Why Most Employers Overpay 20–40% for Healthcare

If your healthcare costs went up 8–12% at your last renewal, your broker probably told you that was "actually pretty good given the market."

They weren't lying. They were comparing you to other employers who are also overpaying.

Here's what nobody puts in the renewal deck: the typical 50–500 employee company in this country is spending up to 40% more on healthcare than they need to, not because they have sick employees, not because the market is cruel, but because the way most plans are built and renewed has almost nothing to do with what those plans actually cost to deliver.

That's the gap this newsletter exists to close.

The 2025 KFF Employer Health Benefits Survey, the most cited benchmark in the industry, pegs the average annual premium for single coverage at $9,325 and family coverage at $26,993. Blended across a typical employer's mix of single and family enrollees, that puts the national average per-employee-per-year cost somewhere between $13,000 and $15,000.

Our book of business at Next Gen Benefits Solutions averages $7,952 PEPY*.

That's not a typo. That's a roughly 45% gap between what our clients pay and what the average employer pays, for comparable coverage, with comparable benefits, in the same insurance market.

The companies on our side of that gap aren't lucky. They didn't buy magic insurance. They simply made different choices about five specific things, the same five things that are leaking money inside almost every plan in America.

When we audit a benefits program, the overspend almost always shows up in the same five places. None of them are obvious from your renewal spreadsheet:

1. Pharmacy pricing. Your PBM (the company that processes your prescriptions) often charges your plan one price for a drug and pays the pharmacy a lower price, and pockets the difference. On a generic, the spread can be 300–600%. You will not see this on any invoice.

2. Network "discounts" that aren't discounts. Your PPO network shows a 55% discount off "billed charges." But billed charges are a fictional number hospitals make up, it is theater at it’s finest. What matters is the actual paid amount, and most employers have never seen it or where to even find it.

3. Stop loss premiums priced for the wrong risk. If your plan has any kind of claims-based component, your stop loss carrier is pricing your renewal off a risk model that may have nothing to do with your actual claim experience. Renewals routinely come in 15–25% high.

4. Plan design that pushes spend, not reduces it. High deductibles were sold as a way to make employees "better consumers." In practice, they make employees delay care until small problems become $40,000 problems. The plan saves $200 in premium and spends $4,000 in claims.

5. Broker compensation tied to premium volume. If your broker is paid as a percentage of the premium, every dollar your costs go up is a raise for them. This isn't a conspiracy, it's just math. And it's worth understanding.

Each of these is a topic we'll go deep on in coming months.

Here is the loop most companies are stuck in:

The reason this feels uncontrollable is that you're shopping a product (the insurance plan) when the actual cost driver is a system (the claims, the contracts, the pharmacy chain, the plan design, the data you're often not allowed to see).

Companies that break out of this loop don't do it by being better shoppers. They do it by changing what they're shopping for.

That's not a pitch for any one approach. There are multiple paths, some involve staying with a traditional fully insured plan and just fixing what's underneath it. Others involve more flexible structures where unused premium comes back to the employer instead of the carrier. The right answer depends on your size, your industry, your workforce, and your appetite for change.

What every path has in common is this: you have to see the data first. And in a traditional fully insured plan, you usually can't.

If your blended PEPY is in the $13,000–$15,000 range, you're paying the national average. That sounds normal, but "national average" is the price tag on a system that's overpaying by 20–40%. Average is not a goal.

A well-run benefits program at a 10–500 employee company should land in this range:

If you're meaningfully outside these ranges, it's not because your people are sick. It's because something in the system is leaking.

In Month 2, we'll go after the single most expensive myth in employer healthcare: the idea that a bigger PPO network gets you better pricing. Spoiler, it usually gets you worse pricing, and we'll show you how to verify it on your own plan.

For paid subscribers, the Month 1 deep-dive ("How to Benchmark Your Plan in 30 Minutes") drops next week. It includes the exact PEPY ranges by group size, the three numbers your broker should already be giving you, and a simple model you can plug your own numbers into to estimate your overspend.

If you want that issue and the those that follow it, the upgrade link is below.

Twelve issues a year. Each one is a step-by-step playbook on a specific cost lever, the kind of thing benefits consultants charge thousands to walk you through. If even one issue saves you 1% on your healthcare spend, you've paid for the subscription for the next decade. The bonus? We occasionally throw in a client case study so you can see real businesses taking action to change their healthcare outcomes.

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Nick Lease is the President of Next Gen Benefits Solutions, where he works with CFOs and business owners to lower healthcare costs without cutting benefits. This newsletter is independent commentary, not specific advice for your situation.

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