The Real Drivers Behind 10–20% Healthcare Increases

When employers receive a renewal showing a 10–20% increase, the reaction is often immediate: frustration, confusion, and the belief that the carrier arbitrarily raised rates.

In reality, healthcare cost increases are rarely arbitrary. They are typically the result of multiple underlying factors that develop throughout the year.

Understanding those drivers is the first step toward controlling them.

1. Medical Utilization

Healthcare pricing is heavily influenced by how often services are used.

Increased utilization may result from:

• Higher office visit frequency
• Increased diagnostic testing
• More elective procedures
• Deferred care catching up post-pandemic
• Higher emergency room usage

Even small shifts in utilization across a group can materially impact renewal calculations.

2. Provider Reimbursement Trends

Hospitals and physician groups regularly renegotiate contracts with carriers. Many of these contracts include annual escalators.

As provider reimbursement rates rise, carriers pass those costs through to employer plans.

This is a systemic trend — not an isolated pricing decision.

3. Specialty Drug Costs

Pharmacy spend is one of the fastest-growing components of healthcare.

Specialty medications — particularly biologics and injectable drugs used to treat chronic conditions — can cost tens of thousands of dollars per year per member.

Even one or two high-cost prescriptions in a small or mid-sized group can significantly influence renewal rates.

4. Risk Pool Changes

For small and mid-sized employers, changes in employee demographics matter.

Examples include:

• Aging workforce
• Addition of dependents
• Increased chronic condition prevalence
• New high-risk members enrolling

In fully insured small group markets, community rating rules limit pricing variability, but demographic shifts still influence overall cost trends over time.

In level-funded or experience-rated plans, risk shifts have more direct impact.

5. Plan Design Incentives

Plan design affects behavior.

Lower deductibles, weak cost-sharing, and minimal contribution differentials can encourage overutilization.

When employees do not experience cost awareness, total claims often rise.

Two employers paying similar premiums may experience very different renewal outcomes based solely on structural differences in plan design.

6. Inflation & Broader Economic Pressure

Healthcare is not immune to general inflationary pressures.

Labor shortages, supply chain issues, and wage increases within hospital systems contribute to rising medical costs nationwide.

These macroeconomic factors compound internal plan dynamics.

The Important Reality

By the time renewal quotes are released, most of these drivers have already been priced into the next year.

Shopping carriers without addressing underlying structure rarely changes long-term trends.

The most effective employers:

• Review claims data mid-year
• Evaluate pharmacy trends proactively
• Align plan design with intended behavior
• Model financial outcomes before renewal season

Cost control is a year-round strategy — not a last-minute reaction.