Employees Cut Back on Their Own Benefits amid High Inflation

As inflation continues weighing on employees, new research released just ahead of open enrollment reveals what some industry experts call a troubling trend: evidence that employers would be wise to step up their benefits education and communication.

Median Monthly Benefit Spending Down

The new monthly median amount that consumers will spend on benefits in 2024—excluding retirement savings—is $120, down $30 from the previous two years, according to LIMRA, an insurance industry trade association based in Windsor, Conn.

Kimberly Landry, associate research director for workplace benefits research at LIMRA, expressed concern about this trend, noting that it's problematic when employees are reducing their spending on benefits at the same time that benefit costs are increasing.

Although the LIMRA data does not spell out exactly which benefits employees might cut or reduce, Landry suggested that workers might focus on reducing benefits they believe they're less likely to use, such as disability insurance and supplemental health plans.

Inflation, Household Budgets Driving Decline

Major drivers for the decline in employees' benefit spend include inflation and tighter household budgets. In particular, medical insurance premiums continue to increase significantly year over year, and these already eat up a majority of workers' benefit budgets, Landry explained.

This decision will likely leave some employees underinsured and susceptible to financial issues.

Landry cautioned that if employees opt to spend less on benefits, they may end up foregoing coverage they might need in the future, potentially leaving them financially vulnerable in case of disability or serious health events.

Demographics Impact Spending

The LIMRA study also found that demographics play a role in how much workers will spend on employee benefits. Employees with higher incomes, those who are married with dependent children, younger workers and workers who are already enrolled are more likely to spend more.

For example, enrolled employees are willing to spend a median of $150 per month on benefits, versus $100 for employees who are offered benefits but are not enrolled, according to LIMRA.

Employers Should Re-Evaluate Offerings

The data is proof that employers should do some soul-searching ahead of open enrolment —and beef up benefits education efforts. Landry advised that employers should evaluate whether their benefits offerings are affordable for employees, taking into account factors such as average salaries and local cost of living, while ensuring that the benefits provide adequate coverage.

HR and benefits leaders should make sure employees understand what different benefits entail and what value they provide.

Robust Education Strategy Key

Landry pointed out that it's easier for employees to opt out of benefits when they don't fully comprehend them or recognize their value.

Only 54% of employees in LIMRA's survey said their employer communicates about benefits well. Landry emphasized the importance of conveying benefits information through multiple channels and communicating about benefits throughout the year, not just during open enrollment.

Bridget Lipezker, vice president, worksite member operations at benefits firm Optavise, stressed the need for education rather than just information about available benefits and which ones might be most suitable for employees. She noted that without proper education, employees may not fully appreciate the benefits available to them through their employer-sponsored package.

In this issue:

This Just In ... The Hidden Cost of Unused PTO: Why You Should Encourage Employees to Take Time Off

Navigating the Benefits Buffet: How to Choose the Right Mix for Employees

GLP-1s without Lifestyle Changes May Not Lead to Sustained Weight Loss

Employees Cut Back on Their Own Benefits amid High Inflation

Pay Raises Expected to Slow in 2025 as Labor Market Cools

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