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In the Face of Economic Uncertainty, Focus on Core Benefits

Craig Stephens

January 12, 2023

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Originally featured in BenefitsPro

Over the past couple of years, employers and employees have had to adjust to a new world of work. COVID-19, the ensuing Great Resignation, and continued economic uncertainty have not only changed the way we work, but they have deeply affected the ways employers support their workers. In the face of what has become a job candidate’s market, employers quickly offered new voluntary benefits and perks to help attract and retain top performers. Everything from tuition reimbursement to legal services, debt assistance, and even pet insurance is now on the table.

Yet, as employer health care costs go up (projected to rise as much as 5.6% next year) and we continue to see hints of an economic downturn, employers may find it difficult to sustain current levels of spending on employee benefits. And as news about high-volume layoffs continues to circulate, many employees may start to feel anxious about the security of their own jobs — and any or all of their benefits.

At the same time, quality health care has never been more important to employees, especially in a post-COVID-19 world. As employers look for ways to better support their employees in the face of yet more change, they must assure them that their core benefits will remain intact. Instead of adding more voluntary benefits, employers would do better to work with their benefits consultant to take a more mindful approach to making sure employees understand and are getting the most out of their core benefits. The results: decreased benefits costs and increased employee trust.

The current benefits landscape

An April 2022 report by Aon found the availability of voluntary benefits from employers increased 41% between 2021 and 2022. According to Aon, the increase can mainly be attributed to employers trying to attract and retain talent.

While these benefits have come to flood the market and have become staples of certain industries, they are not always sustainable. In fact, history shows that in a recession environment, voluntary benefits are often the first to go. The Wall Street Journal reported in 2010 that only a few years after the last recession, 39% of companies were either “somewhat likely” or “very likely” to reduce benefits offerings during that time. The same article reported that fringe benefits — stock options, educational reimbursements, and paid family leave, for example — had decreased significantly between 2005 and 2007.

Unfortunately, 2022 data suggests that contractionary trends are already occurring, especially in the health care benefits space. It’s likely that the history of curtailing voluntary benefits will repeat itself. The annual SHRM 2022 Employee Benefits Survey found that the number of companies offering ancillary benefits like HSAs and HRAs has declined to its lowest levels since 2018. These results indicate that many organizations are already starting to reduce some supplemental health benefits, most likely as cost-saving measures.

Increased insurance costs, coupled with possible economic instability, are already pushing employers to optimize and consolidate their ancillary benefits. Rising insurance costs could similarly continue to accentuate pressures on what employers can and should provide as they walk a fine line between protecting the bottom line and retaining and hiring great people.

Core benefits will always be top of mind

As employers and advisors are faced with tough decisions in the face of economic uncertainty and a possible downturn, they must remember what employees value. It turns out that employees will always care most about core benefits. A 2017 survey by Fractl asked 2,000 people how much weight they would give to different benefits in selecting a job. Health, dental, and vision insurance were considered the most desirable and most important benefits, selected by almost 88% of respondents.

That finding holds true today. Health care is more important to employees than ever. During COVID-19, the annual SHRM Employee Benefits survey reported that health-related benefits shot up in importance to 90%, compared with 75% in 2019. And while the effects of the pandemic have significantly diminished, the importance of core, health-related benefits has not. In fact, 88% of HR professionals surveyed this year believed that health-related benefits were still either very important or extremely important to employees and their organizations.

Employers might not always have the luxury to offer employees the ancillary and voluntary benefits that the company leaders would like or that employees have come to expect, especially when tough financial decisions have to be made. But employers can:

  • Assure their people that what they care most about will be protected
  • Help employees and their dependents make the most of their health plans

Employees still need help to get the most out of their insurance

Paradoxically, the importance employees place on health care does not necessarily mean they always understand their benefits. A 2021 study found that 36% of HR professionals believe their employees don’t fully understand the core and voluntary benefits available to them. Numerous studies over several years have shown that employees are notoriously bad at selecting insurance plans that meet their budget and health needs. One study found that when asked to select the most cost-effective plan, respondents selected the “wrong” health care plan 79% of the time, especially when they are presented with more options.

Getting insurance wrong means choosing the plan that would be more costly for both employees and their employers. A 2021 study found that the majority of employees at a 24,000-person company incorrectly selected a high-deductible health care plan, costing them, on average, $2,000 a year. During a recession and high inflationary markets, $2,000 can certainly go a long way for employees. Similarly, offering expensive, underutilized plans can result in organizations paying for healthcare costs that often go unused.

By better educating and communicating with employees during open enrollment and throughout the year, employers and benefits advisors can help cut these costs while ensuring that employees get the most out of their plans. Additional resources have also become popular, such as decision-support engines that help employees better navigate benefits decision-making and the entire open-enrollment process.

Beyond the Great Resignation

As employees face the mounting pressures of economic turmoil, they must get ready to face a new slew of challenges. The economic pressures of the near future mean that employers may not be able to face these new challenges in the way that they did during COVID-19 and the Great Resignation. Instead, they will have to be thoughtful about how they promote employee well-being and balance financial stability.

Health-related benefits have always been top of mind for employees, and ongoing health outbreaks have only solidified the importance of health coverage in the post-COVID-19 world. As ancillary benefits may be trimmed, it is more important than ever to act on two fronts:

  • Assure employees that the core benefits they care about and have come to depend on are protected and not going anywhere.
  • Deliver clear, helpful communication that helps employees choose the best plans for their health needs and budget, and that helps them use those benefits as wisely as possible.

Soon, we all hope to return to the salad days of great core benefits enhanced by a full range of voluntary programs and benefits.

Craig Stephens is Chief Revenue Officer at Selerix, an industry-leading provider of benefits administration software. 

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