Inflation and Benefits: How Employers Are Responding

Inflation at 40-year highs is affecting every aspect of business—including employee benefits. Here's how employers are responding and what we're seeing in the data.

The Double Squeeze

Employers face pressure from two directions:

Cost side: Healthcare costs are rising faster than general inflation. Provider labor costs are up. Supply costs are up. Drug costs are up. This flows through to premiums.

Employee side: Employees facing higher costs for housing, food, and transportation are less able to absorb benefit cost increases. Real wages are declining for many workers.

The result: employers are caught between rising costs and employees who can't afford more cost-sharing.

Employer Responses

We're seeing several patterns:

Absorbing increases: Some employers, particularly those in competitive talent markets, are absorbing the full cost increase without passing it to employees. This protects employee take-home pay but strains benefits budgets.

Moderate adjustments: Others are making modest plan design changes—small deductible increases, adjusted copays—to offset some but not all of the cost increase.

Contribution holds: Many employers are holding contribution percentages steady, which means employees share proportionally in the increase but aren't asked to take a larger share.

HDHP incentives: Some employers are pushing harder on HDHP enrollment by offering richer HSA contributions or lower employee premiums for high-deductible options.

What We're Not Seeing

Despite cost pressure, we're not seeing:

• Major plan design overhauls
• Aggressive cost-shifting to employees
• Benefits cuts or coverage reductions

Employers seem to understand that now is not the time to reduce benefits when employees are already financially stressed.

Looking Ahead

If inflation persists, employer benefits budgets will face continued pressure. The question is how long employers can absorb increases before adjusting their approach.

We're watching:

• Renewal rate trends
• Employer contribution decisions
• Plan design changes (or lack thereof)
• Employee sentiment and utilization

The data will tell us how this story unfolds.