As health insurance costs rise, employers weigh the risks of offering too little

Rising inflation has imperiled one of employers' biggest bargaining chips for employee retention: benefits. As prices spike amid the "great resignation," it's not a game companies can afford to lose.

The cost of medical care in the New York-New Jersey area rose by about 8% between September 2021 and last month after steadily creeping up all summer due to inflation, according to the U.S. Bureau of Labor Statistics. The price of providing benefits is expected to surge by about 6% next year, according to Mercer, following a more modest 4% gain this year that was driven by rising premiums and prescription drug costs, according to the Society for Human Resource Management.

The price increases come at an inconvenient time for employers, with workers demanding more. New categories, including fertility benefits, telehealth options and mental health support, have grown in popularity—and can add costs as well. As healthcare grows in tandem with employees' expectations, some companies are getting squeezed just in time for open enrollment. Others that already offer certain benefits are trying to communicate what they provide in better ways.

"They have to offer more than medical, vision and dental," said Brandon Weber, chief executive of Nava Benefits, a Flatiron-based brokerage that offers benefits consulting and a search engine service.

The stakes for striking the right benefits balance are high. According to the Pew Research Center, 43% of workers who left their job last year said one reason was that "benefits weren't good." Companies are recognizing that they need to offer more than the bare minimum to keep current workers and attract new talent ahead of open enrollment, the period each year when employees may enroll in a health insurance plan for the following year. Employers set their own enrollment periods, typically in November, where employees elect to keep their current benefits or change plans.

The Kaiser Family Foundation reported that the average cost for a Northeast employer to provide coverage for a family last year ranged from almost $21,000 to nearly $26,000 annually. In 2018 the average price across different types of plans was less than $21,000.

Meanwhile, New York employees already pay some of the highest health care premiums in the country, in part because of the state's minimum coverage requirements. Insurers must cover second opinions for cancer patients, chiropractic care and more than 3,000 other procedures, making the consequences of health plan cost-sharing more consequential.

Working from home, isolating for months and adapting to pandemic life have led to different employee needs. According to a survey released this year by the Society for Human Resource Management, workers 35 and younger rank mental health benefits as being most important to them. A quarter of the employers surveyed have increased their mental health offerings during the pandemic, which Weber estimated would equal about 1% to 3% of a firm's overall medical spend. Some benefits that companies have introduced include meditation apps and substance use treatment. Some 43% of the employers SHRM surveyed said they expanded their telehealth benefit options during the first year of the pandemic.

Family-planning benefits such as covering in vitro fertilization treatment—which are part of open enrollment—are now one of the top five benefits millennial employees look for, said Pete Anevski, chief executive of Progyny, a fertility benefits startup in Midtown. Demand is increasing, and fertility rates are dropping, he said.

Anevski said that "fertility and family-building benefits would typically be 1% to 3% of the overall health plan cost."

Aside from health care benefits, the Society for Human Resource Management reports that generous paid time off, remote working options and paid family leave are most important to employees. In a separate Mercer study, 44% of employees said they want to be able to work from home full time.

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Communication is key

For some employers, particularly larger ones, the challenge is not providing more benefits; rather, it's effectively communicating to workers which perks they have at their disposal. Candice Sherman, chief executive of the Northeast Business Group on Health, a coalition of benefits providers and healthcare firms, said more employees at member companies do not understand the scope of their benefit plans.

"Many of our members talk about employees saying they've got this issue, and they're surprised to learn they have benefits for that," Sherman said. "Members are focused on how to communicate and promote benefits."

Companies are popping up to help employers tell their workforce the nuances of their coverage. Rightway, a benefits company near Union Square, made an app employees can use to access their information. Nava has a search engine that employers and workers can tap to research benefits by category. And Flume Health in the Flatiron District has created a platform that aims to help companies launch benefit plans that are more specific to their employees' needs.

Weber said the cost for using the company's platform is comparable to traditional methods. According to the Kaiser Family Foundation, in New York small group market benefit broker fees average just under $21 per member per month while large group fees are about $12.

As some employers wrestle with how to communicate benefits, many are struggling to provide insurance at all—especially smaller firms. Small Business for America's Future, a national nonprofit, conducted a survey last month among 121 New York small-business owners to study the impact of rising health insurance costs. Each owner's company employs no more than 500 people, and the majority employ 20 or fewer. Four out of 10 business owners said they are not offering their employees health insurance, and 85% of those respondents said it's because prices are too high. More than a quarter of respondents said they've held off on hiring to offset insurance costs.

No turning back

Now that many employers have solicited feedback, changed their offerings and focused on benefits administration, there might be no going back.

Sherman of the Northeast business coalition predicted that in the future firms will focus even more on providing benefits that focus on "wraparound, holistic" areas including more family-building resources, financial wellness, child care, gym memberships and even pet care.

For Weber, a potential paradigm shift is a silver lining. Traditional benefits packages and how they are communicated are "proving year over year to be a broken value proposition for the average American employer," he said.

"The cost-increase tsunami that we're facing," he said, "is moving employers to look past the status quo."

This story first appeared in our sister publication, Crain's New York Business.