Business Owner’s Guide to Offering the Right Health Benefits

Why Health Benefits Are a Business Decision, Not Just an Expense

For most business owners and CFOs, health benefits are among the top three expenses after payroll and real estate. According to the Kaiser Family Foundation, the average annual premium for employer-sponsored family health coverage rose to $23,968 in 2023, with employees contributing about $6,575 toward that cost. Year after year, double-digit increases outpace wage growth, straining budgets for both employers and employees.

The wrong plan eats into margins, frustrates employees, and weakens recruiting. The right strategy creates measurable savings, improves retention, and strengthens your ability to compete for talent.

At PolicySmart, we help companies uncover hidden opportunities to design cost-efficient health benefits that employees actually use, without overspending.

Why Traditional Group Plans Fall Short

Traditional fully insured health insurance may feel safe, but it comes at a cost:

Premiums rise faster than inflation: The average increase for employer health coverage in 2023 was 7%, with higher hikes predicted in 2024.
No transparency: Employers rarely see claims data, making it impossible to understand what’s driving costs.
Limited flexibility: Plan designs are dictated by carriers, not tailored to workforce needs.

That’s why forward-thinking companies are moving beyond one-size-fits-all renewals.

Cost-Saving Options Beyond Traditional Insurance

Captive Insurance: Pooling Risk Without Paying Retail

Captive insurance allows employers to band together and self-fund a portion of their risk. Instead of paying inflated premiums to carriers, participants share claims experience with similar companies.

Advantages of captives:

Lower long-term premiums through shared savings
Transparency into claims and cost drivers
Potential underwriting profits returned to members

Case Example:

A regional manufacturing company with 300 employees joined a mid-market captive in 2022. By pooling risk with 40 other employers, they reduced their health benefit spend by 18% in the first year and received a dividend distribution of unused claims dollars in year two. Employees gained access to the same provider networks but with lower out-of-pocket costs.

Self-Insured Plans: Control and Flexibility

Self-insurance means employers pay actual claims as they occur, rather than pre-paying based on carrier assumptions. With stop-loss coverage, companies can cap catastrophic risks while maintaining control.

Benefits for CFOs:

Pay for real claims, not padded “worst-case” estimates
Greater flexibility in plan design and vendor selection
Ability to integrate wellness programs that reduce long-term claims
Improved cash flow since funds are not locked into premiums

Stat to Know: About 65% of covered workers in the U.S. are now in self-funded health plans, up from just 44% two decades ago (KFF 2023).

Level-Funded Plans: A Hybrid Approach

Level-funded plans combine predictability with the advantages of self-funding. Employers pay a fixed monthly amount (similar to fully insured premiums) but have visibility into claims data. If claims run lower than expected, companies may receive a refund at year-end.

This model is especially attractive for businesses with 50–250 employees that want transparency but aren’t ready for full self-funding.

Reference-Based Pricing: A Bold Cost Control Strategy

Reference-based pricing (RBP) pays providers based on a benchmark, usually Medicare plus a set percentage. Instead of accepting inflated negotiated rates, employers take control of pricing.

Results: RBP can reduce employer healthcare spend by 20–30%, though it requires strong employee education and vendor support to manage disputes.

Pharmacy Benefit Carve-Outs

Prescription drugs account for nearly 20% of total healthcare spend and are one of the fastest-growing costs. Employers can carve out pharmacy benefits from a traditional carrier and work with an independent Pharmacy Benefit Manager (PBM) to:

Access transparent drug pricing
Reduce reliance on costly brand-name medications
Control formulary design to steer toward generics and biosimilars

Stat to Know: Specialty drugs, which represent only 2% of prescriptions, now account for nearly 50% of pharmacy costs (IQVIA 2023).

Individual Coverage Health Reimbursement Arrangements (ICHRAs): A Growing Alternative

Not every business wants to manage a traditional group health plan. An increasingly popular alternative is the Individual Coverage Health Reimbursement Arrangement (ICHRA).

ICHRAs allow employers to provide nontaxed contributions that employees can use to purchase their own health insurance, either on the individual marketplace or directly through carriers. These funds can also cover qualified medical expenses, including monthly premiums.

The growth of ICHRAs:

The number of people covered by ICHRAs jumped 50% from 2024 to 2025, reaching about 450,000–500,000 lives.

Adoption is strongest among small businesses with fewer than 20 employees, many of which are offering health benefits for the first time.

Analysts estimate ICHRAs could grow to cover 700,000 people in the near term, signaling steady momentum.

Why this matters for employers:

Predictable costs: Employers set a defined contribution amount, giving CFOs budget stability.

Access to benefits without full administration: Small businesses that never offered health coverage can now extend meaningful support to employees.

Flexibility for employees: Workers choose the plan that best fits their needs, rather than being locked into a single group option.

For now, ICHRAs are primarily expanding access among smaller firms, rather than replacing traditional group coverage for larger companies. But the model reflects a broader trend toward a “defined contribution” approach to health benefits, giving employees money to spend, instead of employers managing the entire plan.

PolicySmart evaluates ICHRAs alongside traditional and self-funded options to determine whether they make sense for your organization. For some employers, ICHRAs are a breakthrough in cost control and employee satisfaction; for others, they may complement an existing strategy rather than replace it.

Benefits Employees Actually Use

Wellness Resources That Pay Off

Wellness programs are not just “perks” they reduce long-term claims and absenteeism. Studies show that for every $1 invested in employee wellness, companies save $3.27 in healthcare costs (Harvard meta-analysis).

Examples include:

Gym and fitness stipends
Stress management and resilience training
Virtual primary care and mental health counseling
Onsite screenings and preventative care programs

Health Savings Accounts (HSAs)

Pairing a high-deductible health plan with HSAs empowers employees to manage healthcare spending while offering triple tax advantages:

Pre-tax contributions
Tax-free growth
Tax-free withdrawals for qualified expenses

For employers, HSAs lower premium costs and shift ownership of spending decisions to employees.

Stat to Know: As of 2023, Americans hold more than 35 million HSAs, with assets exceeding $100 billion (Devenir Research).

How PolicySmart Benchmarks Health Benefits

Nationwide Market Comparison

Most brokers have limited carrier relationships, meaning employers only see a fraction of available options. PolicySmart evaluates plan designs across multiple brokers nationwide, ensuring business owners see the full spectrum of choices.

Claims and Cost Data Analysis

We analyze your claims history against industry benchmarks to identify where you’re overspending. For example, if ER visits are unusually high, redirecting employees to urgent care or telehealth can significantly reduce costs.

Alternative Funding Side-by-Side

PolicySmart compares fully insured, level-funded, self-funded, and captive options to show the real cost trade-offs, not just the sticker price.

Pharmacy Benchmarking

We evaluate prescription spend against independent PBM pricing to uncover hidden savings.

Utilization Review

Many companies pay for benefits employees don’t use. PolicySmart assesses utilization rates to eliminate wasted spend while reallocating dollars toward benefits employees actually value.

Case Example: A CFO’s Breakthrough with PolicySmart

A professional services firm with 150 employees faced a 12% renewal increase on its fully insured health plan. Frustrated by rising costs, the CFO engaged PolicySmart.

Our analysis showed:

Their broker had only presented 3 carrier options, all within a narrow pricing band.
Claims data revealed high prescription spend, largely driven by specialty medications.
Employee survey results showed low awareness and usage of existing wellness resources.

PolicySmart’s solution:

Benchmarked options from additional brokers across the U.S., identifying a level-funded plan that reduced premiums by 9%.
Recommended carving out pharmacy benefits, saving an additional 14% on drug spend.
Reallocated budget toward virtual mental health access, which increased utilization by 22% in year one.

Result: The firm saved more than $420,000 over two years, employees reported higher satisfaction, and the CFO had clear claims visibility for the first time.

The PolicySmart Difference

Most brokers deliver the same renewal packet year after year. PolicySmart takes a broader view:

Independent, nationwide benchmarking
Access to alternative funding strategies
Clear analysis of real utilization and cost drivers

The outcome:

Benefits employees understand and use
Lower total cost of coverage for employers
A recruiting and retention tool that supports business growth

Simplify Your Health Benefits Cost-Comparison with PolicySmart

Health benefits don’t have to be a runaway expense. By exploring captives, self-insurance, HSAs, reference-based pricing, and pharmacy carve-outs, you can reduce costs while delivering benefits that employees value.

Reach out to PolicySmart today to benchmark your health benefits against the market and uncover hidden ways to save without sacrificing coverage.