For most of the employers I work with, health benefits are the second-largest expense on the books after payroll. Yet the decision about that expense often gets made in one meeting, once a year, in response to a number someone else calculated.

That’s the part worth changing.

BusinessABC made a version of this argument recently in “Why Smart Companies Treat Employee Benefits as a Business Strategy, Not Just an HR Expense.” I’d push it further. Benefits don’t just influence recruiting and retention. They’re one of the few large expenses where the same dollar can produce a better outcome or a worse one depending entirely on how the program is built.

A Renewal Is Information, Not a Strategy

A renewal tells you what your carrier wants to charge next year. It doesn’t tell you why costs went up, whether the increase came from a handful of claims or from across the population, or whether the funding arrangement you’re in still fits the company you’ve become.

Those answers are in your claims data, not in the renewal letter.

Before signing anything, I’d want to know what’s actually driving the increase. For a lot of employers, the growth is hiding in pharmacy — Business Group on Health found prescription drugs accounted for 24% of employer healthcare spending in 2024, up from 21% in 2021. If nobody has looked, the deductible increase you’re about to approve may be solving the wrong problem.

Depending on size and risk profile, level-funded or self-funded arrangements, HRAs, or changes to pharmacy management may be worth evaluating. Sometimes they aren’t. But that should be a conclusion you reached, not a question nobody asked.

Where Benefits Actually Compete

A 40-person company isn’t going to outbid a national firm on salary. It can win on things a larger competitor can’t easily offer: a network that includes the doctor an employee already sees, a real person who picks up the phone when a claim is denied, or coverage built around what that specific workforce needs rather than what a benchmark survey suggests.

That last part requires knowing your employees. A workforce averaging 28 and one averaging 52 want very different things, and a program designed without that distinction spends money in places nobody notices.

The Money You’ve Already Spent

Here’s the most common waste I see. An employer buys a genuinely good plan, and half the workforce doesn’t understand it well enough to use it.

They go to the emergency room for something urgent care handles. They skip telemedicine because they never learned it was included. They don’t open an HSA because nobody explained what it does. The employer pays for all of it either way.

Open enrollment is not enough time to fix that. A short explanation of how the deductible works, sent in March when someone actually has a bill in front of them, does more than a forty-slide presentation in November.

Four Questions Worth Answering

What is driving our cost increase? Not “healthcare is expensive” — which claims, which categories, which trend lines.

Is pharmacy a bigger share than we think? In many mid-market plans it’s the largest contributor to the increase and the least examined part of the contract.

Are employees using what we’re paying for? Participation and utilization data will show which benefits are earning their cost.

Does our funding arrangement still fit? The structure that made sense at 60 employees may not at 200.

Who This Actually Belongs To

Benefits get filed under HR, but the decision reaches further. It’s a major expense, which makes it a finance question. It shapes whether you can hire the people you want, which makes it a leadership question. And it determines what happens to an employee’s family when something goes wrong.

The employers who handle this well aren’t the ones who found the cheapest plan. They’re the ones who understood what they were buying.