---
title: How to contain employee benefits costs (and why most businesses struggle)
description: Learn how a PEO provider can help contain employee benefit costs
---

<https://blog.octaneoc.org>

# [How to contain employee benefits costs (and why most businesses struggle)](https://blog.octaneoc.org/how-to-contain-employee-benefits-costs-and-why-most-businesses-struggle)

 Written by [Bob Farrell | Senior Human Resource Specialist Washington D.C., Washington D.C.](https://blog.octaneoc.org/author/bob-farrell-senior-human-resource-specialist-washington-d.c.-washington-d.c) | Apr 30, 2021 4:59:17 PM

Read the full post on [insperity.com](https://www.insperity.com/blog/how-to-contain-the-cost-of-employee-benefits/)There’s no getting around it – employers pay a hefty sum to provide health care benefits for their employees.

The average private-sector employer spends an average of $2.65 per hour, per employee, for health-insurance costs, according to [Sept. 2020 data from the U.S. Bureau of Labor Statistics (BLS)](https://www.bls.gov/news.release/pdf/ecec.pdf).

These aren’t low numbers. And the smaller a company is, the more consequential these numbers get.

**The worst part: these costs tend to rise. Every. Single. Year.**

In 2021, employer expenses for health insurance are expected to rise by 3.9 percent, according to Mercer’s National Survey of Employer-Sponsored Health Plans. This increase is in line with the average growth in annual health-insurance costs that employers have experienced over the last several years.

Although this increase may seem like a modest figure at first glance, this upward trend spread out over a decade – and longer – adds up quickly.

That presents business leaders an ever-present challenge: how to contain the cost of employee benefits.

## Why benefits costs keep rising – and are more challenging for small- to mid-sized businesses to control

Wondering how to contain the cost of employee benefits?

Unfortunately, increases in health-insurance costs are driven in part by factors outside a company’s control, such as:

- The rising cost of care (known as medical inflation)
- Expanding regulatory and reporting requirements

**However, a major driver of increasing health-insurance costs is plan usage and claims history.**

In presenting renewal rates, insurance companies make assumptions about the next 12 months based on patterns that were established in the previous 12-month period.

As with car insurance:

- With more claims, the cost of coverage increases.
- With fewer claims, the cost of coverage declines.

It’s a predictable fact that health-insurance costs will rise. However, the extent of the increase is a bit harder to forecast. After all, life happens. It’s not easy for businesses to predict accidents, injuries and illnesses, or their frequency, over the course of a year.

Additionally, small to mid-sized businesses are often short on time and staff, and can lack the bandwidth, resources and expertise to:

- Research market rates.
- Comb through data within end-of-year claims reports and proposals for upcoming years.
- Identify discrepancies or inaccuracies that could ultimately reduce costs.

And, because of their lower numbers of employees, small and medium-size businesses tend to struggle in the negotiation of competitive rates. They simply lack the necessary leverage in the marketplace.

As a result, the National Conference on State Legislatures reports [that small businesses pay an average of 8% to 18% more than larger organizations](https://www.ncsl.org/research/health/small-business-health-insurance.aspx) for the same health-insurance policy.

Read the full post on [insperity.com](https://www.insperity.com/blog/how-to-contain-the-cost-of-employee-benefits/)

[View full post](https://blog.octaneoc.org/how-to-contain-employee-benefits-costs-and-why-most-businesses-struggle)

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