Are You Overspending on Employee Health Benefits? 5 Ways to Find Out

If your business offers health coverage to employees, you’ve likely noticed one frustrating trend — these costs rarely go down. In fact, according to Mercer’s Survey on Health & Benefit Strategies for 2026, more than half of large employers (51%) say they expect to modify plan designs next year to shift more costs to employees. For many smaller organizations, the same pressure applies. Health care costs continue to rise, and there’s only so much room in the budget.

Before deciding whether to trim benefits, adjust cost sharing, or hold the line, it’s critical to understand how efficiently you’re currently spending. Here are five practical ways to evaluate and manage your health benefit costs from a financial perspective:

1. Track the Right Metrics

You can’t manage what you don’t measure. Start by identifying key analytics that reveal how well your plan is performing. Two metrics to track are:

Benefits Utilization Rate — measures the percentage of employees using their benefits. Low utilization may signal that your offerings don’t match your team’s needs.

Cost per Participant — calculated by dividing the total health care spent by the number of covered employees, and this number helps to evaluate overall plan efficiency and uncover potential cost-saving opportunities.

These numbers provide a baseline for assessing whether your benefits dollars are being spent effectively.

2. Audit Claims and Pharmacy Benefits

Errors and inefficiencies in claims payments or pharmacy benefits management (PBM) can quietly drain resources. Regular audits can identify inaccuracies, overcharges, or even fraud. The result: a clearer picture of where your money is really going.

3. Revisit your Pharmacy Benefits Contract

Pharmacy benefits represent a significant portion of overall health care expenses and are commonly subject to negotiation. Organizations may conduct benchmarking studies to compare their PBM pricing and rebate structures with those of similar entities. If costs differ substantially, renegotiation or considering other vendors may be appropriate.

4. Evaluate Employee Value vs Cost

The most efficient benefits plan is one that employees actually value. Request direct employee feedback instead of depending exclusively on vendor reports. Determine which benefits employees value most and which are seldom utilized. Gaining insight into these preferences enables you to refine your plan, ensuring alignment between cost and value while reducing unnecessary expenditure and maintaining satisfaction.

5. Consult Trusted Advisors

For many small to midsize businesses, benefits management isn’t a core expertise — and that’s okay. External advisors can bring valuable perspective and technical knowledge to the table.

A benefits consultant can help you assess plan design and benchmark costs. Your attorney can review compliance obligations and contractual terms. And as your tax and advisory firm — like VAAS — can help evaluate the financial impact of benefit changes, audit claims data, and model cost scenarios to improve plan efficiency and support better budgeting decisions.

Rising health care costs may be inevitable, but overspending doesn’t have to be. A proactive, data-driven review can help ensure every dollar you invest in employee benefits works as hard as you do.