial advisors routinely pitch plans with higher deductibles as immediate savings. Relying on these proposals often shifts the financial burden directly onto the workforce rather than achieving genuine cost efficiency.
Distinguishing Real Savings from Benefit Cuts
True cost reduction involves securing better economics without reducing coverage for the covered population. In one recent reconciliation of 33 enrolled lives, an employer successfully reduced annual medical costs by approximately 14 percent—a total of $81,174.60—while simultaneously improving employee protection. The replacement plan featured an individual out-of-pocket maximum of $4,000, significantly lower than the $8,000 maximum on the previous plan. This demonstrates that buying the same plan design through better economics allows employers to lower costs while increasing benefits for their staff. PEO Consulting Partners, an independent brokerage and consulting firm that has placed over 100 clients since 2015, notes that they have compared 36 different PEOs to reach such findings.
Evaluating Proposals Through Employee Scenarios
To determine if a proposal is a true savings measure or a benefit reduction, experts recommend modeling the employee’s financial burden during a “bad year.” By calculating out-of-pocket costs at four specific levels of annual claims—$2,500, $10,000, $40,000, and $150,000—employers can see the real impact of plan changes. The $40,000 scenario is particularly critical, as it is common enough to occur within small teams annually and is large enough to reach the out-of-pocket maximum.
If an employer’s costs fall but the employee’s out-of-pocket expenses increase in the $40,000 category, the employer has simply shifted costs onto their staff. Proposals that rely on higher deductibles often appear harmless because they show little difference in a $2,500 “normal” year, masking the potential for significant financial strain during serious health events. For example, in illustrative plan designs, a current plan with a $3,000 deductible and 20 percent coinsurance may be compared against a proposal featuring a $5,000 deductible and 30 percent coinsurance, which would result in $9,000 in out-of-pocket costs for a $40,000 claim, compared to $8,000 under the current plan.
Comparing Non-Identical Plans
Because replacement plans rarely match current offerings line-for-line, employers should utilize a disciplined scoring method to compare cost-sharing attributes, including deductibles, out-of-pocket maximums, coinsurance, and specialist copays. While mapping these attributes provides a baseline, it is not an actuarial equivalent. Variations in pharmacy tiers, how deductibles apply to prescriptions, and which services bypass the deductible can all affect the true value of a plan. Scoring these attributes does not account for differences in carrier networks, which remain a vital consideration for any organization.
