Employee benefits costs, particularly healthcare, continue to climb. Benefits spend, of which medical coverage can comprise 90%, is typically the second largest line item on an employer’s balance sheet after compensation. Meanwhile, for many industries, low unemployment and an ongoing shortage of skilled and unskilled workers adds pressure to meet the benefits needs and expectations of prospective and current employees while navigating inflation and economic pressures.
However, employers may not be aware of their employees’ dissatisfaction with their benefits package. The 2023 MetLife Annual Employee Benefits Trends Study revealed a disconnect between employer perceptions of employee benefits satisfaction and what employees say. While 83% of employers think their employees are satisfied with their benefits, just 61% of surveyed employees said their employer offers a range of benefits that meets their personal and household needs.
Identifying cost mitigation options while meeting employees’ needs
Working together, your CFO and CHRO can evaluate your organization’s multi-year recruit and retain goals and programs, aligning them with your organization’s financial goals. It’s imperative they review these goals annually, as financial and workforce needs change. However, this starts with a thorough understanding of current health economics and market cost drivers.
For instance, medical care costs follow inflation’s lead. Typically, medical inflation lags six to 12 months behind the Consumer Price Index. There is a return to pre-COVID-19 utilization of medical services as people again seek care for non-urgent healthcare and elective hospitalizations. Additionally, COVID-19 led to deferred care, with later diagnoses leading to more severe health outcomes. A similar cost pattern can be seen with dental services, though overall costs are significantly lower.
Specialty pharmaceuticals is another ongoing cost driver as innovative, costly entrants to the market provide new viable treatments for rare and complex conditions. Gene therapies are multi-million-dollar therapies that are expected to be one-time treatments to alter or replace absent or defective health-related genes. Some of this cost is anticipated to be offset by savings from biosimilar launches, as demonstrated in Amgen’s 2022 Annual Trend Report, which showed an increase in savings quarter over quarter, with an estimated $3.2 billion of savings in Q2 2022 at the time the report was written.
While cost driver analysis is fundamental, benchmarking against factors such as industry or geography data may provide valuable insights into employee expectations. It can unearth new solutions and opportunities your organization may not be aware of. That said, it is important to keep in mind benchmarking is just one data point within the overall context of what is appropriate for your organization.
Carefully consider the trade-offs
If your organization needs more significant savings, reducing benefit coverage and/or increasing employee cost-share may be necessary. These decisions make the collaboration between the CHRO and the CFO all the more important to identify the right benefits mix managing affordability and broad coverage to employees. When your strategy is in place, remember that employee communications are especially important, including communicating with their covered dependents. Consider including clear cost breakdowns and different scenarios to help your employees and their dependents make informed decisions.
Together, your CFO and CHRO can strike the balance where employees’ needs are met while costs are managed.
Learn collaborative finance and HR tactics for business optimization and employee satisfaction. Download our white paper on Effective Employee Benefits Cost Mitigation Strategies or contact us at benefits@risk-strategies.com.
With more than 10,000 clients managed in our National Employee Benefits Practice, Risk Strategies delivers the high-quality, cost-effective, and compliant benefits programs and solutions employers need and employees value. Visit risk-strategies.com for the latest observations in employee benefits.
