As small-and-mid-sized business leaders head into the second half of the year, financial planning naturally shifts toward annual budgeting. For many of our clients, this time of year brings a lot of questions, specifically around healthcare and employee benefit costs.
How much will healthcare costs increase again? Should we adjust our benefits strategy? Are we still offering competitive benefits without putting additional pressure on the business?
At LBMC Employment Partners, we begin having these conversations long before open enrollment. In this post, we wanted to outline a few insights our Human Resource Business Partners have been sharing with clients as we begin thinking about 2027 budgets and employee benefits.
What to Expect: The Forces Driving 2027 Benefit Costs
Healthcare costs have continued to outpace inflation in recent years, and many experts expect that trend to continue into 2027.
One of the biggest contributors is prescription drug utilization. A recent article from SHRM reports that prescription drug benefits are among the fastest-growing healthcare expenses. Specialty medications and GLP-1 drugs continue to impact employer-sponsored healthcare plans across the country.
As a result, many companies are looking for new ways to manage costs while maintaining quality coverage. According to a Mercer study published last month, nearly one-third (31%) of large employers currently offer, or plan to offer, at least one non-traditional medical plan in 2027.
Many small businesses face an additional challenge: Research from the Commonwealth Fund found that employees at small businesses often pay higher premiums and deductibles than employees at larger organizations.
The good news? Rising costs don’t necessarily mean employers need to cut benefits or shift the burden entirely to employees. And PEO partnerships, like what we offer at LBMC Employment Partners, are helping small and midsize businesses access enterprise-grade employee benefits for their employees.
Best Practices for Navigating Rising Benefit Costs
When facing healthcare cost inflation, a common knee-jerk reaction is to slash coverage or shift significant out-of-pocket costs directly onto employees. However, doing so can damage workplace morale and harm employee retention.
Instead, we guide our clients through a few foundational best practices during annual budgeting:
1. Normalize Rate Increases and Build a Contingency Buffer
It is unrealistic to expect a zero-percent renewal change in today’s healthcare environment. Rate hikes across the small-to-mid-size group market often swing widely—sometimes jumping up to 30% depending on claim history and group size.
Incorporating an over-budgeted buffer into your preliminary yearly planning allows you to create a financial safety net, ensuring your business has a clear contingency plan if an unexpected rate shift occurs.
2. Consider Plan Design Changes Before Reducing Coverage
When renewal numbers arrive, many employers immediately ask, “What do we need to cut?”
In reality, there are often more strategic options available.
Slight adjustments to plan design can sometimes create meaningful savings without dramatically impacting the employee experience. High-deductible health plans, alternative deductible structures, and expanded plan offerings can help employers better balance affordability and coverage.
The goal isn’t to offer less. It’s to offer benefits that make sense for your workforce while supporting the long-term health of your organization.
3. Don’t Underestimate the Power of Benefits Education
Employee benefits can be complicated.
We’ve found that many employees focus on premiums and deductibles, even though much of their healthcare utilization is tied to copays or preventive services.
When employees understand how to use their benefits effectively, they tend to make better decisions about care, which can lead to a better overall experience.
Benefits education should be viewed as part of your strategy, not an afterthought during open enrollment.
How LBMC EP Helps Clients Stay Ahead
Managing rising benefit costs independently can leave small businesses feeling like they live reactively and are beholden to whatever limited options are available.
At LBMC Employment Partners, we take a proactive approach to benefits planning. That starts by reviewing an organization’s entire benefits strategy—not just renewal rates. We help clients evaluate plan options, identify opportunities for cost savings, and determine whether adjustments to deductibles, contribution strategies, or plan offerings could improve outcomes for both the employer and employees.
For organizations considering a PEO model, there may be additional advantages.
Because LBMC EP leverages the buying power of a much larger employee population, many clients gain access to competitive rates and benefits offerings that would be difficult to secure independently. That can be particularly valuable for small and mid-sized organizations competing for talent against much larger employers.
More importantly, clients gain a partner who understands how benefits, payroll, HR, compliance, and employee experience all work together.
Looking Ahead to 2027
No one can predict exactly what your renewal will look like next year. But one thing is certain: waiting until open enrollment to think about benefits is rarely the best approach.
The organizations that navigate the changing landscape of benefits and rising costs most effectively are the ones taking the initiative to start planning today.
If you’d like help evaluating your benefits strategy, preparing for 2027, or exploring whether a PEO model could make sense for your organization, our team at LBMC Employment Partners is here to help. Connect with us here to schedule a quick call or meeting.
Budgeting for benefits is about more than managing costs; it’s about investing in the people who make your business possible.
