Most business owners have never actually looked at what their benefits plan costs per dollar of claims. Here’s why, and what to do about it. 

Ask a room full of employees whether they have good benefits and most hands go up. Ask their employers the same question, and you’ll probably get the same result. 

Everyone is happy, everyone is taken care of. The plan is working then, right? 

In a lot of cases, it isn’t. 

What is actually happening is both employees and employers are looking at their plan and making assumptions about value, assumptions that nobody has ever bothered to check. The coverage looks good; the plan is plump and robust; renewals keep getting signed. 

But underneath it all, the math behind the plan quietly gets worse. This is the conversation that most benefits advisors aren’t having with their clients, and the one most clients don’t know they need to have. 

The problem isn’t the plan, it’s the math behind it. 

Let’s introduce a 15-person legal firm. The founder, Anita, genuinely cares about her team and their coverage has always been a priority for her. When she set the plan up, her advisor presented something robust, impressing her team and eliciting their enthusiasm. That enthusiastic response confirmed to Anita that she’d made the right call. 

Here’s the catch: Anita and her team were so enamoured by the plan, no one decided to care about the numbers behind it. Let’s look at where the business stands after three years of offering benefits: 

Anita was spending almost two dollars to put one dollar of value in the hands of her employees! Now keep in mind – Anita decided to give her employees some “skin in the game” by splitting the premium 50/50 between the business and the employee. Her plan was renewed at an average of 22% per year. She said yes every time because switching up felt risky, and she wanted to keep her team covered. 

This isn’t unusual, this is a normal occurrence. 

Three employees. Same plan. Three completely different realities. 

To understand why this keeps happening, you need to understand what a typical premium-based benefits plan actually looks like, and who it serves. 

Marcus 

Marcus is a new hire in his early 30s. He’s healthy, goes to the gym, and occasionally gets massages. His annual premium is $3,600, split 50/50 between Marcus and the business — he pays $1,800 a year, and claims about $300-$400. 

He runs at a loss on his benefits every single year, but he has absolutely no idea. The premium disappears off of his paycheck, hidden between taxes, and other line items. Marcus never pauses to look at it or think about the value he may or may not be getting. 

Priya 

Priya is a senior paralegal in her mid-40s with a family. She pays the $6,500 annual premium for her family coverage, split 50/50 — $3,250 a year, and claims around $2,800. Family dental cleanings, asthma prescriptions, her husband’s paramedical all add up over the year, pushing her to claim close to what she pays in premiums. This is more or less by accident, a different year with different benefit needs could put her above the benchmark.

David 

David is the office manager in his late 50s. He’s been with the company for longer than anyone and knows his way around his benefits plan. He’s on the same plan as Marcus, with the same $3,600 premium split 50/50 — so he pays $1,800 a year too, but claims about $5,800.

In his own words: “I need my plan. I squeeze every dollar I can out of it”. Here is the thing – David's $5,800 in claims isn’t coming from his own premium contributions. He’s being propped up by Marcus, Anita, and all his other coworkers.

Here's a summary, person by person: 

• Marcus pays $1,800 in premiums and claims $300-$400. He's not getting his money's worth on paper, but he'll never know it — the premium is invisible on his paycheck, and the plan feels like a benefit simply because it exists. 
• Priya pays $3,250 in premiums and claims around $2,800. She's coming out ahead this year, almost by accident. She'd tell you the plan is "fine" — not because she's done the math, but because nothing's been denied. 
• David pays $1,800 in premiums and claims $5,800. He knows exactly what he's getting, because he's the one engineering it. Ask him and he'll tell you the plan works great — and for him, it does. 

Three people,all are under the same plan, same coverage, but wildly different value perceptions. 

So why do smart people keep renewing bad plans? 

This is where it gets genuinely interesting, because the question isn't just why benefits plans get expensive. It's why smart, engaged, detail-oriented business owners keep renewing them. 

The answer is psychology. Specifically, three cognitive patterns that the benefits industry benefits from enormously. 

1. The Availability Heuristic 

We judge the value of something based on how easily we can picture it. Marcus' massage is vivid. He can feel it. That reimbursement notification in his inbox is real and tangible. His half of the $3,600 premium — $1,800 a year? That's a number buried on a paystub.  

This is why people consistently overestimate the value of their benefits. The claims feel like wins. The cost disappears. The math never happens, not because people can't do it, but because the vivid experiences crowd out the invisible costs. 

Anita experiences this too. She sees her team using the plan, hears them talking about it positively. That's what she can picture. The 199-cents-per-dollar ratio she's running at? Nobody made that visible. 

2. Loss Aversion 

Loss aversion is one of the most powerful cognitive biases we have. Psychologically, the pain of losing something is about twice as intense as the pleasure of gaining an equivalent amount. Same dollar value, completely different emotional weight. 

This is why switching from a traditional insured plan to an HSA feels so threatening, even when the math clearly favours the switch. Employees experience it as losing their coverage, not gaining flexibility and money. Employers experience it as taking something away from their team. Even when the new plan objectively delivers more value, the framing of loss dominates. 

This keeps businesses trapped in plans that don't serve them. Not because of logic, because of how loss feels. 

3. The Just-in-Case Rationale 

What if someone on the team gets really sick? What if we drop a category and someone needs it next year? What if we change and something goes wrong? 

These feel like responsible questions. And they're not entirely wrong, catastrophic risk is real and worth protecting against. But the "just in case" instinct, left unchecked, leads to over-insured, overpriced plans that charge you for catastrophic protection on routine dental cleanings. 

Anita accepted three consecutive 22% renewals not because the math worked, but because changing felt risky. That instinct cost her approximately $20,000 a year in plan overhead by year three. 

So, what’s our alternative? 

We’re happy to let you know, it’s super simple. Your benefits plan should be based around the following formula: 

Cost = Claims + Admin Fee 

There are two models that fit under this formula. Neither is the right fit for every business, but both are almost always more efficient than a traditional premium-based plan. 

Health Spending Accounts (HSAs) 

Think of it as a bank account for medical expenses. The employer deposits a set amount. Employees draw from it to reimburse CRA-eligible expenses. It's 100% tax deductible to the business, and the business only pays for what's actually used. 

Enhanced Health Blends (EHBs) 

For businesses that want a plan that looks and feels like traditional coverage — the same structure their employees are used to — the EHB is a claims-based alternative that delivers familiarity without the premium overhead. 

The plan sponsor defines the categories, reimbursement percentages, and annual maximums. Employees submit claims as normal. The employer pays claims as they're reimbursed, plus an admin fee. If nobody claims, nobody pays. 

So how do these plan styles affect Anita’s situation? Let’s take a look: 

Same team with the same claims, but the difference is staggering. The HSA saves Anita $18,700 in overhead — fees, insurer margins, risk-factor charges, and profit — that simply disappear when you move to a cost-based model.  

The EHB lands slightly higher due to its additional plan structure but still cuts her overhead by $17,000. Both options deliver the same claims coverage her team actually needs. The only thing that changes is how much of her budget goes toward actually paying those claims versus funding an insurer's operating model. 

For Marcus, either option means his benefits start working for him rather than against him. Unspent HSA balances accumulate year after year, turning his benefits into a real asset instead of a cost that evaporates.  

For Priya, her family's claims are reimbursed directly and efficiently under either model. 

David may not be able to over-use the plan the way he was before, but he gets flexibility to reimburse day-to-day expenses, and we can build in catastrophic coverage for those “just in case” events. 

So, how do you know if your plan is working? 

Here's a framework. A plan that's working meets four criteria. Most traditional plans meet maybe one or two of them. 

• Employees use it for things they actually need. Not navigating around plan limits, provider hopping, or fighting for reimbursement. They submit a claim and it gets paid. 
• The cost-to-claims ratio is visible and explainable. You know what you're spending per dollar of benefit delivered, every year.  
• Employees can name real experiences, not describe the plan. Priya can tell you her family dental was $800, her daughter's asthma prescription was $1,200, her husband's physio ran $800. That's a plan she can feel.  
• Everyone builds tangible value, not just your highest utilizers. David's plan clearly works for David. But a well-designed plan also builds value for Marcus in a low-utilization year. 

If you can check all four boxes, your plan is genuinely working, and that’s worth knowing. But if you're only checking one or two, you’re not alone — and now you know what to look for. 

The math isn't complicated and the alternatives aren't radical. What's been missing is someone laying it out honestly, without a renewal deadline forcing the conversation. 

That's what this blog was. 

Your benefits plan is one of the most significant line items in your compensation budget. It shapes how your team feels about working for you, and it either builds real value for the people on it, or it quietly drains money that never shows up as value for anyone.  

You deserve to know which one is happening, and now you have the framework to find out. 

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