Offering health insurance is a powerful way to attract and retain great employees. According to the Bureau of Labor Statistics, around 70% of private sector workers have access to health coverage, a testament to how important it is in today’s job market. When you offer a plan, it signals that you care about your team’s well-being. But what many employers may not realize, especially when offering coverage for the first time, is that insurance rates aren’t fixed. Premiums can rise due to changes in your team, updated benefits, or state and federal mandates.
The good news? You don’t have to navigate it alone. Your broker can help you understand policy changes and guide you through what might be causing premium adjustments. While the exact reasons may vary, there are common trends that typically explain annual rate increases.
Why do health insurance premiums increase each year?
When renewal season rolls around, employers often experience a bit of sticker shock. But it’s worth remembering that, like other goods and services, health insurance costs are subject to change year over year. Just as your suppliers may increase prices due to market forces, so too can your health insurance provider, often for very similar reasons.
Because most companies pay premiums monthly, even small increases can seem significant. For instance, a 6% increase on a $500/month premium is $30, multiplied across a team, those numbers add up quickly. Meanwhile, a similar percentage bump on a burger might only cost you an extra 18 cents.
Now that we’ve covered the basics, let’s look at how data-driven analysis influences rate changes.
How actuarial data drives premium decisions
Behind the scenes, actuaries play a central role in setting premiums. These analysts use historical data, probability models, and financial theory to forecast how likely a group is to file claims. Higher risk means higher premiums. Their calculations are anything but random, they’re based on decades of industry data.
Additionally, location and job type can impact rates. Insurance in one region may cost more than in another, and roles with greater physical risk often carry higher premiums. This means your location, workforce makeup, and even industry sector can all influence what you pay.
Other common causes of premium hikes
Foery shares a few of the most common reasons health insurance costs rise at renewal:
General inflation
As with all goods and services, health insurance is affected by inflation. When you’ve had the same rate for a year or more, increases at renewal are to be expected.
Medical inflation
The rising cost of healthcare itself is another factor. New medical technologies, treatments, and breakthrough medications often come with high price tags, which insurers factor into their pricing.
Workforce changes
When your company grows, you may be adding employees to your insurance policy. More people means more coverage and that affects your premiums. Even without new hires, your team ages each year, and age directly influences health insurance costs. If your workforce skews younger, you might actually see your premiums decrease.
New government mandates
State or federal mandates that expand employee benefits, like required coverage for new conditions or treatments, often raise the cost of coverage. While these changes are meant to improve access and quality of care, they do come with a price.
Rate guarantees
When you first purchase a group plan, rates are typically locked in for 12 months. After that, your premiums are recalculated, taking into account factors like age, medical inflation, and usage trends. So even if your team remains the same, your cost may shift at renewal.
The importance of engaging your broker
Health benefits are often one of the most critical perks your business can offer, and they can be the deciding factor for someone considering a job offer. That’s why it’s essential to take a proactive approach when your policy is up for renewal.
Reach out to your broker to:
- Discuss changes in coverage or premiums
- Review alternate plan options
- Explore adjustments like different deductibles or copays
- Understand any new laws or regulations that may affect your plan
Foery adds:
“Even a small tweak, like adjusting copays, can help reduce costs without sacrificing coverage quality.”
Final thoughts: Stay informed, stay competitive
Health insurance isn’t just a perk, it’s a strategic investment in your workforce. While premium increases are common, understanding why they happen and working with a broker can help you make informed decisions. Whether you’re facing a slight uptick or a major change, having the right insights and support can help you maintain a competitive edge while caring for your team.
And if you’re looking for a simpler way to manage benefits and compliance, Beyond offers tools that can streamline everything from enrollment to payroll.
