Model employer and employee costs before renewal. Compare contribution policies, coverage tradeoffs, service value and the assumptions behind the budget.
June 23, 2025 · Financial Forte Staff
Historical article: prepared retrospectively using information available as of June 23, 2025.
A benefits renewal is easier to evaluate when the business has already decided what it is trying to protect. Waiting for the renewal quote can compress the conversation into one question: how much of the increase can the company absorb? That leaves less time to compare employee impact, service quality and alternatives.
Build the next year's benefits budget before the renewal arrives. Establish a reliable baseline, model several cost scenarios and identify which decisions would change employee premiums or out-of-pocket exposure. The objective is an affordable benefit the business can explain and administer, with tradeoffs visible before enrollment materials are sent.
Establish what the current plan actually costs
Separate employer contributions, employee contributions, administration charges and other benefit expenses. Confirm which items are already included in the premium or service contract so they are not counted twice. Reconcile the enrollment roster to the latest invoice, then use current enrollment by coverage tier rather than multiplying one average premium by the entire workforce.
For a fully insured arrangement, the premium is a central contractual expense. For a self-funded arrangement, claims, administration, stop-loss coverage and other costs require a different model. A favorable recent claims period does not guarantee that next year's claims will be low. Ask the advisor to distinguish actual experience, projected trends and assumptions.
Identify expected workforce changes. Hiring, departures, family coverage elections and changes in contribution eligibility can alter the budget even if the quoted rates do not move. Document the enrollment assumptions so finance and HR are working from the same numbers.
Use appropriately aggregated information for planning. The company does not need to turn a budgeting exercise into unrestricted access to employees' personal medical details. The plan's privacy and information-handling requirements still apply.[1]
Show where a premium increase goes
Suppose an employer has forty enrolled employees, all in the same coverage tier for this simplified comparison. The current premium is $600 a month per employee, and the employer pays 75%, or $450. Employees pay $150. The employer's annual premium contribution is $216,000: forty multiplied by $450 and twelve months.
Assume a planning scenario in which the premium rises 12% to $672 a month. This is an invented renewal assumption, not a market forecast or an insurer quote. If the employer keeps paying 75%, its share becomes $504 per employee per month, and the employee share becomes $168.
The total annual premium for the group would rise from $288,000 to $322,560. The employer's annual contribution would be $241,920, an increase of $25,920. Each employee would pay $18 more per month, or $216 more annually, assuming the same enrollment and payroll treatment throughout the year.
Alternatively, the employer could hold its contribution at $450. Employees would then pay $222 a month. That is $72 more than their previous $150 share, or $864 more per year. The company's premium contribution stays at $216,000, but the increase has not disappeared. With forty employees, the additional $864 each totals $34,560, the full illustrated premium increase.
Neither option can be judged from the employer budget alone. The company should consider employee affordability, compensation levels, recruitment needs and the applicable coverage requirements. A contribution policy that fits the company's total budget may have a very different effect on lower-paid employees.
Compare benefit changes with the costs they move
A lower-premium design may increase deductibles, copayments or other employee expenses. Review those changes using a few representative situations, such as a low-use employee, a person with regular prescriptions and a household expecting significant care. Label the examples clearly and use the actual plan terms when they become available.
An employer contribution to an HSA or another permitted arrangement may help with certain expenses, but the funding, eligibility and access rules differ. Do not treat an HSA, health FSA and HRA as interchangeable accounts. Model both the employer's obligation and when employees can use the benefit.[2]
Also evaluate the service side. A lower administrative fee may be less attractive if employees cannot obtain timely help or HR spends more time correcting enrollment problems. Conversely, a higher fee deserves a clear explanation of the services and performance the employer receives.
Ask employees about benefit priorities through an appropriate process, while avoiding promises before the design is approved. Participation, questions and recurring service complaints can provide useful evidence. An assumed retention benefit should remain an assumption until the business has a way to evaluate it.
Make the decision and oversight process explicit
For an ERISA-covered health plan, adopting or changing the benefit design is generally a business decision, while administering the plan and exercising relevant discretion can involve fiduciary duties. Provider selection, monitoring, reasonable plan expenses and adherence to the plan's terms need appropriate attention.[3]
Have the benefits advisor or counsel review applicable affordability, eligibility, notice and contribution rules before implementation. The requirements depend on the employer and arrangement. Do not apply an estimated future-year threshold as though it were already confirmed.
Set internal dates for receiving proposals, reviewing alternatives, approving the employer contribution, preparing communications and testing payroll deductions. Leave time to resolve differences between the enrollment system and payroll before the first affected check.
The hypothetical employer can now discuss a $25,920 company increase alongside the alternative $864 annual increase for each employee. That makes the decision concrete. A good benefits budget explains who pays, what employees receive and what the company will monitor after renewal, rather than simply announcing that costs went up.
Related reading
- Build a 2027 Benefits Budget Around Cost, Value and Execution
- Fully Insured, Level-Funded or Self-Funded Health Coverage?
Have more questions about employee benefits budgeting and renewal planning? Email Dave at dave@financialforte.com to discuss your questions and next steps.
The contact invitation is current; it does not imply this contact path existed on the historical reference date.
Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.
