How to read your group health insurance renewal
Your renewal letter is a short document that hides most of what you need to know. Here is what each number means, which ones are negotiable, and the questions to ask before you sign anything.
Every year, somewhere between 60 and 120 days before your plan year ends, an envelope or an email arrives from your carrier. Inside is a renewal letter. It is usually one or two pages. It tells you what your rates will be next year, and it almost never tells you why.
Most employers read the percentage at the top, wince, forward it to whoever handles finance, and approve it. That is a reasonable response to a document designed to be approved rather than understood. But the renewal is the single most consequential piece of paper in your benefits year, and there is more information in it, and more room around it, than it appears.
Here is how to read one properly.
Start with the number that is not on the page
Your renewal letter will give you a percentage increase, a set of new rates, or both. What it will not give you is your total annual cost, which is the number that actually matters.
Work it out before you read anything else. Take your new monthly rate for each coverage tier, multiply by the number of employees enrolled in that tier, add the tiers together, and multiply by twelve. Then do the same with your current rates.
The difference between those two numbers is what this letter is really asking you for. A 9 percent increase sounds like a manageable adjustment. On a group spending $840,000 a year, it is $75,600, which is a hire, or a piece of equipment, or the entire year's profit on a job.
Employers consistently underreact to renewal increases because they are presented as percentages rather than dollars. Convert first, react second.
Understand what actually drives the number
A renewal increase has three components, and they are not equally negotiable.
Your own claims experience. If your group is large enough, typically above about 50 to 100 enrolled depending on the carrier, your own claims history feeds directly into your rate. A group that had two catastrophic claims last year will see it in this letter. A group that had a quiet year should see the benefit, and if it did not, that is a question worth asking loudly.
Trend. This is the carrier's estimate of how medical and pharmacy costs are rising generally, independent of you. It covers provider price increases, new and expensive drugs, and higher utilization. Trend is genuinely real, and in recent years has run in the high single digits to low double digits. It is also the component carriers hide behind when they do not want to explain something, so it deserves scrutiny rather than acceptance.
Demographic shift. Your workforce aged a year. Maybe you hired people with families, or someone's dependent aged off, or your average age moved. This is usually a small component but it is measurable and it should be explainable.
Ask your carrier or broker to break the increase into those three parts. A carrier that can produce that breakdown is dealing with you straight. A carrier that cannot, or a broker who does not ask, is a signal about the relationship you are in.
Check whether you are being quoted on the same plan
This is where renewals get genuinely misleading, and where a careful read pays for itself.
Carriers routinely renew you on a modified version of your current plan, then present the new rate as if it were a like-for-like comparison. The deductible moved from $2,000 to $2,500. The out-of-pocket maximum went up. The specialist copay changed, or a drug tier was restructured, or the network narrowed to a smaller version with a similar-sounding name.
A 7 percent increase on a plan with a 25 percent higher deductible is not a 7 percent increase. It is a larger increase, part of which is being paid by your employees at the point of care rather than by you at the point of premium.
Put your current summary of benefits and coverage side by side with the renewal version and compare, line by line:
- Individual and family deductible
- Individual and family out-of-pocket maximum
- Coinsurance percentage
- Primary care, specialist, urgent care, and emergency room copays
- Prescription drug tiers and the amounts in each
- The network name, and whether it is the same network or a narrower one
If anything moved, the renewal is not what it appears to be. Ask for a quote on your existing plan design unchanged, so you can see the true increase, and then decide about design changes separately and deliberately.
Look at what your employees are paying
Your renewal letter shows total rates. What it does not show, and what nobody will hand you, is what the change does to your employees' paychecks.
If you hold your contribution percentages flat, your employees absorb the same percentage increase you do. On a family tier that can be $60 or $80 a month, which for an hourly employee is a meaningful cut in take-home pay. Enrollment drops, the healthier employees leave first because they are the ones who feel they can, and your remaining risk pool gets worse. That shows up in next year's renewal, and now you have a compounding problem.
Run the employee-side numbers on every tier before you decide anything. Sometimes the right answer is to absorb more of the increase this year to protect enrollment, and that decision is much easier to make when you can see it clearly rather than discover it in January.
Know your timeline, because it is shorter than you think
Renewals arrive 60 to 90 days before the effective date, sometimes less. Here is roughly what has to happen in that window if you want real options:
- 120 days out: start the process, gather current documents, define what you want to change
- 90 days out: go to market, meaning your broker requests quotes from alternative carriers
- 60 days out: quotes are in, you compare and decide
- 45 days out: decision made, paperwork submitted to the carrier
- 30 days out: open enrollment communication to employees
- 15 days out: enrollment closes, payroll deductions are set up
If your renewal arrived 45 days before your effective date, your realistic choices are to accept it or to make a rushed change, and rushed changes are how employees end up at a pharmacy in January discovering their card does not work.
If you are reading this and your renewal is already close, take it anyway and mark your calendar for 120 days ahead of next year's date. The single highest-value change most employers make to their benefits process is starting it earlier.
Questions to ask before you sign
Bring these to your broker or carrier. The quality of the answers tells you as much as the answers themselves.
- What is my total annual cost at these rates, at current enrollment?
- Break the increase into claims experience, trend, and demographics. What is each worth?
- Is this a quote on my current plan design, unchanged? If not, exactly what changed?
- Is the network identical to this year's?
- What did my group's claims actually look like last year? Can I see the data?
- What alternatives were shopped, and what did they come back at?
- If we changed the deductible or the contribution split, what would that do to this number?
- What would a level-funded or self-funded quote look like for a group like mine?
- What is your commission on this policy?
That last one is a fair question and you are entitled to ask it. A broker who is uncomfortable answering it is telling you something.
What to do if the answer is bad
Sometimes you do the work and the renewal is still expensive. That happens, and it does not always mean you have been badly served. A group that had a genuinely bad claims year is going to pay for it somewhere.
But before you accept a double-digit increase, make sure someone has actually tested the alternatives: a different plan design, a different contribution strategy, a different funding structure, or a different carrier. If nobody went to market, you do not know whether this number is competitive. You only know it is what your current carrier wants.
And if your broker presented the renewal without any of the above, that is worth thinking about separately from the renewal itself. Presenting a carrier's letter is not the same job as representing you.
The short version
Convert the percentage into annual dollars first. Make sure you are comparing the same plan to the same plan. Get the increase broken into its parts. Model what it does to your employees, not just to you. And start 120 days out next year, because every option you have depends on time.
None of this requires specialist knowledge. It requires someone to sit down with the documents and do it, which is the part that never happens in a company where benefits is nobody's actual job.
This is general information, not legal or tax advice. Rules, thresholds, and carrier practices change, and how any of this applies to your company depends on facts we may not know. Check anything you intend to rely on with qualified counsel or your tax advisor. See our disclosures.