The pervasive labor shortage means that employers need to do more to attract and retain talent. Rewards and benefits will play an increasingly important role as candidates look for employers that are aligned with their values and look after their physical, mental and financial wellbeing.
However, the triple threat of medical inflation, potentially challenging renewal negotiations and economic uncertainty means that cost containment is high up the corporate agenda. With the C-suite taking greater interest in benefit plan costs, the pressure on human resources (HR) teams to show value for money grows.
Despite this, our People Risk Report 2022 research shows that just 42% of HR and risk managers surveyed currently have an effective cost containment strategy that combines plan design, health risk management and insurance placement.
Employers should prioritize multi-year and multi-prong containment strategies that focus on improving employee health while keeping expenditures under control. Cutting coverage to save costs on its own risks a disengaged workforce, increasing the potential for more instances of ill health leading to low productivity, absence, increasing staff turnover and damaged reputation.
A global economy in turmoil – why benefit costs are rising
Our Health Trends Report 2023 research found that medical trend rates have increased beyond what was projected earlier this year at 9.5% for 2022, to 12.7% for 2022 and 12.6% for 2023.
Several factors are driving higher costs. Global inflation is increasing per unit costs for services and supplies. Some regions are also seeing higher utilization patterns due to more people accessing services. Globally, almost two in five (37%) insurers say that medical claims activity is being impacted by higher incidences of chronic conditions due to lifestyle changes, with almost three in five (58%) reporting a higher cost per claim owing to more advanced treatments required as a result of deferred care. Especially in Asia, as cities emerge from hard lockdowns and disrupted care, individuals are again seeking medical treatment of non-emergency and chronic conditions.
Economic uncertainty could make renegotiating premiums and communicating these internally more challenging; HR teams will have to answer tough questions throughout the renewal cycle.
How cost containment can help
Against this economic backdrop, it will be harder to contain costs. At the same time, stripping out benefits to save money may result in key talent moving elsewhere. Those employees who remain will need more help managing physical, mental and even financial wellbeing.
Firms that insufficiently protect their workers will have to address the impacts of poor health and increased stress levels. This could lead to significant costs to the business, including from poor productivity, replacement of top-tier staff and the high insurance premiums that come with health conditions that could have been prevented or managed.
Instead of slashing budgets, employers should focus on cost containment and value for money. This means taking advantage of innovations such as virtual care and the long-term savings that can be gained through creating a culture of healthy living.
Three steps to successful cost containment
At Mercer Marsh Benefits, we believe there are three critical steps that employers should take to help to achieve successful cost containment.
