Employee benefits cover healthcare for 150M+ Americans, totaling a whopping $1.3T annually or more than 5% of the nation’s GDP. Still, only a very small percent of people truly know if they have “good benefits” or not.  

So, what does “good” look like? We’re more than 60 years into employer-sponsored healthcare, yet there is no universal definition, no line in the sand, and no way to decipher what “good or bad benefits” look like–except on Mployer Advisor.  

As an example, consider the following from our Mployer Insights benchmarking data: On average, employers in 2022 paid approximately $6K a year for individuals and $18K for families in insurance premiums alone.  

When surveying several thousand employees on their employer’s benefits, only about one-third were able to estimate the range in cost their employers pay. In fact, over 50% of respondents with a family estimated that their employer pays less than $5K.  

Even so, most of those employees said they have “great benefits.” The reality is that most employees simply do not know how to evaluate or grade their plans.  

The employee benefits space is one of the only industries in the U.S. where this deep-rooted illiteracy and confusion endures. Cars, hotels, housing, physicians, hospitals, babysitters–there is an easily accessible benchmark and definition for each of these industries.

But employee benefits with $1.3T in spend? No. The disconnect is staggering.

Why Are Employee Benefits So Complex?

First, start with employers. Your CFO and HR departments can design benefits using the following levers:  

• Several carrier networks

• Self-funding, level-funded, or fully insured
• Several plan design options from PPOs to HDHPs
• HSA/FSA contributions
• PCP/Specialist/Urgent Care/ER/Hospital co-pays
• Deductibles

• Max out-of-pockets
• Co-insurance
• Employee and employer contribution amounts

With several options over each, that comes out to approximately 20K permutations of healthcare plans that employers can offer their team. Then combine life, short-term, long-term, and myriad other options, and it expands to 1M+ permutations.  

The complexity is overwhelming, especially for a decision made annually, both for the employer buyer and significantly more so for the employee.  

When we first started Mployer Advisor, we often got the question about the brokerage space and if there was truly an effective way to differentiate skillset.

If you review the steps above and the interrelatedness and complexity, combined with the fact that it accounts for $1.3T annually, I would say yes—you can separate the wheat from the chafe.

Both highly strategic brokers and non-alike are up against a tsunami of rate increases this year, the likes we have never seen.

Even more sobering, consider that over 75% of employees said they would consider leaving a job for better benefits. What’s more, 65% said they would accept lower pay for better benefits.

Why Employee Benefits Confuse Employees  

Employees have nowhere to go to understand the quality of their benefits. The subject matter is complex, much less a lack of benchmarking to compare their plan against.

Is $3,000 good? What about coupled with a $7,500 max OOP? Or $173 a month for an individual policy for a 28-year-old female? It is complex. They are dependent upon HR communicating that to them.  

If you are an employer, this is one of your biggest missed opportunities. You are giving your employees between $5K-$25K a year, and most are not taking credit for it, at least to the extent you should be.   In brief, err on the side of overcommunicating.  

Why Explaining Benefits Effectively Matters  

As we have discussed at length for the better part of the year in various articles, blog posts, and podcasts, workers’ wages in 2022 increased by 6.7% and inflation increased by 8%—yet insurance premiums remained relatively flat compared to 2021 levels. Unfortunately, that all ends in days.

According to a recent McKinsey & Company report, employers could face health cost increases of 9%-10% every year through 2026 because of inflationary pressure passed down from providers.

Meanwhile, the overall economy continues to grow, and inflation remains at a 40-year high despite the Federal Reserve’s best efforts to slow the economy down just enough to avoid a head-on collision with a recession in 2023.  

One factor supplying some of that upward pressure on inflation is the sizable gap between job openings and job seekers, with 1.9 positions currently available for every unemployed person who was looking for a job as of the end of September.

That said, while the number of job openings remains inflated, that figure peaked back in March of this year at 11.9 million and has trended downward consistently to about 10.7 million (a drop of a  little over 10%) in the months since.  

The number of job quitters is similarly elevated above its usual levels, but also peaked back in November of 2021 and has fallen by almost 9%.

Still, even with some indication that the hot job market (and the economy as a whole) may be cooling off a bit, it is unlikely to go cold in the immediate future; in fact, some forecasters have predicted a relatively resilient market even in the event of a significant economic downturn, so make your preparations accordingly.

How Employee Benefits Plays Out in 2023 

The market will continue to be rough for employers coming into the next year, with significant increases in insurance premiums to keep pace with inflation, the ongoing fight for top talent, and a national economy that has overheated and refuses to let out steam.

According to McKinsey, the most likely tactics for employers to weigh are the following:

• Increase employee share of premium costs

• Shift more employees to HDHP plans
• Increase employee share of out-of-pocket costs
• Optimize networks
• Solicit bids for health insurer/third-party vendors

While PE Ratios have come back into check across the broader market, corporate earnings are still inflated with PPE funds and other monetary offerings. This steam will eventually release, however, and one major bit of collateral damage will be increased benefit costs to the tune of roughly $120 billion. 

If there’s a silver lining here for those positioned to be on the losing end of this realignment, market downturns always create opportunities for every market participant, including HR and leadership teams.  

Of course, that also means the onus is on those parties to find the opportunity in your corner of the market and capitalize on it. 

Looking for more exclusive content? Check out what’s trending on the Mployer Advisor blog, and be sure to tune in to the latest episode of “This Week in Benefits.”

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