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How to reduce employee benefit costs amidst inflation

Written by: Chase Charaba
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Published on May 25, 2022.

With rising inflation rates, many organizations find it challenging to keep up with demand while still providing competitive benefits packages amid global labor shortages.

As of April 2022, the U.S. inflation rate for all consumer goods has increased 8.3% over the last year, with the most significant price increases for oil, gasoline, food, energy, and vehicles.

However, inflation hasn't only affected consumer goods. Employee benefit costs are also on the rise.

According to a survey conducted by the Employee Benefit Research Institute, a third of U.S. employees have seen an increase in their health costs in the last year. What’s more, 4 in 10 of those who reported increased health costs said they also have trouble paying their bills or covering basic living expenses.

But employees aren’t the only ones struggling to pay for healthcare costs these days—employers are also bearing the brunt of rising costs. A survey of large employers from the Kaiser Family Foundation found that 96% of respondents agree that the high costs of offering healthcare to their employees are excessive.

As an employer, how do you balance your own benefits budget while still offering a comprehensive benefits package that attracts and retains employees? And as an employee, how can you make the most of your benefits to lower your consumer costs?

This article will go over tips for both employers and employees to help lower costs without sacrificing benefits or pay.

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

The impact of inflation on your employees' livelihood can't be overstated. When inflation increases, the buying power of workers' take-home pay shrinks. According to the U.S. Bureau of Labor Statistics, employees' real earnings, or real wages, dropped 2.3% from April 2021 to April 2022 when adjusted for inflation.

Additionally, real wages fell 3.7% from March 2021 to March 2022, the largest decline since record-keeping began in 2001.

The Federal Reserve has made changes to interest rates to reduce inflation, but the Bureau of Labor Statistics expects the trend to remain.

With inflation likely to stick around for a while, many consumers can expect the costs of goods to remain high. This creates additional financial worries for many workers, as their pay can't keep up with their increasing costs.

Offering compensation packages and salary increases during periods of high inflation is essential for remaining competitive in a job-seeker's market. Without a robust compensation package, your employees may look for better opportunities with your competitors. To attract and retain top talent, you'll need to balance your budget and benefit offerings carefully.

Health benefits tips for employers

Health benefits remain a critical part of any compensation package. To effectively retain your employees, you need to offer health benefits that your employees want. However, the rising cost of traditional group health insurance has left many employers in a pinch.

Thankfully, personalized health benefits such as health reimbursement arrangements (HRAs) and health stipends can help supplement or replace your group health coverage, all while reducing your benefits costs.

Supplement your group plan with a group coverage HRA

One strategy employers can implement to lower costs while extending coverage is to add a high deductible health plan (HDHP) to their group plan offerings and supplement it with a group coverage HRA (GCHRA), also known as an integrated HRA. This may be a good option for your younger and healthier employees who don’t have as many healthcare costs, and it, in turn, lowers the premium for both you and them.

If you’re worried about the high deductible employees will have to meet, you can offer a GCHRA to help offset the out-of-pocket costs. With a GCHRA, you simply offer a tax-free allowance of money for your employees to spend on the healthcare expenses they incur before they meet their deductible or for items that aren't fully covered by the group plan.

New to the GCHRA? Get our one-page guide for a quick overview

Offer your employees an HRA instead

Instead of offering expensive group health insurance, you can switch to an HRA to save time and money. An HRA allows you to reimburse your employees for their individual health insurance coverage and qualifying medical expenses, all tax-free.

This enables your employees to purchase the individual health insurance plan that works best for them.

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

Take our HRA quiz to see which HRA is best for your organization

Offer your employees a health stipend

A health stipend is another benefit option. It works similar to an HRA, where you can reimburse employees for their medical expenses. However, health stipends are taxable and must be reported on your employees' W-2s as income.

Health stipends are great for organizations 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).

See how health stipends and HRAs compare with our free chart

Foster a healthy workforce

Lastly, another way to help save on health benefits costs for both you and your employees is by fostering a healthy workforce. After all, the healthier your employees are, the less likely they are to have extensive healthcare costs.

Other inflation benefits tips for employers

In addition to health benefits, you should offer your employees a range of benefits that support their increasing financial needs.

Wellness benefits

Wellness benefits are a great way to attract and retain employees while helping them live healthier lives. Employee wellbeing programs don't need to be expensive to be effective. They can include in-office perks for nutrition, fitness, stress management, or gym memberships.

Get our free guide to employee wellbeing

A cost-effective way to provide wellness benefits while helping employees through periods of high inflation is through a wellness stipend. With a taxable wellness stipend, you reimburse your employees for their wellness costs such as gym memberships, home exercise equipment, wellness apps, and more. Simply set a monthly allowance for budget control, and your employees are free to request reimbursements for their most important wellness expenses.

Commuter benefits

With rising gas prices, providing commuter benefits can help your employees financially. Commuter benefits such as a free or discounted parking pass, ridesharing, company shuttles, and mass transit passes can help alleviate stress and save your employees money while ensuring they have options to get to work as they return to the office.

Drop your under-utilized benefits

Another option is to eliminate the benefits you’re spending money on, but your employees aren’t cashing in on. For example, if you offer a monthly gym membership but none of your employees have signed up, you can drop the benefit and spend those dollars in other places, such as a wellness stipend.

A great way to learn which of your benefits your employees are and aren’t using is by sending out an employee benefits survey. Our template has free sample questions you can use!

Offer pay raises

With purchasing power decreasing month-over-month, offering a small pay increase can help your employees remain on track. After all, if you aren't giving your employees a raise during inflation, they're actually earning less than before.

Consider increasing your hourly wage or salary for all employees by 2.3% (the amount that wages have decreased over the last year). You can also raise your organization's minimum wages to accommodate increasing consumer costs.

According to the Wall Street Journal, some companies are giving out pay raises more frequently than once per year to combat inflation.

Benefits tips for employees during high inflation

Educate yourself on your benefits

The first step to lowering your costs as an employee is to make sure you’re fully utilizing all of your employee benefits. More importantly, you’ll want to make sure you understand how they work so you can make the most of them.

For example, if your employer offers an HRA, you can get reimbursed, tax-free, for your individual health insurance premium and potentially other qualified healthcare expenses.

Reach out to your HR representative or benefits administrator to make sure you’re taking advantage of everything you qualify for as an employee, as this can help reduce your monthly expenses.

Negotiate your medical bills

A little-known tip about lowering your healthcare costs is negotiating your medical bills. Many Americans don’t realize that there are several handy tips to lower your medical bills, get financial assistance, and even negotiate a more reasonable payment plan with your healthcare provider.

We’ve got all the tips you need to know in our article

Take care of your health

Lastly, one of the simplest things you can do to lower your rising healthcare costs is to take care of your health. The healthier you are, the fewer trips you’ll need to make to the doctor and other expensive specialists.

While easier said than done, making simple changes like switching to flavored water instead of sugary drinks or going for a walk on your lunch break instead of watching TV can make a big difference in your health.

Conclusion

While consumer costs are steadily rising thanks to inflation, there are several ways you can help lower your employees' costs while maintaining your budget. While it may be tempting to simply reduce your benefits offerings during periods of inflation, it doesn’t have to be that way. By following the tips in this article, you’ll be able to provide benefits without compromising value to your employees.

If you're ready to offer personalized employee benefits to your employees, PeopleKeep can help! Our HRA and employee stipend administration software helps organizations like yours manage their benefits in just minutes each month.

Schedule a call with a personalized benefits advisor today to see how personalized benefits can help your organization

This blog article was originally published on January 19, 2022. It was last updated on May 25, 2022.

Originally published on May 25, 2022. Last updated May 25, 2022.
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