Why Did My Renewal Benefits Increase in Cost?

Employee healthcare and retirement benefits can be complex, especially when faced with unexpected cost increases during renewal periods. Understanding why these increases occur is important for both employers and employees. 

A sudden increase in the cost of renewal benefits can send shockwaves through an organization, affecting both employers and employees. For employers, these rising costs can strain budgets, forcing hard decisions about scaling back benefits or passing the financial burden onto employees. 

For employees, increased contributions to healthcare premiums or retirement funds can result in financial stress, potentially leading to decreased job satisfaction and lower morale. The ripple effect doesn't stop there; it can also impact talent acquisition and retention, as prospective and current employees may seek opportunities with more stable and comprehensive benefits packages. 

In a worst-case scenario, the rising costs can even lead to a competitive disadvantage in the marketplace, as companies with more sustainable benefits structures attract and retain top talent. The pain of rising renewal costs is multifaceted, affecting not just the financial bottom line but also the overall health and well-being of the organization.

When it comes to understanding and managing the details of rising renewal benefits costs, the expertise of our brokerage agency can be an invaluable asset for your organization. With a team of passionate brokers in benefits management, Payday HCM has the specialized knowledge to dissect the various factors contributing to increased costs. 

Whether it's staying ahead of legislative changes, negotiating with vendors, or developing strategies to mitigate the impact of healthcare inflation, our expertise is geared toward creating sustainable and competitive benefits packages. 

By working with Payday HCM, you're not just getting a service provider; you're gaining a partner committed to navigating the complexities of benefits renewal, ensuring that both employers and employees are well-informed and prepared for the changes ahead.

In this article, you’ll learn how to benefit you and your team. By providing a strategic, easy, and employee-centered approach to managing these changes. You can leverage this newfound knowledge to dissect the various factors contributing to cost increases, from inflation and healthcare expenses to regulatory shifts. 

Limiting the financial impact on your organization and employees without compromising the benefits' quality. You’ll be informed every step of the way, with insights into why costs are rising and what can be done to mitigate these increases. 

By focusing on long-term sustainability and employee well-being, you’ll turn the challenge of rising renewal costs into an opportunity for organizational growth and employee satisfaction.

Let’s explore the various factors contributing to rising costs in renewal benefits and offer insights into how to manage these changes effectively:

Economic Inflation Impacts the Cost of Renewal Benefits

Inflation is an economic factor affecting nearly every aspect of our lives, including employee benefits. As the cost of living rises, so does the cost of providing healthcare services, retirement benefits, and other perks. Expecting increases that at least match the ongoing inflation rate is an unavoidable reality, that employers must account for when planning their benefits packages.  

Adjusting for the Inevitable

While inflation is unavoidable, understanding its impact can help you make more informed decisions during renewal. Employers often adjust their contributions to retirement plans, health savings accounts, and other benefits to keep pace with inflation. 

Adjusting employer contributions to keep pace with inflation is standard practice, especially in industries where the talent competition is fierce. Many companies review their benefits packages annually to ensure they remain competitive. These reviews often include adjustments to account for inflation. Awareness of these adjustments can help employees better plan for their future needs.

The Growing Expense of Healthcare Costs

Rising Medical Costs

One of the most significant contributors to increased renewal benefits costs is the rising expense of healthcare. Advances in medical technology, increased service demand, and higher pharmaceutical costs all contribute to this upward trend. Employers often have little choice but to pass some of these increased costs onto employees.

Suppose a hypothetical company offers a comprehensive healthcare package to its 200 employees. The package includes medical, dental, and vision coverage and a wellness program. The company has been absorbing most healthcare costs to keep employee contributions low. However, this year, they've received notice from their healthcare provider that premiums will increase by 15 percent.

The company in this position will end up absorbing the cost. But this is highly unlikely since this will affect their revenue stream dramatically. Most of the time they switch to a less expensive healthcare plan or maintain the current plan but require employees to contribute more towards their premiums.

Another factor affecting healthcare costs is utilization, which refers to the frequency employees use healthcare services. Higher utilization rates can lead to increased premiums during renewal periods. Employers may offer wellness programs to mitigate this, aiming to reduce healthcare usage by promoting healthier lifestyles.

Regulatory Changes in Benefits Packages

Changes in legislation can have a direct impact on the cost of benefits. New laws may require employers to offer additional benefits or increase the minimum coverage levels, leading to higher costs. Employers must stay up-to-date with these changes to comply with the law and adjust their benefits packages accordingly.

For example, laws such as the Affordable Care Act (ACA), Family and Medical Leave Act (FMLA), Fair Labor Standards Act (FLSA), and more change over time due to various reasons like political shifts, economic conditions, and social movements. Employers must stay knowledgeable and regularly review their benefits packages to ensure they are in compliance with current laws.

In addition to federal laws, many states, such as Albuquerque, have their own regulations concerning employee benefits, such as mandatory paid sick leave or additional family leave requirements. Employers must be aware of these state-specific laws, especially if they operate in multiple states.

Regulatory changes often come with additional compliance and reporting requirements. The administrative burden of meeting these requirements can also contribute to increased costs, which may be reflected in the renewal benefits.

When we refer to "administrative burden," it refers to the time, effort, and resources a company must invest to comply with various rules, regulations, or requirements. This burden is not just a one-time event; it's an ongoing process involving multiple organizational departments, such as human resources, accounting, and legal teams. While these activities are necessary for compliance and smooth operations, they can also be resource-intensive.

Market Competition and Vendor Rates in the Benefits Game

The rates charged by benefits vendors directly impact the cost of your renewal benefits. Vendors may increase rates due to market conditions, higher demand, or company-specific factors like increased risk profiles.

Health insurance companies usually like it when 80 percent or less of the money from premiums is used for medical claims.

If a business spends more than 85 percent of the premium money on claims every month, they should prepare for higher costs when renewing the plan.

Employers can negotiate rates with current vendors or shop for more competitive options. However, switching vendors can come with challenges, including administrative hassles and the potential for reduced benefits quality.

Staying Ahead of the Game with Your Broker

To prepare for the inevitable, you need a partner. Choosing a broker who is an expert in the intricacies of your benefit plans will greatly help your organization. They should maintain an ongoing relationship with your employees throughout the year, not just during renewal season. 

This broker will come equipped with crucial data, including claims-to-premium comparisons and high-cost claimant reports, to assess the validity of any proposed renewal rate increases. A competent broker will negotiate on your behalf if the data doesn't support the increase. 

They will proactively perform market analysis for your group, even if you're not looking to switch carriers. This strategy can yield competitive proposals from other providers, which could be leveraged to negotiate lower rates with your existing carrier. We know all about having a broker who goes the extra mile; read our article about it.

Renewing Your Views on Benefits Cost Increase

We understand an increase in the cost of renewal benefits can be a source of stress and confusion. We want to provide an easy guide on understanding how these costs are calculated and what factors contribute to any increases. One rule of advice is to offer a benefits package that delivers value and meets the diverse needs of your business, even in the face of rising costs.

Understanding why renewal benefits increase in cost is the first step in effectively managing these changes. Stay engaged with your HR department, ask questions, and use available resources to understand your benefits package fully. 

If you're an employer, consider consulting with benefits experts to explore ways to mitigate rising costs while offering a competitive package. Knowledge is power, and staying informed is the best way to successfully navigate the complexities of renewal benefits.

By diving into the factors contributing to rising costs — such as inflation, healthcare expenses, regulatory changes, and vendor rates — you'll be better equipped to plan for the future. 

While some cost increases are inevitable, understanding their origins can empower you to make informed decisions that benefit employers and employees. 

Need help figuring out what type of coverage plan you need for your team. We got you there; read which coverage plan suits you best.