Opinion: A market outlook for employee benefits

Erica Gaynor

In 2023, employers grappled with a host of new and persistent challenges – from soaring health care expenses and regulatory shifts to relentless inflation, a fiercely competitive labor market and heightened employee expectations. Negotiating these hurdles made for a demanding and trying year for many businesses. While these challenges are expected to persist into 2024 and beyond, gaining insights into these issues and emerging trends can equip employers with effective strategies to tackle them head-on. Companies that proactively prepare and take action stand to gain a competitive edge in the market.

One of the most daunting tasks for employers is navigating the rising tide of health care costs while ensuring that benefits remain affordable for their employees. The projected health care cost surge for 2024 surpasses that of 2023, necessitating urgent and effective measures from employers to rein in costs while upholding desired benefits. This calls for a multipronged approach involving alterations in plan design, cost-sharing initiatives, scrutiny of specialty drug expenses and leveraging claims data. In some cases, employers may need to resort to more drastic measures such as overhauling health plan designs to effectively counter the mounting health care expenses.

According to the Centers for Medicare & Medicaid Services, annual growth in national health spending is expected to average 5.1% over 2021-30, reaching nearly $6.8 trillion by 2030. Rising costs of medical care paired with inflation rates are also preventing many people from getting necessary preventive care. As a result, many Americans delayed routine health care in the past three years because of cost concerns.

Traditionally, employers have passed on the burden of health care costs to employees. However, the intensely competitive labor market in recent years has compelled employers to keep employee coverage affordable in order to attract and retain top talent. As 2023 ended, signs of a softening labor market emerged, prompting more employers to reconsider cost-sharing initiatives to tackle the escalating health care costs in the coming year.

According to the U.S. Bureau of Labor Statistics, the total number of employees who quit and job openings have reached record highs in the past two years. The BLS’ October 2023 Job Openings and Labor Turnover Summary reported 8.7 million open jobs and 3.6 million employee quits. These numbers have trended down from all-time highs of employee quits (November 2021) and job openings (March 2022) but remain higher than pre-pandemic levels, highlighting the market’s continued competitive nature.

Many organizations have embraced the provision of personalized voluntary benefits as an integral component of their benefits strategy, and this trend is expected to continue or even expand. These benefits, tailored to meet employees’ demands and needs, have garnered popularity among employees while enabling employers to diversify their benefits offerings without inflating costs. Furthermore, a holistic approach to employee well-being, addressing both physical and mental health concerns, will take center stage. The inflationary pressures have exacerbated various physical and mental health issues in the workplace, prompting employers to focus on financial benefits and education to alleviate the impact of inflation on employees. Additionally, family-building benefits will assume greater significance for employers as they strive to cater to employees’ evolving benefit needs and demands.

Despite expectations of a somewhat softened labor market in 2024, competitiveness in hiring will remain a key concern for employers. Consequently, strategies adopted by employers to navigate the tight labor market in recent years are undergoing transformation. In 2024, employers plan to ramp up employee compensation and fine-tune their recruitment strategies to prioritize skills-based hiring in the quest for qualified talent. However, even with budget allocations for increased compensation, meeting employee demands may remain a challenge.

Establishing proactive and resilient organizations will be imperative for success. Employers must ensure they are equipped to respond to challenges swiftly and effectively. The integration of artificial intelligence into workplaces has fundamentally altered work dynamics and operational paradigms. More employers are leveraging AI for recruiting and hiring, streamlining operations, and cutting costs, albeit not without encountering associated challenges. Moreover, the trend of coaxing and incentivizing employees to return to the office  and heightened enforcement actions by federal agencies will also necessitate proactive measures from employers.

Employers should assess which trends are likely to impact them in the coming year. Accessing valuable resources to evaluate potential solutions will be crucial in navigating the challenges and seizing opportunities presented in 2024. Together, employers can tackle the challenges and capitalize on the identified opportunities in the ever-evolving landscape of employee benefits.

Erica Gaynor, a Registered Employee Benefits Consultant and a Certified HealthCare Reform Specialist, is group benefits adviser with Ollis/Akers/Arney. She can be reached at erica.gaynor@ollisaa.com.