How a 120-Employee Manufacturer Reduced Benefits Costs by 22%

The Situation

A 120-employee precision parts manufacturer in the Midwest had been on the same fully insured health plan with the same carrier for six years. Every year, they accepted the renewal increase, made minor adjustments to cost-sharing, and moved on.

Then they received a renewal with an 18% increase. Their HR Director reached out to their broker, who suggested marketing the account to two competing carriers. The competing quotes came back with 12% and 14% increases, respectively.

The company's CFO decided that remarketing wasn't enough. They needed a different approach.

The Problem

After a deeper review, several issues became clear:

No claims visibility. Six years on a fully insured plan meant the company had no data on what was actually driving costs. They were paying increasing premiums year after year with no way to identify and address the underlying drivers.

Likely healthy population. The company's workforce was relatively young — average age of 39 — and active. Many employees used the company's on-site fitness facility. The HR Director suspected the company was subsidizing higher-cost employers in the carrier's risk pool, but had no way to confirm it.

Pharmacy costs were opaque. The company knew their pharmacy costs were included in their premium but had no breakdown of which drugs employees were using or what they were costing.

Plan design hadn't changed in years. The company offered one plan — a $500 individual deductible PPO with generous co-pay structure — that had not been reviewed since it was first implemented.

The Approach

Working with Benefits Collective, the company undertook a three-part evaluation over 60 days.

Step 1: Claims Data Request

We worked with the incumbent carrier to obtain three years of aggregate claims data. This included medical trend, top diagnostic categories, utilization patterns, and pharmacy spend as a percentage of total claims.

The data confirmed what the HR Director suspected: this was a healthy group with claims running significantly below the carrier's assumptions for their demographic mix. The 18% renewal increase was, in large part, a product of trend and market pricing — not actual experience.

Step 2: Level Funding Evaluation

Given the company's size (120 employees) and claims profile, level funding was a logical next step. A level-funded plan would allow the company to:

Access their own claims data going forward
Receive a refund if claims came in below projections
Pay premiums more closely tied to their actual experience rather than a blended market rate

We obtained level-funded quotes from three carriers. The most competitive option came in 14% below the fully insured renewal on the base level payment — before any potential refund.

Step 3: Pharmacy Carve-Out

The claims data showed that pharmacy represented 28% of total plan spend, and one specialty medication — a biologic for a chronic condition — accounted for nearly $180,000 in annual pharmacy costs.

We worked with a pharmacy benefit management (PBM) specialist to evaluate:

The current formulary and whether a therapeutically equivalent medication was available
Whether a manufacturer copay assistance program could be applied to reduce the plan's net cost
A biosimilar substitution pathway once one became available

The pharmacy optimization alone was projected to reduce pharmacy spend by $65,000 in year one.

The Results

The company moved to a level-funded plan effective January 1. Here is what happened in year one:

Premium savings: The level-funded base rate came in 14% below what the fully insured renewal would have been — a savings of approximately $142,000 on annual premium.

Pharmacy optimization: The PBM interventions reduced pharmacy spend by $58,000 (slightly below the $65,000 projection, but still material).

End-of-year surplus refund: The group had a strong claims year. At year-end settlement, the company received a refund of $64,000 in surplus claims dollars.

Total savings: Combining premium reduction, pharmacy savings, and the surplus refund, total benefits cost was reduced by approximately 22% compared to what would have been paid under the fully insured renewal.

Employee experience: Employee premium contributions were held flat. The plan design changed modestly — the deductible increased to $750 — but the co-pay structure for primary care and specialist visits was maintained.

What Made It Work

A few factors were critical to this outcome:

The company had time to plan. The CFO engaged the process 7 months before renewal, which allowed for thorough analysis, a competitive bidding process, and a clean transition.

The workforce profile supported the strategy. A healthy, relatively young workforce made level funding appropriate. This strategy would require more careful analysis for a group with significant chronic conditions or claims volatility.

Pharmacy was addressed proactively. Many employers leave pharmacy savings on the table because they do not have the data or the specialist relationships to act on it. Having a PBM review as part of the strategy was a meaningful differentiator.

Leadership was aligned. The CFO and HR Director were aligned on the goal and willing to make plan design adjustments to achieve it. Minor changes to cost-sharing — like the deductible increase — were part of the equation.

Year Two

Going into their second renewal, the company had something they had never had before: claims data. The renewal conversation was fundamentally different. They could see their utilization patterns, benchmark their costs against industry data, and have an informed conversation about what was driving their numbers.

The second renewal came in at a 6% increase on the level payment — which, after another modest surplus refund, netted out to approximately 2% in actual cost growth.

Facing a renewal increase? The experience of this manufacturer is not unique — many companies are overpaying on health insurance because they lack claims data and alternatives. Schedule a consultation to see what your numbers look like.