Insights
Executive-level notes on employee benefits strategy — written for CFOs, controllers and HR leaders who want to understand what their data is saying before the next renewal.
New piece each month.
The Consolidated Appropriations Act of 2021 did not create a new tax. It created a new standard of proof. If you are a CFO, HR leader or benefits committee member, you now have a documented duty to know what your health plan is paying — and whether those costs are reasonable.
Pharmacy spending is typically 20 to 30 percent of a health plan's total cost. It is also the area where the most money disappears in plain sight, buried in contract language that even experienced finance teams rarely read carefully.
Most employers review claims once a year, usually thirty days before renewal. By then, the numbers are already baked into next year's rates. The CFOs who win at benefits read claims the way they read any other major expense line: regularly, comparatively, and with intent.
When a broker tells you your plan is 'in line with the market,' it sounds like reassurance. It is actually a stop sign. It stops the conversation exactly where the broker wants it: no deeper analysis, no uncomfortable questions, no change to the relationship.
The decision to move from fully insured to self-funded is not just a financial calculation. It is a career decision. Done well, it gives you control, transparency, and savings. Done poorly, it exposes you to volatility and blame. The key is knowing when you are ready.
Most brokers are pleasant, responsive, and professional. But pleasant service is not the same as strategic advice. If your broker is primarily delivering renewals, you have a processor. If your broker is helping you see around corners, you have an advisor.
Before CAA 2021, most employers could reasonably say, 'We rely on our broker and carrier.' That defense is now thinner. Plan sponsors must confirm that broker compensation is reasonable, that pharmacy benefits are managed transparently, and that plan costs are evaluated against market data. The key word is 'confirm.' Not assume. Not delegate. Confirm.
The risk is not a fine printed on a government notice. It is personal liability under ERISA, reputational damage with the board, and the quiet erosion of credibility every time you cannot answer a basic question about where the company's health dollars are going. If a plan participant or regulator asks, 'Did you know your PBM was keeping this spread?' and the answer is no, you own the no.
First, can you document a process for reviewing broker and vendor compensation? Second, do you have a current, Objective comparison of your plan costs against similar employers? Third, is there a written record showing that leadership reviewed and acted on this information? If the answer to all three is yes, you are in strong shape. If any answer is no, that is your starting point — not your ending point.
Meeting your fiduciary duty is not just about avoiding trouble. It is the most defensible path to lower costs. The same documentation that protects you in an audit also creates leverage in renewal negotiations. When a vendor knows you understand the numbers, the numbers improve.
If you are unsure whether your current governance process satisfies CAA 2021, the Benefits Optimization Report (BOR) includes a documented fiduciary and compliance review — delivered as an executive presentation you can keep in the file.
A PBM may charge the plan one price for a drug and pay the pharmacy a lower price. The difference is the spread. It is legal. It is common. And it is often invisible to the employer because the invoice only shows what the plan paid, not what the pharmacy received. The fix is to require pass-through pricing or audit the actual pharmacy reimbursement data.
Manufacturers pay rebates to PBMs for formulary placement. The question is who keeps them. If your contract does not clearly define rebate pass-through to the plan, the PBM may be retaining a portion of your money. Many employers discover they are receiving only a fraction of the rebates generated by their own employees' prescriptions.
Prior authorization, step therapy, and specialty pharmacy management can be valuable. They can also be billed in ways that cost more than they save. A PBM that charges per-claim fees for programs that were never implemented, or that steers patients to higher-cost specialty pharmacies it owns, is not managing your pharmacy spend. It is harvesting it.
Request the PBM contract, the most recent rebate statement, and a pharmacy claims extract. Compare the contract terms to what is actually happening. If you do not have the internal resources, an Objective PBM review pays for itself when it finds even one of these three leaks.
PBM Review is one of the core services in the Benefits Optimization Report (BOR). The goal is simple: make sure your plan keeps the money it is supposed to keep.
Total medical spend is the least useful number on the report. It tells you that you spent a lot. It does not tell you where the money went, whether it was preventable, or how it will trend. Useful claims analysis breaks spending down by category: inpatient, outpatient, professional, and pharmacy. Then it breaks those categories down by condition, member, and provider.
Per-member-per-month cost tells you the real trend. High-cost claimant concentration tells you whether your risk is concentrated or broad. Emergency room versus primary care utilization tells you whether your plan is paying for convenience rather than care. These three numbers together predict next year's renewal better than any broker narrative.
A number is only meaningful next to another number. Compare this quarter to last quarter. Compare your plan to peers of similar size and industry. Compare actual costs to the assumptions in your funding model. The gaps are where the decisions live.
When you understand your claims, you can budget with confidence. You can negotiate renewals from a position of knowledge. You can design wellness and condition-management programs that actually move the needle. And you can walk into a board meeting with a clear story about one of the company's largest expenses.
Claims Analytics is included in every Benefits Optimization Report (BOR). The deliverable is not a data dump. It is a narrative finance leaders can use.
Being in line with the market means you are paying roughly what everyone else pays. It does not mean you are paying a fair price. The market includes employers who overpay, employers who underpay, and employers who have no idea what they are paying. A better goal is to be in line with the best-managed plans, not the average plan.
Good benchmarking compares plan design, funding, cost trends, and outcomes against employers who look like you. Same size range. Same industry. Same geography. Same union status if applicable. If the comparison pool is too broad, the result is meaningless. If it is too narrow, it may not be available. The right answer is usually a blend of peer data and internal trend analysis.
When leadership asks, 'Are we competitive?' what they really mean is, 'Are we getting good value?' Value is not just cost. It is what employees receive for the cost. A plan that is cheap but underutilized by talent is not a win. A plan that is expensive but delivers recruitment and retention value may be justified. Benchmarking should answer the value question, not just the cost question.
The right benchmark gives you leverage. It tells you whether your renewal is reasonable, whether your broker is earning their compensation, and whether there is room to improve design or funding. It turns a passive renewal into an active negotiation.
Benchmarking is part of the Benefits Optimization Report (BOR). The comparison is built around your actual profile, not a generic industry average.
In a fully insured plan, you pay a premium and the carrier keeps the profit. In a self-funded plan, you pay only for what you use, plus administrative fees and stop-loss coverage. The difference stays in the plan. That means better cash flow, access to claims data, and the ability to design benefits without carrier restrictions.
The risk is not a single catastrophic claim. Stop-loss insurance handles that. The risk is a series of above-average years, poor claims management, or a plan design that does not match the population. Without the right data, governance, and vendor partners, self-funding can feel like flying blind.
You are likely ready for self-funding if you have at least one hundred covered lives, stable cash flow, a willingness to review claims monthly, and leadership that understands there will be some year-to-year variance. You are not ready if you need guaranteed monthly costs, lack internal bandwidth, or have a population with extreme recent volatility.
Level funding and captives offer a middle path. They give some of the transparency and savings of self-funding while smoothing the monthly cash flow. For many employers, these are the best first step away from fully insured.
Funding Strategy Evaluation is a core part of the Benefits Optimization Report (BOR). The recommendation is matched to your risk tolerance, cash flow, and organizational readiness.
A real advisor can answer this clearly and in writing. It includes commissions, bonuses, consulting fees, and any payments from carriers or PBMs. If the answer is vague or delayed, that is information worth knowing.
An advisor shows up with insights from your claims, your utilization, and your trends. A processor shows up with a renewal spreadsheet and a recommendation to accept the increase.
This question tests whether your broker thinks like a fiduciary or a salesperson. An advisor will give you a recommendation that may include keeping the current carrier, challenging the renewal, or changing funding. A processor will say the choice is yours without adding much value.
How do you benchmark our plan against peers? What compliance risks do you see in our program? And how do you measure your own performance beyond the renewal? These questions reveal whether your broker is accountable for outcomes or just activity.
The Benefits Optimization Report (BOR) is designed to give employers an Objective second opinion — without replacing the broker relationship unless that is what the data supports.
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