Why it matters at renewal
Medical trend measures how fast the cost of care grows. Your plan doesn't pay the whole cost of care. Members pay the deductible, copays and coinsurance first. When those dollar amounts stay the same year after year, every dollar of growth above them lands on the plan. So the plan's costs grow faster than trend, even though nothing about the plan changed.
That's why a renewal can come in above the trend your carrier quotes. Part of the gap is leverage. IMA shows the same effect with a $2,500 claim and a $250 deductible. At 14% trend the claim becomes $2,850, and the plan's payment rises from $2,250 to $2,600, which is more than 15% (IMA).
Worked example: one member
One member with $10,000 of care a year and a $2,000 deductible. Care costs rise 8%. The deductible stays at $2,000.
| This year | Next year | |
|---|---|---|
| Care | $10,000 | $10,800 |
| Deductible | $2,000 | $2,000 |
| Plan pays | $8,000 | $8,800 |
Copays work the same way. On an office visit with a $30 copay:
| This year | Next year | |
|---|---|---|
| Visit | $150 | $162 |
| Copay | $30 | $30 |
| Plan pays | $120 | $132 |
The visit costs 8% more. The plan pays 10% more.
If the deductible had risen with trend, from $2,000 to $2,160, the plan would pay $8,640 next year. That's 8% more, the same as the care itself. A deductible that keeps pace with trend takes the leverage out.
It compounds
Hold the deductible at $2,000 for five years of 8% trend and the gap widens every year. By year 5, care costs $14,693 and the plan pays $12,693.
| Care | Plan pays | |
|---|---|---|
| Today | $10,000 | $8,000 |
| Year 1 | +8% | +10% |
| Year 3 | +26% | +32% |
| Year 5 | +47% | +59% |
Read the transcript
Medical costs went up eight percent. Your plan's costs went up ten. Nothing about the plan changed. That's exactly why.
It's called leveraged trend. When deductibles and copays stay flat, members pay the same dollars each year, so most of the cost growth lands on the plan.
Take one member with ten thousand dollars of care and a two-thousand-dollar deductible. The plan pays eight thousand. Next year that care costs eight percent more. The member still pays two thousand. The plan pays eight thousand eight hundred: ten percent more.
Copays do the same thing. On a hundred-fifty-dollar visit with a thirty-dollar copay, the plan pays a hundred twenty. At a hundred sixty-two, it pays a hundred thirty-two.
Hold the deductible flat for five years, and it compounds. The care costs forty-seven percent more. The plan pays fifty-nine percent more.
That's why deductibles tend to rise over time. Keeping yours flat makes the plan a little richer every year, and the renewal prices that in.
So ask your broker three things. How much of our increase comes from leverage? What would a modest deductible change save? And what would it cost our employees? Find out more at actuariallysound dot com.
Members under the deductible
The example above is a member whose care goes past the deductible. For a member whose care stays under it, it works the other way: the member pays all of the growth and the plan pays none. Across a whole group, the plan still comes out ahead of trend. Members who were just under the deductible start to reach it as costs rise, and that adds to what the plan pays.
How much leverage your group sees depends on how much of its spending sits above the deductible and copays. Richer plans with low cost sharing feel it less in percentage terms. Plans with high deductibles and many members near them feel it more.
Why deductibles keep rising
Leverage is one reason deductibles drift up over time. The KFF 2025 Employer Health Benefits Survey puts the average deductible for single coverage at $1,886, and $2,631 at firms with 10 to 199 workers. Deductibles are up 17% over five years (KFF).
If your plan is paired with a health savings account, the IRS sets the floor. An HSA-qualified plan needs a deductible of at least $1,700 for self-only coverage in 2026 and $1,750 in 2027 (Rev. Proc. 2026-24). A plan sitting at the minimum has to raise its deductible just to keep HSA eligibility.
A second meaning: stop-loss
Actuaries also use "leveraged trend" for stop-loss insurance (Society of Actuaries). Here the deductible is the specific stop-loss deductible, and the effect is much larger.
Take a $150,000 claim with a $100,000 specific deductible. Stop-loss pays $50,000. At 8% trend the claim becomes $162,000. If the deductible stays at $100,000, stop-loss pays $62,000. That's 24% more for 8% trend. It's one reason stop-loss premiums can rise faster than medical trend unless the deductible rises too.
Common misunderstandings
Questions to ask your broker
- How much of our increase comes from leverage, not trend?
- What would a modest deductible change save, such as raising it with trend?
- What would that change cost our employees?
- If we're self-funded or level-funded, is our specific stop-loss deductible keeping pace with trend?