Inflation, Economic Concerns Biting into Benefits Offerings

Employers are dealing with a dichotomy: They’re looking to add and enhance benefits for their employees, especially in light of workers’ sky-high financial stress and a still-competitive job market in many industries. But many are gun-shy about it due to high costs and the impact of inflation.

So says a new survey—first shared with SHRM Online—from Carmel, Ind.-based benefits administration firm Optavise, which, among other data points, finds that many employers are bearing the brunt of rising group health insurance costs, leading half (51 percent) of employers to say that inflation affected which benefits they were able to offer in 2024.

Furthermore, several employers indicated they’re considering adding new benefits to their portfolio—including medical options and mental or financial health help—but are finding costs to be the biggest hurdle. When considering adding benefits to their portfolios, 62 percent of employers said cost to the company is the most challenging variable, 46 percent reported out-of-pocket costs for employees and 46 percent indicated economic uncertainty, according to the survey, which polled more than 200 U.S. employers, each with over 50 people on staff.

“So many of the concerns on employers’ parts are related to lack of a budget or fear of what might be coming down the pike and not wanting to overextend themselves,” said Kim Buckey, vice president of client services at Optavise.

Employers are starting to back away from shifting more costs onto employees, because “they recognize they’re going to hit the wall as far as that’s concerned,” Buckey said. “They know that they can’t push more of the cost down to the employees, and they probably can’t absorb more costs themselves. And then there’s the generalized fear about what could happen this year, because there’s still talk out there about a possible recession. Plus we’re in an election year, which can impact our economy.”

In short, Buckey said employers are “between a rock and a hard place.”

The new data is further proof that employers are also feeling the squeeze of inflation. Indeed, inflation has driven a steady increase in health care costs, with employer health insurance costs having gone up 6 percent on average in 2023 compared to 2022, according to surveys from Mercer and WTW. That rate is expected to rise to 6.4 percent in 2024.

Inflation and its impact on organizations’ budgets—especially on wages and hiring—continues to be employers’ primary concern, according to the 2023-24 SHRM State of the Workplace Report, released in February. That survey of 2,028 HR leaders found that 73 percent cited inflation as their organization’s top concern, placing it higher than employee mental health, labor shortages and the economic slowdown.

Getting More Benefits Bang for the Buck

Where does that leave employers when it comes to benefits? Doing some soul searching about which benefits would be the most useful to their employees, beefing up benefits communications, and leveraging nonmedical benefits and voluntary benefits programs—where employees are footing most of the cost.

Voluntary benefits such as life insurance, accident insurance and short-term disability are on the rise, Buckey said, given that they can be a win-win in terms of providing competitive benefits at a low cost to employers.

The problem is that employers are also worried about how high benefits costs are impacting employees: Two-thirds of employers (66 percent) said that increased out-of-pocket costs for employees are a barrier to getting employees to enroll in a benefits program, while 52 percent of employers indicated that economic uncertainty among employees prevents them from enrolling in various benefits offerings, according to the Optavise survey.

As a result, organizations are looking for help negotiating prices and packages—and may benefit from turning to their brokers or consultants for help, Buckey said.

“Employers are going back to their consultants and their brokers and saying, ‘Look, you’ve got to help us out. What can you do in terms of finding different carriers, different supplemental programs?’ There are programs that can be added on to existing benefits,” she said.

Organizations are also thinking about what kinds of benefits their employees really want, so they can budget those into their packages, while possibly nixing or tabling others. Some of the most coveted benefits offerings may cost very little or nothing at all—such as remote work options, flexible schedules and wellness incentives.

Perhaps the most important thing employers can do, Buckey said, is enhance communication with employees about benefits, including touting available benefits and ensuring that workers understand how adding a supplemental offering may help them.

For instance, she said, if an organization is seeing employees turn down benefits because they are concerned about the cost, “that raises the question, ‘Are you explaining to your employees the benefit of this program that you’re offering?’ Are you explaining to them that if they tried to buy this coverage on their own, it would be so much more expensive? And are you explaining it’s another layer of protection?' ”

Promoting existing benefits is also key, she said. Maybe an employer is interested in adding a new mental health app to help employees, but they can’t afford to right now. What they can do is send an email to promote an existing employee assistance program they may have in place instead, she said. Employers could even promote additional free resources that might be available elsewhere, she said.

“Communication and transparency about benefits is key,” Buckey said. “We simply need to do a better job educating our employees.”