Know what you are paying for so you can control costs without sacrificing value.

We’ve already looked at what 2027’s cost increases will mean for people on both sides of the plan. It really could be significant, especially for employees. But before we all start diving into plan changes, employers should know exactly what they’re paying and whether the price is fair.

New data from Gallagher’s U.S. Benefits Strategy & Benchmarking Survey suggests many employers are making cost decisions without a clear view of what is driving those costs.

Confidence is waning

More than a third of employers (36%) saw premium increases of 10% or more at their last renewal. Yet only half say their organization manages health care costs effectively. That’s a lot of employers who know costs are rising and aren’t doing enough about it.

When costs are as persistent as they have been, it’s hard to predict exactly where they will land. Periodic plan changes alone won’t keep up. Employers need that ongoing oversight, which means better data, closer monitoring of vendors, and a regular look at how the plan is performing.

When costs go up, you really should resist changing to higher deductibles; shifting more of the premium to employees; or trimming coverage. Gallagher’s findings suggest benchmarking as a solution. It’s how that oversight happens, and it’s an area where many employers have gaps.

Where employers fall short

Pharmacy spending is climbing because of specialty drugs and GLP-1s, yet only 20% of employers put their pharmacy benefit manager (PBM) out to bid at least once every three years. For large employers, the number is 50%. Then, there’s the habit of renewing without even testing their contracts against the market.

This is more important now than it was a few years ago. Recent Federal Trade Commission enforcement included a settlement requiring one of the largest PBMs to pass through 100% of rebates and eliminate spread pricing. Regulators are pushing for transparency, and employers who haven’t reviewed their own contracts may pay more than they should.

Specialty drugs are another gap. A third of employers (34%) don’t know which specialty drug cost-management strategies their plan uses. For employers with fewer than 100 employees, it’s more than half.

We’ve also shared plenty of insights on the rising popularity of voluntary benefits. They keep growing. Nearly one in three employers plans to expand them over the next two years, with pet insurance, long-term care, and discount programs all on the rise. Employees typically pay the full cost of these benefits through payroll deductions, so it’s easy to assume the employer doesn’t need to watch the pricing. But don’t be fooled. When your employees pay 100% of the premium, you still owe them a fair price.

Why this is a fiduciary issue

On the retirement side, benchmarking fees has been standard practice for years. ERISA requires plan fees to be reasonable, and the only way to know what’s reasonable is to compare. The same principle needs to apply to health and welfare plans, and regulators and plaintiffs’ attorneys are increasingly treating it that way.

Benchmarking is also how you control costs without sacrificing value. When you know what a fair price looks like, you can negotiate before you cut. You can find the vendor that’s overcharging instead of cutting a benefit that’s working, and you can protect the coverage your employees rely on.

Questions to ask before your next renewal

• When did we last benchmark our health plan costs against similar employers?
• When did we last put our PBM out to bid, and do we understand how rebates and pricing work in our contract?
• Do we know which specialty drug strategies are in place and what they’re saving us?
• Have we compared the pricing on our voluntary benefits, even though employees pay for them?
• If someone asked us to show our process, could we?

If you aren’t sure how to answer any of these questions, that is where to begin. We can help, too.

Read more about Gallagher’s survey findings here.