As Benefits Costs Increase, Employees Tighten Budgets

With the cost of workplace benefits on the rise and inflation causing employees to tighten their budgets, many are looking to reduce or drop certain benefits to save money, according to new research from LIMRA. 

LIMRA’s 2024 BEAT Study revealed that employees are willing to spend less on their benefits than in previous years, as the new monthly median consumers will spend is $120—excluding retirement savings—down $30 from the prior two years. 

Rising Costs 

Kimberly Landry, associate research director for workplace benefits research at LIMRA, says when employees are enrolling in benefits at open enrollment, it is often done digitally through a benefits portal. As employees select their medical plan, dental plan, vision plan and more, they are able to see the total amount of deductions from their paycheck rise in a digital shopping cart.  

Landry says there often comes a point when the employee sees a number in the shopping cart with which they are not comfortable deducting from their paycheck, causing them to remove certain benefit selections or switch to lower-cost plans. The threshold at which employees are comfortable spending is decreasing, according to LIMRA’s data. 

“We think inflation [is causing] a lot of this,” Landry says. “People are spending more on everything now. We’re spending more on groceries, housing [and] transportation costs. Our incomes aren’t keeping up, so [the amount] of money employees have left over isn’t as high as [it] used to be.” 

Landry adds that health insurance costs have also gone up significantly. According to the Kaiser Family Foundation, workers’ contributions for health benefits have increased about 6% to 8% in the last year. 

Landry says it is hard to say whether rising benefits costs are also impacting how much workers are able to save for retirement, but she suggests if costs continue to rise, it may cause employees to reduce their retirement contributions. 

The LIMRA study found that demographics also 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 already enrolled are more likely to spend more on their workplace benefits. For example, enrolled employees are willing to spend a median of $150 per month on benefits, whereas employees who are offered benefits for the first time or after not being enrolled are willing to spend a median of $100 per month.  

When employees are looking to reduce or eliminate benefits to cut costs, Landry says they often will not eliminate their medical plan, unless they have some other viable alternative like joining a spouse’s plan. Instead, Landry says employees are likely to drop benefits like disability insurance or supplemental health plans, such as hospital indemnity or critical illness insurance, because they convince themselves they will not need those benefits as much as others. 

Communication Is Lacking 

Meanwhile, LIMRA found that employees lack understanding of insurance benefits like long-term disability, hospital indemnity and critical illness. For example, while 72% of employees said they understand their dental benefits either very or extremely well, only 39% said they have that level of understanding of critical illness coverage. 

Landry argues that improving education efforts for these less-well-understood benefits could improve their enrollment and usage. Employees who do not understand these benefits may mistakenly think something is covered when it is not or they may neglect to file eligible claims, according to the report. 

LIMRA found that 54% of employees feel their employer communicates about their benefits very or extremely well, which leaves plenty of room for improvement.  

Frequency of communication is also an issue that needs to be addressed, Landry says, as many employers only communicate about benefits at the time of open enrollment. Nearly three-quarters of workers said they would like to receive benefits information more frequently throughout the year. 

Landry also recommends that employers communicate through multiple channels—such as email, video, paper mailings, etc.—in order to reach different segments of their employee populations. 

Bundling Benefits 

Bundling benefits may be a way to ease the enrollment decisionmaking process for employees. 

According to LIMRA, an average of three out of 10 employees said they would prefer bundled benefit options to address various needs. Younger workers and blue-collar workers were particularly interested in this option. However, twice as many employees (56%) said they would rather pick and choose their own benefits separately. 

Two-thirds of employees who prefer bundling believe that doing so would save them money, but Landry says this might not necessarily be the case. She says bundling can sometimes be more expensive for employees, because when a product covers a wider range of benefits, the cost could be higher after adding everything together.  

“We’ve heard from carriers that these can be more successful if they’re either fully or at least partially employer-paid, since that takes some of the cost burden off of employees,” Landry says. 

She adds that sometimes bundling can cause certain benefits to be watered down. Even though the package may allow employees to be covered for a wide range of services, if the actual amounts covered or reimbursed for the various types of claims are downgraded, it might limit the coverage of certain benefits.  

Overall, Landry emphasizes the importance of communication. 

“There was such a strong correlation between how well [employees] understand their benefits and how confident they feel in their benefit decisions and the quality of that communication,” she says. “So we think it’s important that employers really enhance that communication.”