Inside the rapidly changing world of employee benefits

Health benefit costs are expected to increase 5.8% in 2025, according to Mercer’s 2024 National Survey of Employer-Sponsored Health Plans. That marks the third consecutive year total health benefit cost per employee will climb more than 5%.

Employers estimated costs would rise 7% on average if they didn’t take cost-reduction measures, per the survey. Smaller employers, those with 50 to 499 employees and that generally have fully insured plans, predicted costs would climb 9% on average without cost-saving efforts. 

Sunit Patel, Mercer’s U.S. chief actuary for health and benefits, attributed the higher costs to price dynamics and the gap between the supply of healthcare workers and the demand for healthcare services.

To manage rising costs, 53% of the more than 1,800 employers surveyed said they will make cost-cutting changes to their plans next year, up from 44% who planned to take cost-saving measures in 2024. Such changes often include raising deductibles, which typically lead to higher out-of-pocket costs for plan members, Mercer noted.

“Employers are still concerned about healthcare affordability and ensuring that employees can afford the out-of-pocket costs when they seek care. But they also need to manage the overall cost of healthcare coverage to achieve a sustainable level of spending for the organization. Balancing these competing priorities will be a challenge over the next few years,” Tracy Watts, Mercer’s national leader of U.S. health policy, said in a statement.

Employees will pay an estimated 21% — the same as in 2024 — for health insurance premiums through paycheck deductions in 2025, per the survey. 

Employers said the high cost of medical services and specialty drugs like weight loss medications are the two top healthcare cost management pain points, according to a recent report by Gallagher.

Eighty-two percent of more than 200 executive benefits decision-makers said executive benefits are strategically important to their overall company success, according to the 2024 U.S. Executive Compensation and Benefits Trend Report from NFP, a property and casualty broker. 

Of those surveyed, 61% said retention has been a top factor shaping executive benefits decisions in the past year, and 71% said retaining those workers will have “a significant impact” on benefits decisions in the years ahead. 

“Regardless of company size or industry, teams are less likely to reach their potential if they lack exceptional leadership. Our findings show that comprehensive benefits packages are key to providing the financial incentives needed to attract, retain and reward top talent and put employers on the path to success,” Tony Greene, president of NFP's executive benefits division, said in a statement.

Despite the role executive benefits play in retaining workers, NFP’s data showed that only 29% of respondents said they fully understood their benefits. 

“There’s a clear need for improved communication," Greene said. “Employers should enhance their outreach and education to ensure executives fully grasp and appreciate the value of their benefits, particularly complex offerings.”  

Companies are offering nonqualified deferred compensation plans, performance-based incentives, supplemental executive life insurance and first-class air travel as part of their executive benefits packages, the report found. 

June research from WTW found that a large majority of U.S. employees — not just executives — are choosing to stay with their current employer and cited pay, health benefits and flexible work arrangements as some of the reasons why.

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By Included Health

Empower your workforce for higher engagement, better health outcomes, and lower costs

As a benefit decision-maker, you are acutely aware of the need to balance cost management with providing high-quality healthcare benefits. Empowering your employees to better understand and utilize their healthcare benefits can drive higher engagement, achieve better health outcomes, and significantly reduce costs. This strategic approach is essential for long-term value and sustainability.

The current healthcare system: A source of frustration

Healthcare access is essential for your employees, but navigating the system is often frustrating, time-consuming, and expensive. Many employees only engage with healthcare when necessary, leading to confusion and overwhelm, especially with understanding insurance, benefits, and finding quality care. Employers face similar frustrations with rising costs, fragmented care, and lack of transparency. In 2023, the average annual premium for employer-sponsored family coverage hit $23,968, with workers contributing $6,575.

The importance of employee engagement

Engaged employees are more likely to be smart healthcare consumers—they’re more likely to utilize preventive care services, adhere to treatment plans, and make informed healthcare decisions. Highly engaged employees are 21% more likely to be involved in wellness programs and have a 41% lower health-related absenteeism.

Achieving better health outcomes

When your employees are well-informed about their healthcare options and actively participate in their health management, they are more likely to seek preventative care, manage chronic conditions effectively, and avoid unnecessary emergency room visits.

Preventive care: A proactive approach

Preventive care is the cornerstone to better health outcomes. When employees understand its importance and have easy access via virtual care, they’re more likely to use these services. According to the CDC, increased use of preventive care could save thousands of lives and billions in healthcare costs. Establishing a primary care provider (PCP) is crucial for ongoing health management, offering consistent care and guiding patients through the healthcare system.

Effective management of chronic conditions

Chronic conditions, such as diabetes, hypertension, and heart disease, are significant drivers of healthcare costs and can severely impact employee productivity. Empowered employees who actively manage their chronic conditions are less likely to experience complications and hospitalizations. Education and resources, such as disease management programs, can play a pivotal role in helping employees manage their health.

Reducing unnecessary ER visits

Emergency room visits are not only costly but often indicative of gaps in primary care access and disease management. By educating your employees on appropriate care settings and providing access to alternatives like virtual primary and urgent care, you can help reduce unnecessary emergency room visits. Virtual primary care, in particular, has proven to be a cost-effective solution, offering immediate access to care for non-emergency issues.

The role of wellness programs and resource group partnerships

High-performing wellness programs are pivotal in achieving better health outcomes. A National Business Group on Health report highlighted that companies with robust wellness programs experience a 25% reduction in sick leave, health plan costs, and workers' compensation and disability costs. Moreover, wellness programs can foster a culture of health, encouraging your employees to make healthier lifestyle choices that benefit both their personal and professional lives.

Mental health and well-being

Stress, anxiety, and depression can negatively impact physical health and work performance. According to the World Health Organization (WHO), for every $1 invested in scaling up treatment for common mental health disorders, there is a return of $4 in improved health and productivity. By addressing mental health proactively, you can reduce absenteeism, enhance productivity, and improve overall employee satisfaction.

3 strategies for empowering employees and lowering costs

To harness the full potential of healthcare benefits, employers need to implement strategies that empower their workforce:

1. Consolidate and simplify: By re-evaluating and consolidating benefit offerings, embracing a beginner's mindset to identify inefficiencies, and leveraging strategic vendor partnerships, employers can optimize their benefit packages while managing costs.
2. Personalized Support: Prioritizing employee engagement and satisfaction through high-quality, customized benefits can enhance overall job satisfaction and loyalty.
3. Technology Integration: Jump-links and single sign-on experiences for employees gives the impression that their benefits are disconnected and fragmented. Utilizing one place for access, answers, and advocacy provides a seamless, all-in-one healthcare experience that keeps employees engaged and empowered. 

The long-term value proposition

The benefits of empowering your employees with a deeper understanding and better utilization of their healthcare benefits extend beyond immediate cost savings. By fostering a healthier, more engaged workforce, you can enhance productivity, reduce absenteeism, and improve overall employee satisfaction.

The Biden administration has finalized a regulation meant to improve access to mental health and substance use coverage for the 175 million Americans with private insurance, in a significant expansion of benefit parity standards for health plans.

The rule requires private health plans to evaluate their provider networks, out-of-network payment rates and utilization management processes to ensure they’re the same between mental and physical healthcare, according to a fact sheet.

Plans with more restrictive mental health benefits would have to take remedial action, like adding more therapists to their networks or removing a prior authorization requirement. Noncompliant plans could also face fines.

Under the Mental Health Parity and Addiction Equity Act (MHPAEA) passed in 2008, health plans that cover mental health and substance use care are required to do so at the same level as physical healthcare.

However, this is not always the case in practice. Healthcare like therapy can be exceedingly tricky to find, amid a national shortage of mental healthcare practitioners compounded by the rising incidence of mental illnesses.

Critics also point to health insurers, which often fail to promptly update provider networks and maintain barriers to care such as prior authorization. Many mental health providers don’t accept insurance, citing hurdles put in place by insurers. All together, such practices can make it extremely difficult for insured individuals to find covered mental health services.

MHPAEA was meant to make it easier for the majority of Americans with private health insurance to receive mental healthcare. However, that largely hasn’t been the case.

Insured people are almost four times as likely to go out of network — and pay higher costs — for mental healthcare than physical healthcare, according to a study published in April. Patients also forgo care altogether, which can worsen health needs down the line. Only about half of all adults with mental illness receive treatment, according to government data from 2022.

In 2020, Congress modified MHPAEA to require health plans to analyze their benefits to ensure payers weren’t making it difficult for beneficiaries to access mental health and substance use care. Yet the law has remained difficult to enforce, due to jurisdictional and resource challenges. Oversight of different types of health plans are split between a handful of federal agencies and the states.

The rule finalized by the Health and Human Services, Labor and Treasury departments takes MHPAEA further by specifying plans have to evaluate provider networks, payment to out-of-network providers, how often they require prior authorizations and how often those prior authorizations are denied.

The rule clarifies that plans can’t use more restrictive prior authorization (or other utilization management techniques), or have narrower provider networks, for mental health care as opposed to medical benefits.

Payers also have to consider similar factors in setting out-of-network rates for mental healthcare and substance use care providers as they do for medical providers, according to the rule.

In addition, nonfederal governmental health plans, like those covering state and local government employees, previously did not have to comply with MHPAEA. The final rule eliminates that carveout, bringing more than 200 additional health plans under the law, according to a statement released by the White House on Monday

The HHS will soon release tools to help states ensure that private Medicaid plans are also complying with MHPAEA, the White House said.

Most of the rule takes effect in January 2025. Other provisions that will take longer to implement, such as some data evaluation requirements, will begin at the start of 2026, according to a fact sheet on the final rule.

It’s a significant overhaul to how insurers currently report compliance with MHPAEA, and one likely to raise administrative burden on insurers that offer private health insurance.

Though regulators finalized most of the provisions in the initial mental health parity rule proposed last summer, they did water down the rigor of some tests meant to ensure equality to the scope or duration of benefits after commenters said they’d be difficult to implement.

Still, the rule was quickly slammed by payers. A group of lobbies for health insurers and employers released a joint statement on Monday opposing the rule — and warning that it could increase costs so much that employers drop mental healthcare coverage entirely.

The regulation will “have severe unintended consequences,” wrote AHIP, the Association of Behavioral Health and Wellness, the Blue Cross Blue Shield Association and the ERISA Industry Committee.

“Instead of expanding the workforce or meaningfully improving access to mental health support, the final rule will complicate compliance so much that it will be impossible to operationalize, resulting in worse patient outcomes,” the groups wrote.

Meanwhile, physician lobby the American Medical Association applauded the rule, while noting it was overdue.

“Health plans have violated MHPAEA for more than 15 years, and this final rule is a step in the right direction to protect patients and hold health plans accountable,” AMA President Bruce Scott wrote in a statement Monday.

The Biden administration’s push to improve access to mental healthcare comes as more Americans report struggles with mental illnesses and substance disorders. The coronavirus pandemic, and subsequent lockdowns, are thought to have exacerbated the conditions.

In 2022, more than 84 million adults and 6.1 million adolescents were diagnosed with a mental health or substance use disorder, according to Substance Abuse and Mental Health Services Administration data.

Forty-two percent of U.S. employers now offer fertility benefits, according to a report recently released by the International Foundation of Employee Benefit Plans — up from 30% in 2020.

More employers now offer every type of fertility benefit IFEBP collected data on, with fertility medications and in vitro fertilization leading at nearly one-third of employers offering both (compared to 24% of employers in 2020). Corporations were more likely than public employers to offer every type of benefit, a review of the report showed.

“The increasing number of plan sponsors offering family-forming benefits indicates that they are a highly-valued benefit by employees,” Julie Stich, vice president of content at IFEBP, said in a statement emailed to HR Dive. “Additionally, these benefits are a positive way to create a more inclusive workplace.”

IFEBP’s findings add to a growing body of evidence that fertility benefits are on the rise. 

A survey of 600 HR professionals released in March 2023 by healthcare company Maven found that the majority of employers — 63% — said they planned to increase family health benefits within the next few years. And more recently, employers responding to a Business Group on Health and Fidelity Investments survey said the same — with 86% of employer respondents saying they planned to offer family-forming and reproductive support in 2025. 

Employers know the benefit is popular, surveys have shown. That is likely due to the way businesses can transform workers’ lives by providing a financial bridge to fertility care, especially for expensive procedures like in vitro fertilization. An analysis by The New York Times put the cost of IVF at approximately $25,000 with medication.

A Carrot Fertility survey, also from March 2023, found that just one-third of workers said they could afford fertility treatments if needed, with another 29% saying the pursuit of these treatments may put them in debt.

Stakeholders have long emphasized the positive impact of fertility benefits on recruiting and retention. That assertion is reaffirmed by the data as well; Maven found that more than one-third of employees said they’d left or considered leaving a job because of inadequate family benefits, and 65% of workers told Carrot Fertility they’d change jobs to work for a company that provided fertility benefits.

Large employers expect healthcare costs will be 50% higher in 2025 than in 2017, and prescription drug spending — including for Glucagon-like peptide-1, or GLP-1, medications — is expected to be a significant driver of those increases, officials at the Business Group on Health said during a press conference.

The organization’s survey of 125 large employers found that 56% said that GLP-1 drugs were impacting their healthcare costs either to a “very great” or “great” extent. At the same time, 70% said they were “very concerned” about the appropriate use and long-term cost implications of GLP-1 drugs and other, newer weight management medications.

GLP-1 drugs constitute a class of medications that has recently gained some regulatory approval for use in weight management and for reduction in the risk of heart attack, stroke or death in people with cardiovascular disease. But the drugs’ expense means that employers have been slow to provide coverage of them through their health plans.

The share of employers that did provide coverage varied depending on the conditions for which the drugs were prescribed. BGH found that nearly all respondents covered GLP-1 drugs for diabetes treatment, while 67% covered prescriptions intended for obesity treatment and only 34% did so for treatment of cardiovascular conditions

Ellen Kelsay, BGH’s president and CEO, said Tuesday that employers have implemented requirements to manage use of GLP-1 drugs including 87% that used prior authorization. More than half of employers required plan members to participate in a weight management program or meet a specific body mass index threshold or have certain comorbidities.

Though it was not captured in the survey data, Kelsay also said that she has heard anecdotally that employers are concerned about employees receiving GLP-1 drugs from direct-to-consumer platforms and compounding pharmacies that do not have clinician oversight.

“They are getting questionable quality in terms of the medication and questionable guidance in terms of the support from the provider, who is often not a clinician, who is overseeing that care,” she said. “There’s just general concern that that is something that should be watched with a lot of trepidation. Employers are certainly not encouraging employees to go in that direction although they are cognizant that some employees are on their own.”

To that end, 24% of respondents said that they were requiring plan members to acquire GLP-1 drugs through specific physicians or programs, said Brenna Shebel, VP at BGH.

GLP-1 drugs are a “considerable factor” in driving up costs, but they are also one of many, Kelsay said. She noted that cancer — which BGH identified two years ago as a significant future concern for employer plans — topped the list of cost-driving conditions for the third consecutive year.

In all, 72% of respondents said they were already seeing a higher prevalence of cancers in their patient populations, and an additional 16% said they anticipated seeing an impact from this. Kelsay said that employers have also reported an increase in cancer diagnoses in younger patients.

That may explain why 87% of employers plan to cover at least one form of additional cancer screening beyond what is recommended by healthcare professionals, including 49% who said they currently cover colonoscopy alternatives.

BGH’s findings on cost increases generally track with those reported by other firms. Respondents projected a 7.8% hike in costs for 2025 before plan design changes. A survey published earlier this month from the International Foundation of Employee Benefit Plans similarly projected an 8% increase in costs.

“Healthcare cost is really the headline story of this year’s findings,” Kelsay said, adding that the trend of increasing costs “has remained a troubling issue, especially more so this year.”

The IRS has detailed the steps employers must take when contributing student loan payment matches to workers’ defined contribution plans — a benefit offering that became available this year.

Among other things, the agency clarified eligibility rules and certification requirements in a question-and-answer format.

The interim guidance applies to plan years beginning after Dec. 31, 2024. The IRS said it will propose regulations providing further guidance, but that plan sponsors may rely on the new notice for now.

The SECURE 2.0 Act, enacted in 2022, aimed to address shortfalls in employee retirement savings. It allowed for the creation of pension-linked emergency savings accounts, expanded auto-enrollment requirements for retirement plans and, relevant to Monday’s guidance, allowed for matching contributions based on employee student loan payments.

Specifically, that final provision allows plan sponsors to make matching contributions to defined contribution retirement plans with respect to employees’ qualified student loan payments as if they were pretax, Roth or after-tax contributions, according to an analysis from consulting firm Mercer; employers can offer the match to any employee eligible to participate in the plan, even if the employee doesn’t contribute to it.

Employers should consider such matching as a way to attract and retain talent, Mary Moreland, executive vice president of human resources at Abbott, urged HR professionals in a June op-ed.

She cautioned, however, that such offerings take time to deploy, recommending that benefits professionals allow for six to 12 months of planning. Communication plans must be crafted carefully and one-on-one conversations can increase employee engagement and comfort with the program, she added.

Employers will soon be invited to comment on Monday’s notice and provide feedback before the IRS drafts regulations. Once the notice is published in the Federal Register, the agency will accept comments for 60 days.

Most of the more than 400 HR professionals surveyed by transit benefit vendor Jawnt said that their companies offered some form of commuter benefit — and more than one-third of respondents said that commuter benefits helped encourage employees to return to the office.

Employers saw other perks from offering commuter benefits, per the report, from helping employees save money to meeting environmental goals to acquiring and retaining talent.

Obstacles to implementing commuter benefits included the time it takes to answer employee questions and dealing with HR systems and information technology-related challenges, Jawnt found. The company said this may be compounded by the fact that most employees enrolled in commuter benefits use them daily, meaning the need for assistance with technical issues or other matters can be more frequent than for other benefit categories.

A confluence of events has put a spotlight on commuting in 2024, particularly the return-to-office trend. Past research by Resume Builder found that close to 90% of employers planned to implement RTO policies by the end of this year. That’s despite resistance by employees who might prefer a remote, hybrid or other flexible work arrangement — including those who would like to avoid their commute.

The push for RTO gives employers an opportunity to revisit their commuting policies more generally, sources previously told HR Dive, including the notion that commuting privately by car is the only option or the option that most employers would necessarily choose. Organizations like Seattle Children’s Hospital, aware of the problems caused by car congestion and the costs of building and maintaining on-site parking, have built commute programs that emphasize choice.

“The only way to offer a best-in-class commuter benefits experience is to genuinely understand our users — not just assume their needs,” Jeff Stade, CEO and co-founder of Jawnt, said in a press release accompanying the firm’s report.

Commuter benefit programs do come with tax-related benefits due to IRS regulations allowing for employers to deduct the cost of qualified transportation benefits from an employee’s taxable wages, specifically up to $315 per month in 2024.

But the potential for payroll tax savings “is not a strong opening move” when promoting the values of commuter benefits, according to the Jawnt report. The Philadelphia-based company found that 65% of respondents cited saving employees money as a top value proposition for commuter benefits, while 32% said the same of encouraging RTO and reducing commute times, respectively.

Nearly 6 in 10 job postings on Indeed in May advertised at least one employer-provided benefit, reflecting more than a 50% increase since January 2020, Indeed’s Hiring Lab reported. This is likely driven by post-pandemic labor market tightness.

The postings most likely to mention at least one employer-sponsored benefit were those in low-wage sectors and with limited remote opportunities. Still, both of these sectors offer fewer benefits overall, Hiring Lab economist Allison Shrivastava wrote.

Professional sectors have the lowest share of postings that advertise a benefit, Hiring Lab found. This may be because job seekers assume employers in these sectors offer benefits and expect to negotiate them later on, researchers noted.

A helpful takeaway for HR pros and hiring managers: Advertising employer-sponsored benefits in a strategic way can help an employer stand out from the crowd, per Hiring Lab.

“In a tight labor market, adding benefits to job postings in lower-wage sectors — where they aren’t often given and where job seekers may be less likely to assume they’re offered — could go a long way in attracting applicants,” Shrivastava pointed out.

Likewise, employers offering limited remote work opportunities may view some benefits as an important recruiting tool amid still-intense competition to attract candidates, Shrivastava said.

However, this same strategy may be less important in the tech and other professional and knowledge industries, where remote work is more common and where job seekers may expect benefits to be offered.

“In other words, benefits may be more commonly included as part of a negotiated compensation package in some sectors, and a low share of postings with benefits explicitly offered in these sectors probably does not mean benefits aren’t offered at all,” Shrivastava noted.

There was one notable exception, however: in May, 12% of postings for software development jobs advertised at least one family benefit, the highest of any sector analyzed, Shrivastava wrote.

Others may soon follow suit. In a survey by Business Group on Health and Fidelity Investments, more than half of the 160 employer respondents said they plan to address the impact of social determinants of health — social and economic conditions that affect a person’s ability to be healthy — on personal well-being in the next few years, according to findings released in May.

Some employers said they’re tackling the social determinants of work — factors affecting how an employee can show up for work in a healthy way — such as by providing caregiving or child care benefits. More than three-quarters reported providing family-forming and reproductive support this year.

Nationwide, pay transparency has also increased, and a lack of pay information in a job posting can be a deal-breaker for many job seekers. More than 2 in 5 of U.S. workers who responded to a Robert Half survey said they’d lose interest in a position if the job ad lacked a salary range in the job description, June results showed.

One HR exec provided another tip: As HR pros become key strategy players in their organizations, they can use their expertise to unlock brand success, Orlando Ashford, chief people officer at Fanatics argued in a recent op-ed to HR Dive.

This involves consistently communicating to employees and prospective talent organization’s brand as an employer, including how it wants to be known for among its workforce and future employees, Ashford explained. HR professionals can also use recruitment as a branding opportunity when reaching out to potential applicants, the op-ed recommended.

There has been a “notable jump” in the percentage of employers offering deductibles of $4,000 or more — from 36% to 45% — according to a survey of more than 6,000 employers conducted by employee benefits firm Alera Group. 

More companies are also offering qualified high-deductible health plans (up from 47% to 52%), Alera Group found. The survey also found, perhaps unsurprisingly, that 4 in 5 medical plans experienced a rate increase over the past year.

Employers appear to be managing increased costs by providing more choices, with more than half of large employers offering three or more plan options. More employers are also exploring self-funding, Alera Group found.

While it’s too early to determine if the increase in high deductible offerings will become a trend, Alera Group said, it is a data point to watch. The majority of survey participants (60%) said they offered deductibles in the $2,000-$3,999 range. 

A 2022 report from Employee Benefits Research Institute found that an increase in high-deductible health plans may be driving a related rise in employees’ out-of-pocket healthcare spend. 

Employers’ need to control rising healthcare costs has been in tension with their desire to meet employees’ financial wellness needs, EBRI pointed out. On one hand, benefits professionals are exploring a range of financial benefits, from emergency savings plans to housing assistance, to help workers feel more financially secure. On the other hand, workers’ rising costs from high-deductible health plans and higher premiums could tank those efforts.

Many employers appear aware of the strain workers are feeling from more expensive care; Mercer recently found that while 45% of organizations said they are likely to shift rising healthcare costs onto workers, 47% said they were not likely to do so. Many said they were looking into alternative strategies like high-performance networks or enhanced clinical case management.