What Most Employers Don’t Realize About Their Health Plan Costs: 8 Factors You Should Know

For many employers, health plan costs feel unpredictable. One year the increase is manageable. The next, it jumps with little explanation. Most renewal conversations focus on the number itself, not what’s driving it.

The reality is that health plan costs are influenced by a wide range of interconnected factors which aren’t always visible in a renewal summary.

While those factors can’t always be controlled, understanding them creates something far more valuable: clarity. And with clarity comes better, more informed decisions over time.

Below are some of the key factors that influence what employers ultimately pay.

1. Pharmacy Spend: Pharmacy costs are often one of the most volatile and least understood components of a health plan.

• Even a small number of high-cost specialty medications can drive a significant portion of overall spend. At the same time, the way pharmacy contracts are structured, like pharmacy benefit managers (PBMs), rebates, and pricing arrangements can make it difficult to fully see where dollars are going.

For many employers, pharmacy isn’t just a line item. It’s one of the primary drivers of long-term cost trends.

2. Hospital and Provider Contract Increases: Behind every premium is a network of provider contracts.

• Hospitals and large health systems negotiate reimbursement rates with carriers, and those rates often increase annually. As health systems consolidate, their negotiating leverage grows, which can lead to higher costs being passed through to the commercial market.

• While carriers are often seen as the source of increases, much of the underlying cost originates with provider pricing.

3. Plan Design: The structure of a health plan plays a significant role in how it performs over time.

• Decisions around deductibles, copays, out-of-pocket maximums, and embedded versus aggregate family structures all influence how and when members access care. Even small adjustments in plan design can shift utilization patterns and impact long-term costs.

4. Claims Experience: Even in fully insured plans, claims experience matters.

• Large or unexpected claims, such as complex surgeries, cancer treatments, or neonatal care can influence how a group is rated over time. While risk is sometimes pooled, patterns still emerge, and those patterns are reflected in future renewals.

This is one of the reasons costs can feel inconsistent from year to year.

5. How the Plan Is Used: It’s not just what a plan covers but how it’s used.

Utilization patterns play a meaningful role in overall cost:

• Emergency room vs. urgent care usage

• Preventive care engagement

• Chronic condition management

Two organizations with identical plan designs can have very different outcomes based on how their employees navigate care.

6. Taxes, Fees, and Regulatory Requirements: Some cost drivers are built into the system itself.

• Federal and state requirements, such as ACA-related fees, PCORI filings, and mandated benefit expansions are often embedded within premiums. These costs are rarely visible line-by-line but are part of the overall pricing structure.

• In states like Oregon, where mandates can evolve, these factors can shift over time.

7. Geographic Rating and Rural Market Dynamics: Where a company is located also plays a role.

• In rural communities, smaller risk pools and limited provider competition can influence pricing. Carrier rating regions reflect these dynamics, which means employers in different parts of the state may experience different cost pressures—even with similar employee populations.

• This is an important and often overlooked factor, particularly for organizations outside of larger metropolitan areas.

8. Additional Programs and Point Solutions

• Over the past several years, many plans have layered in additional programs, such as virtual care, mental health platforms, specialty services, and more.

• These solutions can add meaningful value when aligned with employee needs. At the same time, they can also introduce additional costs if not evaluated as part of a broader strategy to purposely drive steerage.

Health plan costs are complex because the system itself is complex.

There isn’t a single lever to pull or one change that solves everything. Instead, it’s a series of decisions like plan design, funding approach, utilization, partnerships, and long-term strategy that work together to shape outcomes.

The goal isn’t to control every variable. It’s to understand them well enough to make informed, intentional decisions that support both the organization and its people.

That shift, from reactive to intentional, is often where meaningful change begins.… and it’s where thoughtful partnership can make all the difference. If you’re ready for more of both, let’s connect, info@tandembenefitpartners.com.