Estimated reading time: 5 minutes · Last updated:
Mike Smith, president emeritus of The Brokerage Inc., says he holds open conversations with staff about healthcare costs because rising premiums are directly shrinking take‑home pay. He points to a company experience where the average monthly premium per employee rose from about $600 to $1,200 over seven years and to drug spending that once was under 5% of premium dollars and now may account for 30% or more. This as‑told‑to account is based on a conversation with Smith and was as first reported by Business Insider. The goal of these talks is to explain total employer spending, explore options such as ICHRAs, and show how benefits choices affect raises.
Key takeaways
- Mike Smith leads an agency of about 100 employees and reports the average monthly premium per employee rose from about $600 to $1,200 over seven years.
- Prescription drugs that once accounted for less than 5% of the premium dollar may now represent 30% or more, driving premium inflation.
- Employers face premium increases of 10%, 15%, or even 30%, while they may only be able to offer 3% or 4% cost‑of‑living raises.
- After switching carriers and plan designs, Smith's company saved about $100,000 and redirected that money to employees.
Table of contents
How healthcare inflation is cutting into raises
Employers face a widening gap between the rate of premium growth and the raises they can afford. Smith says an employer may want to provide a 3% or 4% cost‑of‑living raise while annual health‑insurance premiums rise 10%, 15%, or even 30%. When premiums climb faster than payroll budgets, the employer must choose whether to absorb the cost, reduce raises, or change benefits.
Prescription drugs are a visible driver. Smith contrasts a time when drugs represented less than 5% of the premium dollar with the current estimate that they may account for 30% or more. He points to treatments that can cost roughly $5,000 a month and to rising mental‑health use as reasons employers are seeing sharp premium pressure. Where employees see only whether a raise arrived, Smith wants them to also see the employer’s total spend on coverage—he cites an example of the company paying about $12,000 a year per covered worker.
Why ICHRAs change the employer–employee bargain
Smith describes individual coverage health reimbursement arrangements, or ICHRAs, as a structural alternative to a single group plan. Under an ICHRA an employer decides how much it can afford to contribute and employees shop for individual coverage that includes their doctors and medications, then submit the premium for reimbursement. Employers can vary contributions by permitted criteria such as age or location, or cover a percentage of each employee’s premium rather than a flat amount.
He compares the shift to the retirement market’s move from pensions to 401(k)s: employers set the contribution and employees take greater responsibility for the choice. Smith says few employees ask about ICHRAs because most do not know they exist, even though the option turns employees into consumers who judge networks and prices directly.
What open conversation and plan choices looked like at his firm
Smith says his roughly 100‑person company moved from nearly 20 years with Blue Cross to Cigna and then offered a choice between a PPO copay plan and a high‑deductible plan with a health savings account. The employer contributed to employees’ HSAs as part of the redesign. According to Smith, those changes saved the company about $100,000, money he redirected to employees rather than using to pad employer margins.
He argues employers often fail to explain the hidden cost of benefits: without context, staff may think an employer is being stingy when raises are small. Smith prefers honest conversations that surface whether an employee’s doctors or medications are covered and whether another plan might work better. He also says broad policy changes—he expects an expansion of Medicare over time—could shift how costs are set, but the national price of such a move remains an open question.
| Feature | Group plan (traditional) | ICHRAs / individual coverage |
|---|---|---|
| Who chooses the plan | Employer | Employee |
| Employer contribution | Unified premium paid by employer | Employer sets a dollar or percentage reimbursement |
| Network and meds | Depends on employer plan | Employee shops for coverage that suits their doctors and meds |
| Variability by location/age | Typically uniform | Employer may adjust contributions by permitted criteria |
Two‑sided case for employer transparency and ICHRAs
The case for
- ICHRAs could increase competition among carrier networks and give employees better‑fitting plans, reducing mismatches between coverage and need.
- Open conversations can reveal hidden employer spending—Smith cites a $12,000‑a‑year per‑employee figure—which helps tailor benefits and freed up roughly $100,000 at his firm for employee use.
The case against
- Shifting costs and greater employee choice can be perceived as employers offloading expenses; that risk can damage morale if not communicated clearly.
- ICHRAs add administrative complexity and potential coverage gaps if employees choose plans that do not cover necessary doctors or medications.
What to be careful about
- Employees may switch to individual plans that exclude their preferred doctors or medications, creating coverage gaps.
- Honest disclosure of employer spending can be misread as cost‑shifting and harm trust if alternative options are not offered.
- Administering ICHRAs and varying contributions by age or location can create compliance and payroll complexity for employers.
The bottom line
Rising healthcare costs are now a visible part of compensation decisions: prescription‑drug and mental‑health spending have materially increased premiums, and employers face hard trade‑offs between raises and benefits. Smith argues that open discussions—laying out the roughly $12,000‑a‑year cost per covered worker he cites, explaining alternatives such as ICHRAs, and showing the company’s savings when plans change—reduce surprise and let employees make better coverage choices. Whether through plan design, clearer communication, or policy change, the practical choices employers make now determine whether premium inflation erodes pay or is managed collaboratively.
What to watch
- Watch for more employers discussing or offering ICHRAs; no specific national timeline has been set.
- Watch for companies switching carriers or plan designs to control premiums; no single deadline or date has been reported.
- Watch for policy developments around Medicare expansion that could change how employers and doctors are paid; no enactment date has been set.
Frequently asked questions
What is an ICHRA and how does it work?
An ICHRA, or individual coverage health reimbursement arrangement, is a plan design where an employer sets a dollar or percentage contribution and employees shop for individual coverage, then submit premiums for reimbursement; employers may adjust contributions by permitted criteria such as age or location.
How much have premiums risen at Mike Smith’s company?
Smith says the average monthly premium per employee rose from about $600 to $1,200 over seven years, while employers face year‑over‑year premium increases of 10%, 15%, or even 30% in some cases.
What concrete savings did the company achieve by changing plans?
After moving from Blue Cross to Cigna and offering a PPO copay plus a high‑deductible HSA option, Smith reports his firm saved about $100,000 and redirected that money to employees.
Related reading
