The 85/15 Rule Was Built To Control Costs, But The Math May Reward Carriers Instead

Healthcare costs are climbing, with U.S. employers facing the highest health benefit cost increase in 15 years and rates expected to rise 9.5 percent in 2026. The math is forcing many companies to change how they buy coverage. To handle volatile renewals, some organizations are rethinking the entire purchasing model. Instead of asking what plan they should buy, they are asking what budget they should commit, moving toward individualized frameworks that give employees more control and align spending with actual needs.

Larry Cass, MPH, is the Director of Employee Health & Benefits for the Northeast region at Marsh McLennan Agency. He combines more than 30 years in employee benefits brokerage with a recent Master of Public Health from Fairfield University. That dual background leads him to evaluate plan design through both a financial and public health lens, focusing on whether coverage is affordable, accessible, and meaningful for employees and their families.

“Rather than asking, ‘What plan should I buy for my workforce?’ employers can change the conversation to, ‘What budget should I commit, and how do I help each employee use it effectively?’” Cass says.

That assessment traces directly to the mechanics of how the traditional healthcare market operates. Specifically, the Affordable Care Act's 85/15 Medical Loss Ratio rule inadvertently creates a mathematical incentive for carriers and hospitals to allow costs to rise. Because insurance carriers are mandated to spend 85% of premium dollars on care, their 15% administrative profit margin only grows in absolute dollars when total claims go up. The resulting regulatory framework can reward carriers when overall healthcare costs increase.

The legacy loop

Against that backdrop, many employers find themselves caught in a rigid purchasing cycle that distances the end-user from the actual cost of care. The standard model has barely changed in decades.

"Right now, under most medical plans, the company chooses the carrier, then the plan designs, and then the contributions," Cass says. "It's a typical model that's been in place for 25 to 30 years."

For companies focused on talent retention and making employees feel supported, disrupting that process is becoming a regular focal point in the boardroom. "From a corporate standpoint, how are we going to attract and retain employees?" Cass continues. "What's the overall underlying construct of what we're offering? Is it just something that's affordable to check a box, or is it something meaningful for those employees and their families?"

Flipping the question

Individual Coverage Health Reimbursement Arrangements represent a funding model that could reshape 2026 health benefits and beyond. Under the approach, employers establish a budget that employees use to purchase individual coverage tailored to their specific clinical and geographic needs.

In practice, the framework delivers consumer choice and helps employers pursue cost stability while offering a fully compliant, affordable alternative that meets Affordable Care Act guidelines. Some organizations are adopting a "shop benefits as a financial strategy" approach to better align corporate spending with localized employee impact.

"What is the care that my employees need? Being able to get down to that nuanced level and have them at least have choices within that care model, that's really pretty powerful," Cass says.

Data, AI, and plan selection

Making the transition requires a solid grasp of ICHRA fundamentals and, where available, robust claims and demographic data. Individualized platforms allow employers to layer on additional services like direct primary care, meaning the choice of administrator directly influences the employee experience.

Many benefits leaders find that delivering personalized options at scale often requires leaning on technology. AI is emerging as a practical engine behind a personalized, intelligence-driven future in benefits. By analyzing detailed 2025 ICHRA adoption data alongside individual census needs, AI models can help reduce friction and bias in plan selection and claims review.

"If you have access to your data and can find out what's important, maybe through an AI model, you're going to be able to distinguish what the underlying threads are," Cass says. "How can we weave the right answer to the right problem? Hopefully, technology helps guide us."

Don't accept the renewal at the buzzer

Data-driven planning relies heavily on proactive timelines. Companies under 100 employees often lack access to detailed claims data, forcing them to make decisions with less visibility. But for larger employers with data in hand, the difference between taking a hit and taking control comes down to timing and working closely with knowledgeable advisors.

Cass characterizes the current system as favorable to carriers, a primary reason employers must start their planning earlier in the year to evaluate options like ICHRAs, reference-based pricing, direct contracting, or pharmacy benefit optimization.

"Don't accept your renewal 30 days beforehand," Cass says. "Work with people on an active basis to be able to find all the solutions that are available to you. Carriers have a lot of powerful people working for profits, guiding legislation on a state and federal basis to help increase those profits and keep those profits flowing."

The silver bullet

The volatility of the private market can frequently be seen in wide pricing gaps for identical services. Cass views the unpredictability as a catalyst for some employers to adopt more objective pricing models. He points to Medicare reference pricing as a potential stabilizing force against market conditions. By benchmarking payments to established Medicare rates, employers work to mitigate the traditional system's tendency to arbitrarily inflate costs.

"You go to the same provider, the same network, the same hospital. Somebody else receives the exact same care, and it's a different price," Cass says. "The differences are material. They're not just 1 or 2%, they're significant."

Fusing an objective baseline with AI tools and individualized budgets can create a more sustainable path forward—one designed to protect provider profitability and support patient access to care. "Is there some model that can be developed that can still provide profits to all of the healthcare facilities, as well as give everybody good access to innovative care?" Cass says. "That's the silver bullet. It's being able to weave that needle."

The public health piece is where it gets harder. Giving people a budget and choice expands options, but the employees who need care most are also the ones most exposed if they choose the wrong plan. "The real question isn't whether the average employee does better, it's whether the sickest quartile of your workforce gets better access, not worse. If an individualized model can clear that bar, you've actually improved population health, not just shifted cost around," Cass says.