Forecasting Benefit Costs: Why 2025 Was So Painful — And What Smart Employers Should Be Doing Now

For many employers, last year’s health insurance renewal wasn’t just uncomfortable—it was shocking.

Double-digit increases became commonplace. Some groups saw numbers climb into territory they hadn’t experienced in years. Many CFOs were scrambling. And HR teams were caught between budget realities and employee expectations. In many cases, the reaction was, “How did we not see this coming?”

The truth is, much of what happened in 2025 wasn’t random. It was predictable…at least in broad strokes. Specialty medications surged. For one, GLP-1 drugs for weight loss and diabetes drove unexpected utilization. Deferred care from the COVID years finally surfaced. Hospitals continued consolidating. And carriers moved through the natural “underwriting cycle,” correcting prior underpricing.

The lesson isn’t just that costs go up. It’s that employers who forecast early and forecast intelligently have options. Those who wait until renewal season have far fewer.

Healthcare Is Item #2 — But It’s Often Treated Like Item #12

For most employers, healthcare is the second-largest expense behind payroll. Yet many treat it like a once-a-year administrative event instead of a strategic cost center.

Forecasting benefit costs isn’t just guessing at next year’s increase. It’s a disciplined process of analyzing trends, understanding risk factors within your population, and modeling scenarios multiple years out.

And the complexity depends heavily on your size and funding arrangement.

Smaller, Fully Insured Employers: Easier — But Still Requires Planning

If you’re a smaller employer—typically under 100 to 150 employees—and fully insured, forecasting is more straightforward.

You start with:

• current headcount
• current rates
• expected growth
• medical and prescription inflation trends

National medical trends often range in the high single digits, but carrier-specific factors matter. In Michigan, for example, certain carriers have experienced higher baseline trend pressures in recent years.

But even for fully insured groups, forecasting shouldn’t be reactive. For January renewals, by April or May, we typically know which claims period the carrier will use for renewal underwriting. That gives us meaningful insight into whether the coming renewal is likely to be manageable—or difficult.

That timing matters. If a significant increase is coming, employers need runway. Time to evaluate plan design changes. Time to model contribution strategies. Time to consider introducing alternative solutions, even as simple as a high-deductible health plan with an HSA. Time to build a communication strategy so employees understand what’s changing and why.

When forecasting begins in the spring instead of the fall, the renewal conversation becomes strategic instead of defensive.

Larger Or Self-Funded Employers: Data Is Everything

Once you move into self-funded or level-funded arrangements—or simply grow large enough to have credible claims data—forecasting becomes far more data-driven. This is where actuarial discipline comes in.

Group size matters. A 1,000-life group provides statistically credible data after one year. A 200-life group may require three years of history to smooth volatility when projecting costs. Smaller populations are inherently less predictable and require blended methodologies.

But regardless of size, meaningful forecasting requires digging into:

• chronic condition prevalence (diabetes, cardiovascular disease, etc.)
• specialty drug utilization
• GLP-1 prescriptions
• high-cost claimants
• utilization patterns
• emerging high-cost genetic therapies

Specialty medications now account for a disproportionate share of total drug spend. While they may represent a small percentage of prescriptions, they often drive a large share of cost. GLP-1 medications are a prime example of high cost, high utilization problem. Initially covered broadly, demand surged. Carriers adjusted coverage in response, but new clinical indications continue to expand utilization.

These aren’t temporary anomalies. They’re structural cost drivers. If you’re self-funded and not reviewing this level of data, you’re not truly forecasting — you’re guessing.

Fully Insured vs. Self-Funded: A Strategic Consideration

Another factor in long-term forecasting is funding structure. Fully insured arrangements often include built-in carrier margin and risk charges. For employers that reach a certain scale and can tolerate some claims volatility, self-funding can remove a layer of embedded cost. That shift doesn’t eliminate risk — it changes how risk is managed. And it requires even more disciplined forecasting.

The key is evaluating this proactively, not reactively after a difficult renewal.

Why Timing Matters More Than Precision

One of the biggest misconceptions about forecasting is that it’s about predicting the exact renewal percentage. It isn’t. It’s about preparing for a range of outcomes.

When we forecast for clients, we often model best-case and worst-case scenarios. That gives leadership clarity around:

• budget exposure
• contribution strategies
• plan design changes
• communication planning
• wellness investments

If you anticipate a challenging year, you can:

• introduce cost-control measures early
• enhance chronic condition management
• adjust contributions gradually instead of abruptly
• communicate transparently with employees

Without forecasting, you’re forced into compressed decision-making…often under pressure. The employers who experience the most disruption aren’t necessarily those with the worst claims. They’re the ones who don’t start early.

If your advisor isn’t initiating a forecasting discussion by spring, that’s a missed opportunity. Even fully insured employers should be having structured conversations months before renewal. Larger groups should be reviewing detailed claims analytics routinely, not just annually.

Healthcare cost management isn’t about scrambling in September. It’s about planning in April.

What To Expect This Year

While no one has a crystal ball, the environment appears more stable than the peak volatility many employers experienced last year. That doesn’t mean costs are flat. Specialty medications, expanding drug indications, hospital consolidation, and broader medical inflation continue to exert upward pressure.

But the sharp spikes many employers saw appear less likely to repeat at the same magnitude. Which makes this the perfect year to reset your forecasting discipline.

Here’s what smart, proactive employers should do now:

1. Start forecasting earlier than you think you need to.
   Spring conversations create strategic leverage. ‍
2. Demand real data analysis if you’re large enough to have it.
   Chronic conditions and specialty drug utilization matter.
3. ‍Model multiple scenarios.
   Don’t rely on a single projection.
4. ‍Integrate communication into your cost strategy.
   Changes land better when employees understand the “why.”
5. ‍Lean on your advisor.
   This is not something most internal teams have the time or tools to manage deeply on their own.

Healthcare will likely remain the second-largest line item on your balance sheet. Treating it with the same rigor you apply to payroll planning isn’t optional anymore.

Forecasting benefit costs isn’t about predicting the future perfectly. It’s about owning it proactively.