Looking to Tighten Budgets, Employees Spending Less on Benefits

As inflation continues to weigh on employees, new research released just ahead of open enrollment reveals what some industry experts call a troublesome trend—and one that serves as further evidence that employers would be wise to step up their benefits education and communication.

The new monthly median amount that consumers will spend on benefits in 2024—excluding retirement savings—is $120, down $30 from the previous two years, according to LIMRA, an insurance industry trade association based in Windsor, Conn.

“These findings are unfortunate, since employees’ willingness to spend is going down at the same time benefit costs are going up,” said Kimberly Landry, associate research director for workplace benefits research at LIMRA. “It’s not a good combination.”

Although the LIMRA data doesn’t spell out exactly which benefits employees might cut or reduce, Landry said she expects workers to “target the benefits they think they’re least likely to use, which means ancillary products such as disability insurance, supplemental health plans, and other voluntary benefits.”

Major drivers for the decline in employees’ benefit spend include inflation and tighter household budgets. In particular, medical insurance premiums are continuing to increase significantly year over year, and these already eat up a majority of workers’ benefit budgets, Landry explained.

That decision will likely leave employees underinsured and susceptible to financial issues.

“If employees choose to spend less, they could wind up opting out of benefits they might need in the future, leaving them financially vulnerable if they experience a disability or serious health event,” Landry warned.

Bridget Lipezker, vice president, worksite member operations, at benefits firm Optavise, agreed.

“When employees decline certain benefits to stretch dollars, it makes them vulnerable if they face a critical illness or injury without comprehensive benefits,” she said.

In Optavise’s 2024 Employer Report, employers recognized that increased out-of-pocket costs and economic uncertainty are among the factors impacting employees’ decisions not to enroll in various benefit offerings, Lipezker noted.

The LIMRA study also found that demographics play a role in how much workers will spend on employee benefits. Employees with higher incomes, those who are married with dependent children, younger workers, and workers who are already enrolled are more likely to spend more. For example, enrolled employees are willing to spend a median of $150 per month on benefits, versus $100 for employees who are offered benefits but are not enrolled, according to LIMRA.

Employer Impact

The data is proof that employers should be doing some soul-searching ahead of open enrollment—and beefing up benefits education efforts and thinking about cost as a result.

Employers should ask whether their benefits offerings are affordable for employees, Landry said, which involves considering average salaries at their organization and the cost of living in their area, as well as making sure the benefits provide sufficient levels of coverage to workers.

HR and benefits leaders also need to think about their education efforts and make sure employees understand what different benefits entail and what value they provide.

“If an employer hears that employees are turning down benefits due to cost, it’s a good time to ask, ‘Are we explaining the value of this program clearly to our employees?’ ” Lipezker said.

Landry added that “it’s easy for employees to choose to opt out of benefits when they don’t understand them or see the value.”

Only 54% of employees in LIMRA’s survey said their employer communicates about benefits well. Optavise’s research found that only 27% of employees said they received information about benefits from their human resources team, while 15% were educated by benefits experts.

Employees need to receive benefits information through multiple channels, Landry said, with LIMRA research finding that employers should communicate about benefits at least a few times throughout the year, rather than only during the open enrollment period.

“Employees need education, not just information, about what benefits are available and which ones they’d be best suited to use,” Lipezker said. “Otherwise, employees will not fully recognize or appreciate the benefits they have access to as part of their employer-sponsored benefits package.”

Although a robust benefits education strategy is important year-round, open enrollment is a good place to start.

“For most employers, open enrollment season is just months—if  not weeks—away, and now is the time for employers to focus on benefits education to create an environment where employees understand how their benefits work together to support them and their families,” Lipezker said. “This is not just to ensure they use those benefits to their fullest, but to impact overall health, and ultimately, employee satisfaction.”