Employers Face Steep Increases in Health Coverage Costs Amid Open Enrollment Season

Employers and workers are facing steep increases in health coverage costs this open enrollment season, with family premiums averaging over $28,000 per year. This trend is a pressing concern for businesses of all sizes, as some small companies report spending more on health insurance than they generate in profit.

The federal government has attempted to address rising employer costs through improved price transparency, under the assumption that knowing prices would enable companies to negotiate better deals or shop around for lower costs. However, industry insiders argue that mere disclosure is insufficient, and few employers outside of the largest corporations can effectively leverage this information to reduce expenses.

Companies with self-insured plans should have a clear understanding of health costs, as they directly pay medical bills for their employees. Yet, even these employers often lack transparency due to the arrangement's inherent complexities. They typically hire claims administrators, known as third-party administrators or TPAs, which assemble networks of healthcare providers and process medical bills.

These claims administrators frequently operate with conflicting incentives that diverge from those of their employer clients. This discrepancy can lead to a mismatch between the TPA's interests and the employer's goals, undermining efforts to rein in health costs. The arrangement relies on a delicate balance of priorities that often fails to materialize in practice.

The reliance on TPAs highlights the need for more effective solutions to address rising healthcare expenses. Employers are grappling with unsustainable increases in premiums, and it is essential that policymakers explore new approaches to price transparency and negotiation.

Many industry experts point out that some third-party administrators (TPAs) may prioritize their own interests over cost savings for employers. This is evident in certain fees that inflate employer costs. A notable example is the "shared savings fee," which can significantly increase expenses.

This fee often goes unnoticed by employers, who are only aware of the final negotiated price with medical providers. However, a significant portion of this price is actually a fee charged to the employer for the TPA's services. For instance, in a hypothetical scenario where a provider sends a bill for $100,000 and the TPA negotiates it down to $1,500, the employer may be left with a total claim of $31,500.

Even if employers are provided with a breakdown of fees, they often face difficulties in switching TPAs or negotiating better deals. National insurance carriers have acquired independent administrators and bundled specialty vendors into all-in-one packages, limiting options for employers. Switching TPAs can also mean changing provider networks, which may be met with resistance from employees.

Experts propose several potential solutions to address these issues, including contract terms that cap fees and require data access. Transparency requirements are another area worth exploring, but these must be accompanied by actual enforcement mechanisms. Clearer rules on fiduciary duties for administrators could also help ensure that health plan dollars are spent wisely.

However, implementing these fixes is not without its challenges. Enforcement resources tend to focus on large employers who can demand better terms. Even well-informed employers may struggle to negotiate effectively if there's no credible alternative available.

A small number of self-insured employers have attempted to escape the current healthcare system by negotiating directly with local hospital systems or switching to fully insured coverage.

Some companies have also chosen to send their employees into the Affordable Care Act (ACA) market, providing them with a defined premium contribution to help cover some of the costs. However, this approach requires a geographically concentrated workforce and significant administrative capacity.

New transparency rules for pharmaceutical benefit managers (PBMs) were introduced in Congress as part of the Consolidated Appropriations Act of 2026. These rules require extensive disclosure to employers and limit certain PBM fee practices.

However, simply mandating disclosure is insufficient; what's needed is enforcement that acknowledges the limitations of many employers, who lack the power, leverage, and resources required to enforce their own rights.