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Surging costs and increased regulation: Navigating the evolving health and benefits landscape

As the cost of health and benefits programs continues to soar, it is imperative for employers to take steps to actively manage them.

07/16/2024 · 4 minute read

As the cost of health and benefits programs continues to soar, it is imperative for employers to take steps to actively manage them. While protecting the health and well-being of their workforces, they also need to evolve the rewards mix to optimize spending and maximize return on investment. At the same time, organizations are coming under increasing regulatory and legislative pressures, making it even more important to identify and get ahead of any emerging gaps in the governance of their rewards programs.

The relentless surge of health and benefits costs is the number-one people risk for HR and risk professionals across the world right now, according to our People Risk 2024 research involving 4,575 HR and risk professionals.  Global medical trends have seen double-digit increases every year since 2021.  And our research shows they are projected to rise by a further 11.7% in 2024, fueled by growing medical inflation, altered treatment mixes, advances in health technology and increased rates of utilization following the COVID-19 pandemic.

The situation is causing anxiety among employers that, for years, have built their rewards programs around core health benefits. Leaders are starting to ask themselves: “If our health benefits become too expensive to provide, how can we possibly fill the gap? What is the role of the employer? How do we manage our organizational health risks? How will we continue to attract, retain and engage our top talent?”

Meanwhile, significant regulatory and legislative changes are putting even greater pressure on organizations. Rewards teams find themselves working within rapidly changing boundaries, with new rules around pay transparency, pension plan enrollment and retirement investment funds impacting employers across many regions, including the EU, US, UK, Canada, Brazil and Australia.

Given the twin pressures of rising costs and increased regulation, many organizations struggle to see the way forward. According to People Risk 2024, 36% of HR and risk managers feel they have limited strategies to control costs beyond simply reducing benefits, and 40% are concerned that the HR function will have to spend more time and resources on managing benefits programs.  And 46% are uneasy about the degree of due diligence now expected when assessing rewards and benefits providers across a range of dimensions — including their environmental, social and governance (ESG) credentials.

Four steps to taking a whole-system approach to health and benefits management

While this is undoubtedly a difficult set of circumstances, the situation is manageable provided that organizations take a whole-system approach to health and benefits.

  1. This starts with understanding and protecting the health and well-being of their employees. At a general level, this involves creating a culture of health and well-being in the workplace with not only purpose-driven benefits and well-being programs, but also organizational initiatives that truly support employees through their health and well-being journey. This includes managing psychosocial risks in the workplace and training line managers to handle employee well-being issues, including their mental health; supporting employee work-life balance; and improving individual and enterprise resilience.  While mental health deterioration is the second greatest risk globally, tackling chronic diseases which drives up the health and benefits cost is a blind spot for many organizations, ranked at 25. Employers also need to identify and address their specific risks by using data to drive targeted interventions, including providing preventive services. Ultimately, using a data-driven approach to manage absenteeism will drive ideal outcomes for a healthier, happier and more productive workforce.
  2. Employers need to actively drive employee consumerisum and engagement in benefits while balancing efficiencies through effective vendor management and financing. This involves working regularly with brokers and advisors to evaluate options and secure the best possible prices; building deeper relationships with insurers and other benefits providers to unlock new creative options for cover and accountable plan designs; exploring value-focused networks, centers of excellence and on-site clinics; and considering alternative financing options, such as packaged fees, bundled pricing, captives and self-insurance.
  3. Employers should build a robust governance framework for benefits to support decision-making, compliance, efficiency and flexibility. This includes establishing a cross-functional steering committee and network champions, as well as assigning accountability and ownership for complex legislative requirements, such as ESG reporting and associated stewardship. And it may also involve outsourcing some non-core aspects of benefits, particularly in areas in which the organization lacks expertise, such as pooling employer plans for pensions.
  4. Finally, organizations should consider digitizing and automating benefits management to ensure data security and accuracy, reduce operational risk, and improve employee access. Implementing a digital platform, such as Darwin, also reduces administration time, freeing up the rewards and benefits team to focus on delivering strategic value. Throughout a digitization journey, employers should look to balance digital delivery with empathy, using digital solutions to enable and engage employees in their health journey.

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Enhancing the value and sustainability of rewards programs

An effective strategy will combine all these elements — prioritizing employee well-being, optimizing vendor relationships, establishing robust governance frameworks and leveraging digital solutions for efficient benefits administration. By following these steps, organizations can successfully navigate the evolving landscape of health and benefits programs and enhance the value and sustainability of their rewards packages, even in the face of increasing cost and regulatory pressures.

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About the authors:

Anupama Sahay

Anupama Sahay

MMB Multinational GBM & Darwin, Asia Pacific Leader

  • Singapore

Melody Kwan

Melody Kwan

MMB Multinational GBM & Darwin, Asia Pacific Leader, Mercer Marsh Benefits

  • United Kingdom

Key Solutions

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Employee health & benefits

07/29/2021
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Expertise

Workforce resilience and wellbeing

12/10/2024
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Expertise

Corporate wellness programs

12/16/2024

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