“If you’re not early, you’re late.”
Some version of this quote has been attributed to Vince Lombardi, but it’s applicable in many settings, including your benefits plan. Small employers are juggling a lot, and they typically don’t want to think or talk about their benefits until a few months before the renewal.
But over the past decade or so, I have seen how this approach has led many employers down a dead end where they run out of time and have no choice but to renew a plan that is no longer serving them, or their employers.
Why does this matter so much? Because the risk landscape has changed. Small employers who don’t take this seriously are in financial danger, as their medical plan’s costs continue to creep, or leap, into territory where they hollow out a company’s profitability.
For almost three decades, I have been working with small employers, with between fifty and five hundred employees, to stay ahead of this looming crisis.
And throughout the time, we’ve worked to implement self-funding plans that put the employer back in the driver’s seat of their medical spend.
But the tone of the conversation is changing. Self-funding alone, even in a captive, is no longer enough and employers can’t continue to rely on the programs they implemented just a few years ago.
The Landscape Has Changed:
The rise of GLP-1s for weight loss.
One of the major drivers of pharmacy spend is the continued growth of glucagon-like peptide-1 (GLP-1) products for conditions such as diabetes and obesity. The dramatic increase in eligible patients has led to concerns of GLP-1s reshaping pharmacy trend altogether. Employers need to be aware of their GLP-1 spend and have a strategy for it.
Expensive cell and gene therapy programs.
Conditions that were formerly considered untreatable, such as muscular dystrophy, now have exciting and effective treatment options that can cost in excess of $1M. Building reinsurance into the health plan to provide coverage for these claims is critical to protect the plan.
Coding Intensity Boosted By AI.
The use of AI in medical billing has resulted in higher revenue per encounter, without necessarily improving outcomes. AI allows additional diagnoses or comorbidities to be captured during the billing process, allowing for a higher invoice without a corresponding change in treatment. This leads to cost growth driven by coding intensity rather than better care. This cost pressure exacerbates the existing inflation and makes it even more urgent that employers manage the costs they can.
When you add these factors to our underlying problems of an aging workforce, the prevalence of chronic conditions, and skyrocketing pharmacy costs driven by direct-to-consumer advertising and cutting-edge specialty meds, you have a recipe for a medical budget running out of bounds.
Smaller employers have less scale to absorb an outlier year, raising the stakes of sticking with an outdated structure.
If I could convince a small employer of just one thing regarding their benefits, it would be to never rest on their health plan. A “good” renewal is a sign to hit the gas, not the brakes. Many employers assume a 4% fully-insured medical renewal is good news but what it really signals is that the insurance company is turning a good profit on the plan. This is the time to dig in and get creative, working to ‘future-proof’ the health plan against the day when the big claim hits. Because it will.
So How Do We ‘Future-Proof’ the Health Plan?
First we address the basics, the funding.
Self-funding continues to be the first option an employer should explore because of the flexibility and transparency it provides. And for a smaller employer, a captive provides an important shock-absorber for the type of large claims that can sink a medical budget.
Once the funding has been addressed, we look at the risk drivers, which most likely include cancer, musculoskeletal conditions, and potentially GLP-1s. There are incredibly inventive and creative programs that can be implemented to help individuals achieve the best outcomes while reducing the cost.
There are also programs out there to protect the plan against the massive potential claims of an organ transplant or gene therapy. Just because your plan is running well, doesn’t mean you don’t have a huge risk lurking in the wings. That is why the time to make a change is before the claims explode. A few good years of claims experience doesn't tell you how the plan would hold up against a catastrophic claim; historical performance and risk tolerance are two different questions that both need answering.
Timing Quietly Shapes Which Options Get a Fair Look.
So start early.
Evaluating alternatives early in the plan year (like February for a 1/1 renewal) allows real analysis. Waiting until renewal season gives the status quo an unfair "practical advantage" simply because it's familiar. The number one mistake I have seen employers make here is to wait until they get the big renewal, and then get serious about change. By then, the options are dramatically limited and a cost spike is all but inevitable.
Advisors Have a Responsibility to Raise Hard Questions, Proactively.
This is our job, and we commit a form of malpractice if we don’t let you know all your options. Because a "working" plan doesn't naturally invite scrutiny, it's our job to prompt deeper strategic review before a high-cost claim forces the issue. The caveat is that the goal isn't change for its own sake, but confirming (or updating) that the strategy still fits in the current risk landscape.
Carve out some time shortly after your medical renewal is buttoned up to start thinking about next year. If you offer a health plan, you’re in the healthcare business.
Don’t let a bad year take you by surprise and leave your company vulnerable. Small employers can’t afford to be late to the conversation.