How to reduce employee benefit costs amidst inflation

Inflation in the United States has risen over the past several years, with the most significant year-over-year increase being 9.1% in 2022 due to the COVID-19 pandemic.¹ In addition to high inflation rates, healthcare costs continue to rise, and many economists are warning that a potential recession could put extra pressure on businesses.

During periods of economic uncertainty, many organizations struggle to keep up with worker demands and provide competitive benefits packages. However, reducing benefits can hurt employee morale, retention, and recruitment efforts at a time when stability is crucial.

If you’re an employer taking a closer look at your benefits budget, you may be asking yourself a few questions: How do you balance cost while still offering a comprehensive benefits package that attracts and retains employees? And how can employees make the most of their benefits to lower consumer costs?

In this blog post, you’ll learn:

• How rising healthcare costs are affecting employer benefit strategies.
• Tips for reducing employee benefit expenses without sacrificing value or organizational culture.
• How HRAs can help recession-proof your health benefits program through greater cost control and predictability.

How is inflation impacting employers and employees?

In a May 2026 news release, the U.S. Bureau of Labor Statistics announced that the Consumer Price Index (CPI) increased 4.2% over the past 12 months.² This is higher than the annual increase of 3.8% reported in 2025.

The most significant year-over-year price increases were for:

• Fuel oil (58.9%)
• All types of gasoline (40.5%)
• Electricity (5.9%)
• Apparel (4.8%)
• Transportation services (4.1%)

However, inflation doesn’t only affect consumer goods. Employee benefit costs are also rising. According to a PwC survey, experts project a 9% increase in medical expenses in 2027 for the group health insurance market and 8.5% for the individual market, due to inflation and other key factors.³ A recent Pew Research Center study also found that 27% of Americans had trouble paying for healthcare for themselves or their family in the past year.⁴

Employees aren't the only ones struggling with healthcare spending. Employers are also feeling the financial pressure due to rising group health insurance costs.

According to KFF's Employer Health Benefits Survey, average annual premiums for employer-sponsored health coverage in 2025 reached $9,325 for self-only plans and $26,993 for family coverage. On average, employees paid $6,850 toward their family health insurance plan, leaving employers to cover the rest or reconsider their employee health plans altogether.⁵

No one can predict exactly when a recession may occur. However, many employers are preparing for a volatile economy and continued healthcare cost increases. Medical benefits are one of the most expensive items in an employer's budget, so companies are increasingly looking for cost-control strategies that are more predictable and sustainable than traditional group health plans.

Why is it important to offer employee benefits during periods of high inflation and economic uncertainty?

When employees face higher living costs due to economic factors beyond their control, they can’t live as they used to with the same salary or benefits. Many Americans are cutting costs to save money on rent, utilities, and healthcare, making employees even more reliant on their pay and employer-sponsored benefits.

For example, even though inflation had slowed slightly in the past few years, the buying power of workers' take-home pay has mostly stayed the same. A report from the U.S. Bureau of Labor Statistics found that employees' real earnings, or wages, decreased 0.7% from May 2025 to May 2026, with no change in the average workweek.

To put it in real dollars, the average hourly earnings decreased from $11.32 to $11.24 per hour, creating an extra financial burden for many workers whose salaries aren’t keeping up with the increasing cost of goods⁶

Offering compensation packages and annual salary increases during periods of high inflation is essential for remaining competitive in a job seeker's market and caring for your people. Without a robust compensation package, your employees may look for better opportunities. You must carefully balance your budget and benefit offerings to continue attracting and retaining the best employees.

How to reduce employee benefit costs

So, how do you reduce the cost of your employee benefits while still supporting your employees? Personalized benefits allow you to offer a variety of perks your employees love while maintaining cost control compared to traditional employee benefits.

We'll cover the specifics for each type of benefit in the sections below.

Health benefits tips for employers

Employee health plans are a critical part of any compensation package. To effectively retain your staff, you must offer health benefit plans that your employees want and value.

The rising cost of traditional group health insurance has made it difficult for many organizations to plan their annual benefits budget. During periods of high inflation and economic instability, unpredictable renewal increases can create additional financial strain.

That's why many employers are exploring health reimbursement arrangements (HRAs) as a way to recession-proof their health benefits strategy. HRAs can help you replace or supplement your group health coverage to keep costs low while giving employees more control over their medical care.

Offer your employees a stand-alone HRA instead of group coverage

Are you seeing double-digit rate increases with your group plan? Or is the risk of self-funded plans becoming too much? Is your small business unable to even offer a group plan due to the cost or minimum participation requirements? Instead of offering a traditional group health plan, you can switch to an HRA to save time and money.

An HRA allows you to reimburse your employees tax-free for their individual health insurance premiums and qualifying medical expenses. This empowers employees to choose the individual coverage and other medical services and items that work best for them.

Two types of HRAs can replace your group health insurance plan:

1. The qualified small employer HRA (QSEHRA)
1. The QSEHRA is for businesses with fewer than 50 full-time equivalent employees (FTEs) that don’t offer group health coverage. It has annual maximum limits set by the IRS, but no minimum contribution limits. To participate, employees must have a health plan with minimum essential coverage (MEC). You can vary allowances by family size and age.
2. The individual coverage HRA (ICHRA)
1. The ICHRA is similar to the QSEHRA, but has more flexibility. For example, it’s for employers of any size with no minimum or maximum contribution limits. You can also vary allowances by employee classes, age, or family status. You can also vary benefit eligibility by class. Employees must have a qualified individual health plan to use the benefit.
2. Under the Affordable Care Act (ACA), applicable large employers (ALEs) must offer at least 95% of their full-time employees affordable health insurance that provides MEC and minimum value to comply with the employer mandate. Instead of opting for group health coverage to satisfy the mandate, an affordable ICHRA benefit design can help ALEs fulfill the ACA’s requirements.

With the above stand-alone HRAs, you set a monthly allowance for employees to buy out-of-pocket healthcare costs and individual insurance policies. Then, you reimburse them up to their allowance amount after they show proof of a qualified purchase. HRA reimbursements are payroll tax-free for employers and income tax-free for employees.

Unlike other employee health benefits, HRAs offer complete cost control and predictability. Your allowances only change year-to-year if you choose to provide more money to your employees. Additionally, HRAs don’t have a pre-funded benefit design. You only pay employees after they buy an eligible item. Lastly, unused HRA funds stay with you at the plan year's end or if the employee leaves your company.

A predictable benefit like an HRA can be especially valuable during a recession or economic slowdown. Rather than facing unexpected rate hikes each year, employers determine their own monthly contribution amounts and can adjust future budgets based on goals and workforce needs. This can be a big win for organizations focused on effectively managing cash flow while maintaining competitive employee benefits.

Supplement your group plan with an integrated HRA

If you already have a group health plan and don’t want to cancel it, you can lower your health coverage costs by switching to a high deductible health plan (HDHP). However, switching to an HDHP can result in higher out-of-pocket costs for your employees. To help with this, you can supplement your HDHP with a group coverage HRA (GCHRA). This approach lowers your cost of health insurance premiums while helping employees manage higher out-of-pocket expenses, balancing affordability and financial support for your staff.

Also known as an integrated HRA or a traditional HRA, a GCHRA allows employers of any size to reimburse employees tax-free for out-of-pocket medical costs their group plan doesn’t cover or fully cover. Only employees enrolled in your employer-sponsored plan can participate in the HRA.

While a GCHRA can work with any type of group plan, an HDHP has lower monthly premiums for you and your employees. Like stand-alone HRAs, you offer a tax-free allowance for your employees to spend on medical care costs and reimburse them after they buy an eligible expense. GCHRAs also have no contribution limits, and you can adjust allowances and eligibility using employee classes, age, or family size.

By law, employees with a GCHRA can’t receive reimbursements for insurance premiums. But they can use their GCHRA funds to pay for the plan’s deductibles, coinsurance, copayments, and other medical expenses.

Offer your employees a health stipend

Health stipends are an affordable choice for employers looking to provide additional support during a challenging economy who want to offer more than just a traditional pay raise. A health stipend is a fixed amount of money you offer your employees to help them pay for health insurance and other out-of-pocket costs.

Health stipends are an excellent choice for companies with 1099 contractors or international workers who can't receive traditional health benefits. They can also benefit employees who receive advance premium tax credits (APTC).

While they can cover a wide variety of expenses, like HRAs, health stipends are taxable. This means you have to report them as income on your employees' W-2s. Additionally, a stipend doesn’t satisfy the ACA employer mandate for organizations with 50 or more FTEs. You also can’t make your employees show proof that they used their stipend money on health insurance coverage or qualified medical items.

If you want to offer a cost-controlled and compliant health benefit, an HRA is a better option.

Other health benefits options to help your employees with their medical costs

Another way to support your employees' healthcare expenses is by offering a health flexible spending account (FSA) or a health savings account (HSA). Like HRAs, these are tax-advantaged benefits.

Here’s a quick look at how each one works:

1. An HSA is a bank account that allows individuals to save pre-tax dollars for future qualified medical expenses. Both you and your employee can contribute funds to this account if they have an HSA-qualified HDHP. But if an employee leaves your company, they can take the HSA and all contributed funds with them. Like the QSEHRA, the IRS sets annual contribution limits for HSAs.
2. A healthcare FSA allows for tax-free reimbursement of qualified healthcare expenses. Health FSAs are also employer-owned accounts. But employers and employees can contribute to them up to the annual maximum limit of $3,400 in 2026. However, employees can’t keep the funds if they leave your company.

HSAs and FSAs are excellent additions to any benefits package. However, they don’t replace traditional benefits or HRAs. That’s because they don’t directly provide medical coverage to employees.

Encourage healthy lifestyles

Lastly, encouraging a healthy lifestyle is another way to help save on employee and employer healthcare costs. This is because healthy employees are less likely to have health issues that require medical treatment.

Wellness programs help reduce medical care expenses while addressing health concerns. When employees take better care of themselves now, they can prevent severe chronic illnesses such as cardiovascular conditions and cancer treatment in the future.

There are many different types of worksite wellness programs. But offering all of them can be expensive and time-consuming to manage. Thankfully, many wellness benefits are budget-friendly and effective.

For instance, with a taxable wellness stipend, you can give your employees a set amount of money to help them pay for various wellness costs, like gym memberships, home exercise equipment, and mental health resources. With a good mix of eligible expenses that support nutrition, fitness, and stress management, your team can live healthier lives while you boost team morale and increase employee productivity.

Other benefits tips for employers

Other ways to reduce the cost of benefit programs at your company and improve retention include dropping any underutilized benefits, offering small pay increases, and adding various employee stipends to your compensation package. Let’s go over them in more detail below.

Drop your underutilized benefits

If you’re unsure about economic stability, it's important to evaluate whether every benefit you're offering is delivering value. Rather than making broad cuts, you can identify underutilized programs and redirect those dollars toward benefits employees use most frequently.

For example, suppose you offer a monthly gym membership benefit, but few employees participate. In that case, you may be able to reallocate those funds toward a more flexible benefit, such as an HRA.

Sending out an employee benefits survey is a great way to learn which benefits your employees are using and which they aren't. Our template has free sample questions you can use to help get you started on your journey to benefit utilization control.

Offer pay raises

Small pay increases can help your staff remain on track and fight declining purchasing power. After all, if you aren't giving your employees a raise during inflation, they're earning less than before.

Think about increasing your hourly wage or salary for all employees by 3.5% or more (the amount that Mercer projected to be the average salary increase for 2026).⁷ While this is the same average salary increase as 2025, offering at least this much can keep your company competitive in a tough economy and labor market. You can also raise your company’s minimum wage to combat rising consumer costs.

Add employee stipends to your benefits package

With employee stipends, you can easily offer various lifestyle benefits that support your employees' needs during high inflation without breaking the bank.

Stipends also allow you to save time and money by consolidating your various benefits programs into one program. For example, suppose you’re providing a wellness program, internet access reimbursement, and other perks through multiple third-party vendors. In that case, you can offer a stipend, reducing time spent on benefits management and overall costs.

Other than health and wellness stipends, here are some popular benefits you can offer through a stipend:

• Transportation benefits. With rising gas prices, providing commuter benefits — such as a free or discounted parking pass, ridesharing, company shuttles, and public transit system passes — can help your employees financially.
• Remote work expenses. If you have remote workers, you can help them pay for cell phone reimbursement, home internet access costs, and any tools or equipment they need to perform their job.
• Professional development. By offering your employees the opportunity to pay for training, courses, and certifications, you can help keep your current employees while leveraging your existing talent to fill high-level vacancies.

Benefits tips for employees during high inflation

Employees looking to stretch their healthcare dollars have a few ways to save money during times of inflation.

Educate yourself on your benefits

The first step employees can take to lower costs is to use all their health benefits. Your HR team should offer proper education on the available benefits so you understand what they are and how they work. That way, you can make the most of their offerings.

Employees should contact their HR team or benefits administrator to ensure they're taking advantage of their perks. By properly using their benefits, you can reduce your various monthly out-of-pocket expenses.

Negotiate your medical bills

A little-known tip about lowering healthcare spending is negotiating your medical bills. Many Americans don't realize there are several handy tips for lowering their medical bills, getting financial help, reviewing claims data, and even negotiating a more reasonable payment plan with their healthcare provider.

Knowing how to negotiate bills can help employees reduce their medical debt for healthcare expenses their insurance carrier may not fully cover, such as an unexpected medical event.

Take care of your health

Lastly, one of the simplest things employees can do to lower their medical care costs is to take care of their physical and mental health. The healthier you are, the fewer trips you’ll make to the doctor and other costly specialists. This also benefits employers, as better employee health generally results in a more productive workforce and lower health coverage costs.

Making simple changes can make a big difference in your health, such as:

• Switching to water or sparkling water instead of sugary drinks to prevent future chronic conditions
• Going for a walk on lunch breaks to increase physical activity
• Establishing a regular sleep schedule and encouraging healthy food standards
• Getting annual biometric screenings and other preventive care services
• Taking movement breaks, such as opting for the stairs at work or visiting the on-site gym
• Practicing relaxation and stress management techniques, like deep breathing, meditation, or yoga
• Taking advantage of an Employee Assistance Program in the workplace, which can help improve their mental health

Conclusion

Even though consumer prices and healthcare costs continue to rise and many organizations are preparing for potential recessionary pressures, you don't need to sacrifice quality of care to save money. Reducing your benefits offerings may be a tempting option. But by following the tips in this article, you'll be able to provide cost-effective benefits without compromising value.

HRAs combine flexibility, cost predictability, and employee choice, making them a valuable option for organizations looking to recession-proof their benefits strategy. If you're ready to offer a personalized HRA to your employees, PeopleKeep by Remodel Health can help! Schedule a call with an HRA specialist today to see how we can help you save money over traditional benefits.

This blog article was originally published on January 19, 2022. It was last updated on June 29, 2026.

References

1. U.S. BLS - Consumer prices up 9.1 percent over the year ended June 2022, the largest increase in 40 years

2. U.S. BLS - Consumer Price Index Summary May 2026

3. PwC - Medical cost trend: Behind the numbers 2027

4. Pew Research Center - A growing share of U.S. adults say their personal finances will be worse a year from now

5. KFF’s 2025 Employer Health Benefits Survey

6. U.S. BLS - Real Earnings News Release

7. Mercer - Most US employers plan to keep 2026 salary increases flat to 2025