Navigating the Premium Curve: Predictable Increases vs. Responsive Pricing in Health Insurance
A recent comment from one of our insurer partners about them being surprised by the “premium roller coaster” a client had experienced over 10+ years got us thinking about the pros and cons of different premium models — and how they affect companies’ bottom line over time.
For organizations managing group health insurance, one of the most important — and often most frustrating — elements is the annual premium adjustment (usually a premium increase). Some insurers offer predictable, year-on-year increases in the 5–10% range, while others take a more experience-based approach, with premiums rising or falling in response to the group’s actual claims performance.
There are advantages and disadvantages to both models.
At first glance, the stability of predictable pricing may seem like the obvious choice. But the reality is more nuanced — and the better model depends on your organization’s financial goals, governance structure, and appetite for risk.
The Predictable Path: Stability at a Price
Insurers that apply a fixed annual increase — say, 6–8% — offer budgetary consistency. Premiums may rise slowly and steadily, regardless of whether your group had a high- or low-claims year.
Pros:
- Easier to plan and forecast costs year-over-year
- Fewer surprises for finance teams and boards
- Preferred by organizations that value stability and long-term planning
Cons:
- No premium relief in low-claims years
- Over time, may lead to higher total spend compared to a more responsive model
- Can feel like you’re being penalized even when things go well
- Often lacks transparency — these insurers may not share detailed claims data, making it difficult to understand what’s driving costs or how to improve future performance
This last point is particularly important. Without visibility into your group’s claims, it becomes harder to take proactive steps — like promoting wellness, managing high-cost claims, or negotiating better terms. That said, transparency only matters if you can act on it. If your organization doesn’t have the structure, bandwidth, or support to analyze and use claims data meaningfully, it may not be a dealbreaker.
The Responsive Route: Risk and Reward
In contrast, experience-based pricing reflects the actual claims behavior of the group. A high-claims year may result in a sharp premium increase —1 5%, 20%, even more — while a good year may deliver a 10% or even 15% reduction.
Pros:
- Potential for meaningful savings in good claims years
- Encourages strong engagement in wellness and claims management strategies
- Reflects real performance, not just general inflation
- Greater transparency — insurers usually provide detailed claims reporting to justify pricing and support decision-making
Cons:
- Volatility can make budgeting difficult
- Big increases can cause stress and may require urgent plan design changes
- Not ideal for organizations with rigid governance or approval cycles
- Requires more hands-on involvement — you’ll likely need to monitor claims data, consider benefit adjustments, and engage in more detailed negotiations at renewal. Without expert guidance, this can be overwhelming — which is why working with a broker is highly recommended
Context Matters
In practice, most organizations respond to large increases by adjusting their plan design — for example, by introducing a deductible or increasing employee cost-sharing — to soften the impact. This flexibility helps limit spikes and smooth out the curve.
However, organizations that can’t make plan design changes — due to internal policies or governance structures — may find themselves stuck absorbing a full increase with no real way to mitigate it.
Visualizing the Difference
To illustrate the long-term financial difference, here’s a simple example. Both models start with a US$1,000,000 premium:
- The “roller coaster” model varies based on claims: a few decreases, some modest increases, and a couple of recent years of significant spikes.
- The “steady” model increases at a fixed 6% each year.
Despite some ups and downs, the roller coaster model ends with a lower total spend over those 10+ years — but only if you’re equipped to navigate it.
So Which Is Better?
There’s no one-size-fits-all answer.
- If your company values predictability, operates on tight financial forecasts, and wants to avoid large swings in budget cycles, a stable premium model might be the best fit—even if that means accepting less claims transparency.
- If you have the flexibility to adapt your plan when needed, and want to be more data-driven in your decision-making, a responsive pricing model offers both savings potential and strategic insight.
At One World Cover, we help companies weigh these options not just in theory — but in practice, based on their claims data, strategic goals, and internal capacity to manage change.
Want to know which model fits your company’s needs best? Contact us to start the conversation.
Michael Pennington, Customer Experience Director, One World Cover – [email protected]
