Inflation Has Altered Plan Sponsors’ Benefits Spend

Employers have altered their budgets for medical and voluntary benefits spending this open-enrollment season, according to an expert in workplace benefits and compensation.   

Inflation has increased prices for not only daily necessities, but also employer-sponsored benefits such as health care. Thus the changes among employers during open enrollment, when workers make their benefit choices for the coming year, says Kathy Barber, vice president for benefits and compensation at Ayco, a division of Goldman Sachs. 

“Inflation has impacted the price of employee premiums for some health care benefits and other benefits,” she says. “Companies are evaluating their options more closely this year to ensure they’re providing employees with the most value for what they’re paying for, and as a result, what we’re hearing from companies at this point is that they’re making some changes in carriers for more favorable pricing, adding lower-cost medical plan options and adjusting some voluntary and ancillary benefit offerings. And we’re seeing and hearing more changes at this point than we have heard in the last couple of years.”

Despite myriad spiking costs, many plan sponsors with a robust retirement plan and matching contribution are not cutting back retirement benefits, as such benefits help retain and attract employees, she says. According to Barber, these inflationary times call for employers to get innovative with essential benefits.  

Plan sponsors have increased mental health benefits and added high-deductible health plans as an avenue for navigating the effects of increased inflation, says Shobin Uralil, co-founder and chief operating officer of Lively, a health savings account and benefits administrator.

“Inflation is hitting every part of the economy, whether it is on the premium side [or] whether it’s on the provider side,” he says.

Plan sponsors are pairing high-deductible health plans with HSAs as a savings option for future qualified medical costs, but also “to try and maintain some of the costs” of providing insurance coverage for employees, Uralil says.

For employers that are offering high-deductible or other types of health plans—a preferred provider organization, for example—cost savings are likely available through an adjustment.

“If I’m getting hit with the same percentage increase but the gross dollar amount is lower on the high-deductible [plan], then I can control my costs more than I can if I just offer a PPO plan,” Uralil explains. “We’re seeing a lot more benefits design changes happening, and employers are starting to think ahead and looking at, ‘What is my three-year cost for the benefits decisions that I’m making now?’”

“HR leaders are looking for creative ways to better support employees through this time and remain competitive in our continued tight job market—and a key tool that they’re using and expanding on is compensation and benefits packages,” Ayco’s Barber says. “This has been going on for a couple of years, but we’re seeing even more discussion about [employers] looking for benefits that provide some kind of cost savings to employees.”

Employers are bolstering and adding voluntary benefits such as supplemental insurance for critical illness and personal accident and hospital indemnity coverage, she says.

Employers are also incorporating child and elder care benefits, Barber says, which have “become a huge area of concern in the last few years.” She observes that the interest in them “continues as we see more companies trying to get employees back into the office and there continues to be a child care issue.”  

Student loan repayment programs and assistance are also attracting attention, she adds. Several employers working with Ayco on their benefits and compensation plans allow for the employer retirement plan match that would have been invested into a 401(k) to be allocated to repay student loans.

“We also see companies are providing fixed payments [and] assistance in finding refinancing options,” Barber says.

Ayco data shows that 29% of employers working with Ayco are offering a form of student loan debt assistance. Of those benefits, 85% are for loan refinancing and management and 15% are a fixed contribution to help repay student loans. Less than 5% of Ayco companies offer a match on student loan payments in the form of a contribution to a loan provider or payment into a 401(k).