For most businesses, employee benefits are the second-largest expense after wages.

According to the U.S. Bureau of Labor Statistics, benefits account for roughly 30% of total compensation costs for private-industry employers, and in the year ending June 2026, benefit costs grew faster than wages. Yet in many organizations, benefits decisions are treated as an HR function rather than a financial strategy.

That’s a missed opportunity. CFOs who take an active role in benefits planning can control costs, reduce risk, and improve the return on one of the company’s biggest investments. Here’s what every finance leader should understand.

Health Care Costs Are Rising Faster Than Inflation

KFF’s 2025 Employer Health Benefits Survey found that the average annual premium for family coverage reached $26,993, up 6% from the prior year, well ahead of general inflation. KFF also noted that early indicators pointed to even steeper cost trends heading into 2026.

The main cost drivers include:

Specialty and high-cost prescription drugs, including GLP-1 medications
Rising hospital and facility prices
High-cost claimants, where a small number of members drive a large share of spending
Chronic conditions that build cost over time

A CFO who understands what’s behind the numbers can push for strategies that address root causes rather than simply absorbing increases.

Your Funding Model Shapes Your Financial Risk

How your health plan is funded affects cash flow, risk, and visibility into costs.

Fully insured plans offer predictable premiums but little transparency. When claims run lower than expected, the carrier keeps the surplus.
Level-funded plans provide fixed monthly payments with the potential for a year-end refund when claims are favorable.
Self-funded plans give employers the most control and data, paired with stop-loss insurance to cap catastrophic exposure.

The right model depends on your company’s size, cash reserves, and risk tolerance. It should be revisited as the business grows.

Data Is Your Most Valuable Tool

You wouldn’t approve a major capital expense without data, and benefits should be no different. Ask for regular claims reporting, broken down by category: inpatient, outpatient, pharmacy, and high-cost claims. Look for trends in utilization and identify where spending is avoidable.

Fully insured groups often receive limited data. If your business is large enough, moving toward a level-funded or self-funded arrangement can unlock the reporting needed to make informed decisions.

Plan Design Levers Matter

Small plan design changes can produce significant savings:

Adjusting deductibles and copays to encourage cost-conscious care
Pairing a high-deductible plan with an HSA, which also creates tax advantages
Pharmacy benefit carve-outs or transparent PBM contracts
Reference-based pricing for facility claims
Steering members to high-value providers, telehealth, and urgent care rather than the ER

Every change involves trade-offs with employee satisfaction, so decisions should be made with both cost and retention in mind.

Don’t Overlook Compliance Exposure

ERISA, ACA reporting, COBRA, and nondiscrimination rules all carry potential penalties. A compliance failure can quickly erase savings from smart plan design. CFOs should confirm that plan documents, required notices, and filings are current and that responsibility for each is clearly assigned.

Benchmark Against Your Peers

Knowing what similar employers spend gives context to your own numbers. Compare your per-employee costs, employee contribution levels, and plan designs against businesses of similar size, industry, and region. If your costs run well above benchmark, that points to opportunities in funding, plan design, or vendor contracts. If they run well below, you may be underinvesting in a way that hurts recruiting and retention.

Think in Multi-Year Terms

The most effective benefits strategies are built over three to five years, not one renewal at a time. A multi-year plan lets you phase in changes, measure results, and avoid reactive decisions when a renewal comes in high.

Frequently Asked Questions

What percentage of compensation goes to benefits? BLS data shows benefits make up roughly 30% of total compensation for private-industry employers.

Why are health insurance costs rising so quickly? Specialty drugs, hospital prices, and high-cost claims are among the biggest drivers.

Should CFOs be involved in benefits decisions? Yes. Benefits are a major expense with real financial risk, and they deserve the same scrutiny as any other large budget item.

How Beckham Ellis Can Help

Beckham Ellis Insurance Group partners with CFOs and business owners in Charleston, Mount Pleasant, Greenville, and St. Simons Island to turn benefits from an unpredictable expense into a managed strategy. We provide claims analysis, funding comparisons, and multi-year planning so you can make decisions with confidence.

Contact Beckham Ellis to schedule a benefits spending review before your next renewal.

This article is intended for general informational purposes and is not legal or tax advice.