Employers Adjusting Benefits Strategies amid Cost Pressures

Rising benefits costs are causing employers to adjust their benefits strategies — including by holding off on benefits additions — for the next few years to hold down costs.

Benefits costs are a bigger concern for employers this year than they were two years ago, with 90% of employers citing rising benefits costs as the top issue influencing their benefit strategies in 2025, up from 67% in 2023, according to a new survey of employers by consulting firm WTW. Employers also say they are concerned about competition for talent (52%), expectations for an enhanced employee experience (43%), cost of living (39%), and rising mental health issues (32%).

In response to concerns over cost and other issues, 63% of employers said they plan to reallocate or rebalance benefits spending in the next three years. That’s a significant jump from just 8% of employers that said so in the previous year.  

“After a long period of high benefits inflation and in the face of a possibly weakening economy, employers are taking a step back and looking to focus on what drives real value for employees and the business,” said Dr. Jeff Levin-Scherz, population health leader, North America, health & benefits, at WTW in Boston. “That means targeting support and spending on the benefits that matter most, enabling personalization, and helping employees make better decisions.” 

Even though annual inflation has fallen over the past couple of years, the sustained heightened cost of living — along with the impact of President Donald Trump’s tariffs — is affecting employers’ compensation and benefits strategists, SHRM experts said. “Intense uncertainty persists regarding future inflation, largely because of trade policies that continue to be in flux,” said Sydney Ross, economic researcher at SHRM.

The cost of benefits has been rising too. Last fall, employers said they were anticipating a 5.8% jump in health benefit costs in 2025, even after accounting for planned cost-reduction measures. Drug spending has also been rising, with the annual growth rate of spending for traditional drugs — medications used to treat common health problems such as infections, high cholesterol, and diabetes — soared from 2.1% in 2021 to 12.8% in 2024, according to Evernorth, the health services division of insurer Cigna.

Rising costs are causing greater challenges for delivering health benefits (44%), well-being programs (44%), and leave benefits (36%), employers told WTW.

How Are Employers Adjusting?

Few employers are expanding their benefits portfolio, choosing to instead focus on extracting value from their current offerings and improving financing, employee experience, analytics, and administration, according to WTW. 

To address high costs, the majority of employers (73%) plan to switch to better-value vendors for health, retirement, and risk benefits, while 44% plan to tackle high-cost medical conditions and 37% plan to adopt a network of preferred medical providers.

Other reports have found that employers are holding down the high costs of specific drugs, such as the pricey but popular GLP-1s, by putting in place cost-saving approaches. These include prior authorization or other restrictions, such as a certain percentage BMI or requiring documentation from a doctor about risk factors, patient history, or even eating habits.

And with many benefits in the mix — SHRM’s 2024 Employee Benefits Survey cited 216 benefits, for instance — organizations may sunset lesser-utilized benefits to save money.

“It is getting difficult for employers to figure out what benefits to include,” Sera-Leigh Ghouralal, researcher at the Integrated Benefits Institute, an Oakland, Calif.-based national nonprofit research organization and business association, told SHRM last year. “The decision-making process is complicated by the necessity to balance cost, relevance, and employee appeal.” 

Even though employers are concerned about costs, it doesn’t mean they won’t focus on high-priority benefits. WTW found that companies specifically are looking to focus on mental health,  financial well-being, other health benefits, and family support over the next three years.

“Finding innovative solutions for old and new challenges and reallocating spend on benefits that deliver true value is a good start,” Levin-Scherz said. “There is still a long way to go to address these pressure points, but employers are headed in the right direction by focusing on what matters most to their employees.”