At renewal time, many employers feel like they’re being handed a decision rather than offered one.
The carrier presents new rates. The broker summarizes the increase. A few plan tweaks are discussed. It can feel like the only option is to accept what’s in front of you.
The reality is that most employers have more flexibility than they may be led to believe. The challenge isn’t access to alternative health plan options, it’s awareness.
Why Employers Feel Stuck
If options exist, why don’t more employers explore them? There are a few common reasons:
1. Bundled Carrier Models
Many traditional health plans are bundled, meaning the insurance carrier provides multiple services under one roof. The same company may offer the medical plan, administer claims, manage the pharmacy benefit, and even own the pharmacy benefit manager (PBM).
In 2024, the three largest PBMs – CVS Caremark, Express Scripts, and Optum Rx – processed nearly 80% of all equivalent prescription claims. This matters because each is owned by, or closely tied to, a major health insurer: CVS Caremark is part of CVS Health, which also owns Aetna; Express Scripts is owned by Cigna; and Optum Rx is part of UnitedHealth Group, alongside UnitedHealthcare.
When pharmacy services are bundled into the overall health plan, employers often receive only a single combined cost. That can make it difficult to see how the pharmacy benefit is performing or identify opportunities to reduce costs.
2. Limited Transparency on Costs
In many health plans, employers often only see the overall premium and not the detailed breakdown of what drives those costs. Key components like claims data, pharmacy markups, rebate arrangements, or administrative fees are often hidden.
Without this visibility, employers have little ability to understand how their dollars are being spent. It makes it difficult to challenge pricing, negotiate better terms, or explore alternative pharmacy benefit options. Hidden costs can also mask opportunities for savings, leaving employers potentially overpaying for services that could be managed more efficiently.
3. Defaulting to Renewal
Most brokers operate on tight timelines. Renewal season is busy. Often, the path of least resistance is comparing this year’s increase to last year’s and negotiating modest concessions. That approach may be practical, but it isn’t the same as exploring structural change.
4. Time Pressure at Renewal
Renewals come with deadlines. Open enrollment dates are fixed. Employees need communication materials. Vendors need contracts. When time is short, even employers who are curious about alternatives may feel like it’s “too late this year.”
Alternative Approaches Employers Can Explore
Being “with a carrier” doesn’t mean you’re locked into every component of that carrier’s model. Employers can rethink parts of the structure, often times without dismantling everything.
Unbundled Pharmacy Benefits
Pharmacy benefits are one of the easiest areas for employers to review and optimize. Instead of automatically using the carrier’s affiliated PBM, employers can separate pharmacy from the medical plan, a strategy often called a “carve-out.”
Options for unbundling pharmacy benefits may include:
- Independent PBMs that aren’t tied to a specific insurer
- Transparent PBM models that show actual drug costs, rebates, and administrative fees
- Direct contracting with pharmacies in certain situations
By unbundling pharmacy, employers gain greater visibility into costs and rebates, allowing them to identify savings and negotiate more effectively – areas that are often hidden when pharmacy services are bundled with the medical plan.
Level-Funded and Self-Funded Plans
Fully insured plans bundle both risk and claims into a fixed premium, which can make costs predictable but limits visibility into the underlying claims or cost drivers. In contrast, level-funded and self-funded models shift some of that risk back to the employer. These arrangements often provide better access to claims data, stop-loss protection, and greater flexibility in plan design.
For many organizations, alternative funding isn’t experimental – it’s already common practice. Even among small employers offering benefits, more than a third use level-funded plans, taking advantage of the increased transparency and control over their healthcare spending.
Custom Plan Design
Health plan design is negotiable, and employers have several levers to tailor coverage to their workforce and budget. Options can include:
- Narrow or high-performance provider networks to focus care on quality providers
- Reference-based pricing to control costs for certain services
- Pharmacy or specialty carve-outs to increase visibility and savings
- Alternative funding strategies like level-funded or self-funded arrangements
Many employers don’t realize that plan design isn’t one-size-fits-all – customizing the plan can improve care quality, control costs, and give the organization more flexibility.
Why This Matters Financially
Health benefits are often one of the top three expenses for an employer, and pharmacy costs are frequently the fastest-growing driver. Pharmacy benefit management alone represents hundreds of billions of dollars in annual spending, highlighting how critical pharmacy strategy is to overall plan costs.
Traditional bundled models can hide incentives and fees – including rebate retention, spread pricing, or administrative charges embedded in premiums. These costs aren’t always visible at renewal and can leave employers paying more than necessary.
Even large organizations report uncertainty about how much pharmacy benefit manager-negotiated rebates actually return as savings, underscoring a persistent transparency gap in pharmacy benefits. While modest year-over-year premium reductions may feel like progress, small structural inefficiencies compound over time.
Ultimately, the difference between short-term savings and long-term cost management comes down to whether the underlying plan model is actively evaluated, not just the renewal number.
Questions Employers Should Be Asking
To understand whether you truly have options, start by asking clear, targeted questions:
- How are manufacturer rebates handled, and who keeps them?
- Is the PBM owned by the carrier?
- What revenue does the carrier earn beyond the premium?
- Do we have access to our claims data?
- Which components of our plan can be carved out or renegotiated?
The answers to these questions can reveal much more about your plan’s value and savings potential than a simple renewal percentage.
The Bottom Line
Your health plan doesn’t have to be a “black box.” From bundled carrier models to pharmacy benefits, funding strategies, and custom plan design, there are multiple levers employers can use to manage costs, improve transparency, and shape benefits that truly work for their workforce.
Being informed doesn’t mean you need to switch carriers immediately. It means asking the right questions, understanding the structure of your plan, and exploring the options available – whether that’s carving out pharmacy or adjusting plan design.
Employers who take a proactive approach move from reacting to rising premiums to strategically controlling costs and creating a benefits plan that supports their organization long-term. The tools, strategies, and alternatives are there – it just takes the right questions and visibility to unlock them.