Without a cost management strategy, your finance team's healthcare cost projection should assume 8% annual growth in perpetuity.
Patrick Nelli joined Relentless Health Value to walk through one of the most underleveraged opportunities in employer benefits: getting benefits and finance aligned on a shared picture of healthcare spend before renewal season.
If you've felt the gap between what you know about your benefits program and what shows up in the financial model, this conversation is for you, and we put together a one-pager that you can share with your finance team.
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The status quo has a steep cost.
Unlike most operating expenses, healthcare costs are driven by structural forces that don't respond to normal budget assumptions, which is why they've consistently outpaced the broader economy.
Overall inflation has averaged 2–3% annually. Employer-sponsored healthcare costs have run more than twice that rate. The gap exists because healthcare spend is driven by factors that standard financial models aren't built to capture.
~8%
Projected annual healthcare cost inflation
Based on 7.7% historical average, in a low inflation era
vs
~2-3%
Average overall inflation
Source: PwC Health Research institute-Behind the Numbers
When benefits and finance are working from different baselines, the result is a forecast that gets revised at renewal — every year.
Healthcare is typically an organization's second-largest line item after payroll. Benefits teams understand the complexity. Finance teams own the models. Without a shared framework, the default is inertia, and inertia in healthcare spend is expensive
The result is higher costs with each renewal.
The first step isn't a new vendor or a new plan design. It's an honest forecast When benefits and finance align on a realistic baseline, 7.5% to 8% or higher, it changes the conversation entirely.
1
Healthcare productivity growth is slower than other industries — a phenomenon economists call Baumol's Cost Disease. A physician visit today requires the same labor it always has, which means healthcare inflation runs structurally higher than the broader economy, regardless of what's happening elsewhere in the market.
2
The government sets prices and employers are price takers. Medicare and Medicaid reimbursement rates are set below market, so hospitals negotiate higher rates from commercial plans to cover the shortfall. As consolidation concentrates more care delivery under hospital ownership, nearly 80% of physicians are now employed by hospitals or corporate entities, employers have less leverage and costs shift further in one direction.
3
Hospital consolidation doesn't just affect pricing, it changes where care gets delivered. As hospitals acquire outpatient facilities and physician practices, routine care that was once provided in lower-cost settings gets billed at hospital rates. That shift happens gradually and outside the renewal conversation, and it shows up in claims after the fact.
We put together a one-page brief with the data and context your finance team needs to model healthcare spend. Share it before your next renewal conversation.