Will inflation impact employee benefit costs?

Inflation hasn’t been this high in decades, and you may be wondering how it’ll affect company benefit costs.

You’re not alone. In a recent Mercer survey, most CFOs (68%) said controlling employee health benefit costs is a significant/very significant concern.

Among the factors that could potentially drive overall healthcare costs up:

• higher utilization due to catching up on care deferred during the pandemic
• claims related to “long COVID”
• introduction of new, expensive gene and cellular therapies, and
• the impact of avoided care.

However, almost two-thirds surveyed said health plan costs need to be at or below the Consumer Price Index to be sustainable for their firm.

Balancing benefit costs, employee retention

Because of the Great Resignation and its damaging turnover costs, your peers are reluctant to go with plan design changes that shift costs to employees. Passing more of that burden along can increase the risk of employees leaving for greener pastures.

Some alternate cost management strategies that CFOs have been thinking about, according to the survey:

• smaller, but higher-performing, physician and hospital networks, and
• clinical management with more monitoring and oversight of care.

In addition to health care, CFOs say they’re also focusing on offering attractive, yet cost-effective:

• paid leave (39%)
• retirement plans (36%), and
• disability insurance (20%).

However, the costs for those plans tend to be more predictable than health care.

To weather inflation and hold the line on rising benefit costs, the researchers said to:

1. frequently monitor medical and prescription drug costs vs. the budget
2. introduce or raise budget margins to withstand greater claims volatility
3. start renewals earlier so there’s enough time to understand and negotiate pricing
4. consider offering employees a lower-cost plan with smaller provider networks
5. encourage the use of virtual services to save employees money while keeping access to care open, and
6. communicate more often with your HR and benefits teams about the changing status of employee payroll contributions and out-of-pocket costs.