Inside the rapidly changing world of employee benefits

It’s a tale as old as time: Healthcare costs are rising faster than inflation, and employers are struggling to manage them as they eat up a larger and larger share of their budgets.

Healthcare costs are expected to rise by nearly 8% in 2025, according to a report by the Business Group on Health, contributing to a more than 50% increase since 2017.

“We are now experiencing the highest year-over-year increase in more than a decade,” Jim Winkler, chief strategy officer at the Business Group on Health, said in an email. “Employers have absorbed the majority of cost increases over the past four years, and they likely cannot continue to do so.”

Pharmacy expenses are primarily responsible for recent increases in healthcare costs. From 2021 to 2023, the median percentage of healthcare spending on pharmacy rose from 21% to 27%, according to the Business Group on Health. As a result, 3 in 4 employers say they are “very concerned” about total pharmacy costs, the report says.

In addition, more people are using GLP-1 weight loss drugs, including Ozempic, Wegovy, Zepbound and Mounjaro, to treat diabetes, obesity and other conditions. 

However, while the drugs are clinically effective, they’re expensive at a price tag of about $700 to $800 per month. More than 2 in 5 adults under age 65 with private insurance — about 57.4 million people — may be eligible for GLP-1s, which could accelerate healthcare spending. 

“GLP-1s are a major contributor to pharmacy cost overall, especially as utilization extends to medical conditions beyond diabetes and weight management,” Winkler said. 

Higher rates of chronic conditions, including cancer, cardiovascular conditions, diabetes and mental health conditions, also contribute significantly to rising healthcare expenses for employers. While much of those costs are attributable to an aging workforce, initial cancer diagnoses have grown more severe among young people who deferred or delayed care during the COVID-19 pandemic, Winkler said.

Consolidation and reduced competition among healthcare providers also contribute to rising costs, especially for inpatient care.

Below are six key strategies employers can use to manage healthcare costs in 2025.

1. Hold vendors accountable for clinical outcomes and financial results.

More than 8 in 10 employers are implementing or strongly considering using the request for proposal process to secure better pricing from vendors, according to the Business Group on Health. 

Employers should rigorously assess the ROI associated with vendors’ solutions, use shared performance metrics that align with the organization’s clinical and financial goals, and replace underperforming partners as needed, Winkler said. 

However, demonstrating the ROI for “wellness or other cost-containment measures can be challenging,” said Jennifer Chang, HR knowledge advisor at the Society for Human Resource Management.

2. Lean into programs that align with value-based care models, including in-network providers that encourage cost-effective, high-quality outcomes.

Using centers of excellence — select providers that deliver specialized medical care that meet specific cost and quality benchmarks — can help lower costs for behavioral health and other services, Chang and Winkler said. 

High-performance network models that encourage more cost-effective care through greater provider-payer collaboration and value-based payment, as well as advanced primary care programs that tie reimbursement to managing specific chronic conditions, such as diabetes, can also help employers lower healthcare spending, Chang and Winkler said.

3. Adopt new strategies to manage pharmacy costs.

Alternative pharmacy benefit management programs that are more transparent, less reliant on rebates and encourage the use of biosimilars can help employers rein in rising pharmacy costs, Winkler said.

“Pharmacy is actually multiple programs that need to be fully integrated from a user experience and data-sharing perspective,” Winkler said. 

Employers do not need to use the same vendor for all their pharmacy needs, which provides additional opportunities to save costs. Employers should also pair GLP-1 access with nutritional counseling, diabetes management and other condition management approaches to maximize the benefits of these new weight management drugs.

4. Help employees navigate the healthcare delivery system.

Care navigators, employee trainings and other resources can help ensure that employees access and use the highest quality, most cost-effective care, experts said. Explaining cost-sharing mechanisms, such as copays and deductibles, to employees will allow them to “use their healthcare benefits wisely,” Chang said.

5. Build worksite health centers.

A growing number of organizations are investing in employer-sponsored primary care clinics that offer employees no- or low-cost services at or near workplaces because “they’ve been running into a brick wall” trying to reduce costs through the traditional healthcare delivery system, said Megan Colleen McHugh, a health services researcher and professor at Northwestern University’s Feinberg School of Medicine. 

WHCs can increase employees’ use of preventive medical services, improve chronic care management and enhance quality of life, according to a new study co-authored by McHugh. The paper, which evaluated the findings of 10 previous studies, found that WHCs delivered annual cost savings ranging from approximately $35,000 to $2.1 million and ROI from $1.09 to $15.88 per $1 of investment. 

However, WHCs “only work if you’re a large employer” because they have high fixed costs, and there is very little evidence about the quality of care they deliver, McHugh said. 

6. Leverage data analytics to determine which cost management strategies make the most sense. 

Employers must assess vendor performance, clinical conditions, network utilization and geographic access limitations to determine the best approach to lowering healthcare costs, experts said. 

Analyzing claims data, for example, can help employers identify what is driving their healthcare spending and “target interventions for high-cost areas,” Chang said. 

Pitfalls employers should avoid

However, in their quest to lower healthcare costs, employers must avoid strategies that could lead to employee dissatisfaction, reduced engagement or unintended consequences, Chang said. Employers need to consider their organizational culture, including its “tolerance for disruptive change,” Winkler said. 

Excessive employee cost-sharing, for instance, can harm employee morale and retention, while abruptly cutting benefits without excellent communication and support can “lead to backlash,” as employees may perceive increased cost-sharing measures as a reduction in total compensation, Chang said.

Cost-containment measures can also create equity issues if they disproportionately affect lower-income employees, she said, adding that one-size-fits-all health plans that don’t consider workforce demographics or needs can lead to lower adoption and employee dissatisfaction.

In addition, adopting new plans or wellness initiatives can “strain HR resources and require significant coordination,” Chang said. 

Employers can manage these challenges effectively by engaging employees early, providing transparent and consistent communication and rolling out changes gradually, Chang said. They should also monitor and adjust cost-containment measures based on employee feedback and utilization data, as well as ensure cost-sharing changes and wellness programs are inclusive and equitable, she said. 

Additionally, creating a workplace that supports employees’ physical, mental and emotional well-being through healthy cafeteria options, on-site fitness facilities and other measures can help “foster a culture of health,” Chang said, helping to lower healthcare costs upstream of the pharmacy and healthcare delivery system.

As health plan costs continue to increase, more employers intend to change or reduce their 2026 benefit offerings to control spending, according to survey results from Mercer.

For instance, 51% of large employers (defined as those with 500 or more employees) said they’re likely — or very likely — to make plan changes that would shift more costs to employees, such as raising deductibles or out-of-pocket maximums. The percentage increased from 45% in 2024.

“Employers project average health benefit costs to grow by nearly 6% this year, and 2026 may be even more challenging from a cost perspective,” Ed Lehman, leader of U.S. health and benefits at Mercer, said in a statement.

“While short-term cost containment actions might be needed to address current budget realities, we also see some employers using longer-term strategies, such as offering narrow network plans, that emphasize high-quality, high-value care,” Lehman said. “These strategies may improve health outcomes or make healthcare more affordable for employees.”

In a survey of more than 700 U.S. employers, including 500 large companies, 35% of large employers said they plan to offer a non-traditional medical plan option in 2026, such as variable copay plans. Among the 6% of large employers that offered a variable copay plan in 2025, an average of 28% of their covered employees chose to enroll.

When it comes to pharmacy benefits, employers pointed to challenges around covering GLP-1 drugs for diabetes and obesity. About 44% of large employers said they cover the drugs to treat obesity. Looking ahead, 77% of employers said it’s extremely or very important to manage costs related to these drugs due to their high price tag — roughly $1,000 per month per patient without rebates factored in.

“While the trend over the past couple of years has been to add coverage for GLP-1s approved for weight-loss, some employers facing large cost increases in 2026 may feel this coverage is out of reach,” Alysha Fluno, a pharmacy leader at Mercer, said in a statement. “Employers are weighing the immediate costs of covering these drugs against the potential for generating savings down the road once their workforce’s health improves.”

In addition, well-being and mental health continue to be a major priority, Mercer found. More than 75% of large employers said they’ll offer digital stress management or resiliency resources in 2026, including apps for mindfulness, meditation and cognitive behavioral therapy. Beyond that, 51% will offer in-person or live online resources for stress management or resiliency.

Looking further ahead, other research indicates employers are weighing additional changes. By 2027, nearly 1 in 3 employers plan to expand voluntary benefits, including quality-of-life products such as pet insurance and employee perks programs, according to a Gallagher report. These benefits can reduce stress, improve employee satisfaction and boost productivity, the report found.

Whether adding or subtracting benefits, most U.S. employers intend to shift their benefit strategy in the next three years, according to a WTW report. Nearly two-thirds said they’ll reallocate or rebalance spending, using benefits as a strategic tool to drive engagement, retention and purpose, WTW said.

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By Included Health

Healthcare costs are a national crisis for working families. In 2024, Americans borrowed nearly $74 billion in order to pay for healthcare. And for employers, healthcare spend is expected to increase more than 9% this year. This financial strain is compounded by an increasingly fragmented and frustrating healthcare experience that’s led to poorer outcomes. In response to this crisis, forward-thinking benefits leaders are recognizing the need to double down on value for employees and the business.

The Shift Towards Value-Based Care

Value-based care is an umbrella term for alternative payment and care delivery models that prioritizes quality and outcomes over the sheer volume of services provided. While this model has become standard in Medicare, the commercial insurance market has largely remained dominated by the traditional fee-for-service model. However, a growing number of organizations are now adopting value-based partnerships to tie healthcare dollars spent directly to clinical and financial outcomes, aligning incentives and holding partners accountable for results—offering a promising path out of the affordability crisis.

According to a Business Group on Health survey, nearly two-thirds of large employers are already pursuing value-based contracting strategies. Historically, this has often involved carve-out solutions for specific conditions or centers of excellence. However, to truly rein in costs without compromising the whole-person health of employees, a more comprehensive and dynamic partnership model that targets the total cost of care is required. 

Key Elements of Value-Based Partnerships

Successful value-based care models, as implemented by partners like Included Health, hinge on several core elements:

• Personalization at Scale: Approximately 75% of commercial healthcare costs are driven by just 10% of individuals. Identifying at-risk workers and anticipating their needs through real-time intelligence, proactive engagement, and tailored care pathways is crucial. Advances in AI, combined with human clinical expertise, are making it possible to optimize care for both individuals and entire populations, leading to more efficient and personal healthcare experiences.
• Integrated Care: Traditional healthcare systems often suffer from infrastructure gaps, siloed data, and fragmented provider networks making seamless care coordination challenging. Integrated virtual-first care is changing this by improving access and connections across all healthcare settings, while also integrating medical and pharmacy claims, costs, and quality metrics to provide clinicians and care teams with actionable insights—resulting in better communication and truly connected care.
• An All-in-One Experience: Beyond clinical care delivery, the healthcare experience must be easy, intuitive, and centered around the clinical, financial, and administrative needs of individuals. This includes comprehensive wraparound support like benefits guidance, case management, claims advocacy, and 24/7 support. Solutions like All-Included CareTM ensures members understand their coverage, access the right care at the right time, and remain engaged in order to build trust and deliver positive outcomes. 

Requirements for Successful Partnerships

Unlocking value in the commercial market means rethinking traditional fee-for-service relationships and instead, fostering partnerships built on alignment and accountability. Four core requirements are essential for successful value-based partnerships:
 

1. Data-sharing: A dynamic, holistic view of people and populations is foundational. Data-sharing among healthcare partners—including third-party administrators, insurers, and service providers—is critical for collaboration and innovation. Interoperable platforms and centralized electronic health records (EHRs) translate this shared data into real-time insights for care teams.
2. Service Integration: The proliferation of disconnected point solutions overwhelms both workers and benefits leaders. Better value realization requires integrating and consolidating core services like primary care, behavioral health, navigation, case management, and advocacy into a streamlined, single-platform experience. This centralization also consolidates accountability with a single partner, incentivizing shared outcomes.
3. Aligned Incentives: The misaligned incentives in fee-for-service models often lead stakeholders to focus on their own bottom line. Value-based models, such as shared savings programs tied to the total cost of care, offer healthcare partners an upside when they exceed targeted reductions in overall healthcare spend. This concept incentivizes partners based on how much they "bend the curve". The California Public Employees' Retirement System (CalPERS) exemplifies this, with contracts that put significant fees at risk if targets are not met, while also offering a share in savings if they are exceeded.
4. Long-Term Vision: The transition from volume to value is a long-term strategy. Value-based partnerships should be structured accordingly, with stepwise contracts of five years or more. This longer timeline allows for experimentation, calibration, and collaboration to provide both short-term assurance and a realistic runway for achieving ambitious cost and outcome targets.

By embracing these principles, organizations can free themselves from directly managing healthcare cost strategies and operations—shifting that responsibility to partners who are better equipped and financially motivated to drive meaningful improvements in both health outcomes and cost efficiency. 

More than half of surveyed chief financial officers said they’re weighing changes to their defined benefit plan designs in 2025 and are considering creative plan design; respondents said they’re exploring hybrid structures and flexible arrangements such as cash balance plans, according to a report from Mercer.

Despite high numbers of plan terminations in recent years, half of the CFOs surveyed said they don’t plan to terminate their defined benefit plans in the near future, which could suggest “a strategic approach to long-term pension management,” Mercer noted. Those organizations that planned to exit already have, the report said.

“With 50% of employees not confident they can turn their retirement savings into a consistent stream of income for the rest of their lives, many organizations are rethinking pension strategies and how best to support their workforce,” said Scott Jarboe, U.S. defined benefit segment leader for Mercer.

“This data shows many CFOs are not retreating from pensions — and that there’s a growing interest in creative plan design and adaptable pension solutions that cater to the diverse needs of the modern workforce, while keeping the risks for the organization at an acceptable level,” Jarboe said.

In the survey of 173 CFOs and senior finance executives, 70% said they’ve adopted dynamic de-risking strategies, up nearly from 2023. In addition, 44% said they’ve shifted more assets into fixed-income investments to bolster the stability of their pension-funded status.

Risk transfer remains a key theme, according to the report. More than 70% of respondents said they expect to offer lump-sum payments in the next two years. More than 60% said they’re weighing transferring retiree obligations to insurers through annuity purchases — or they’ve already done so.

More companies appear to be relying on external expertise as well; the report noted an increase since 2023 in organizations that have a completely outsourced chief investment officer.

Fewer than 40% of those surveyed said they were highly confident in their in-house ability to manage defined benefit plans’ complexities.

Some employers are exploring pension-linked emergency savings accounts as workers struggle to stay afloat.

The Trump administration’s proposed budget may also affect pension decisions for federal workers, with language requiring new employees to decide whether to forgo their civil service protections in order to make lower payments toward their retirement. Specifically, employees who keep their civil service protections would pay a 9.4% contribution, while those who convert to “at-will” employment would pay a 4.4% contribution. 

The U.S. Department of Labor’s Employee Benefits Security Administration has rescinded a Biden-era warning that cautioned 401(k) plan fiduciaries against offering cryptocurrency options. The 2022 guidance urged fiduciaries to exercise “extreme care” before adding cryptocurrency to their investment menus.

The guidance’s language “deviated from the requirements of the Employee Retirement Income Security Act and marked a departure from the department’s historically neutral, principled-based approach to fiduciary investment decisions,” DOL said in a news release.

DOL said its decision to rescind the guidance “reaffirms its neutral stance” on whether fiduciaries include cryptocurrency in a plan’s investment menu.

“The Biden administration’s department of labor made a choice to put their thumb on the scale,” U.S. Secretary of Labor Lori Chavez-DeRemer said in a statement. “We’re rolling back this overreach and making it clear that investment decisions should be made by fiduciaries, not D.C. bureaucrats.”

DOL said the standard of “extreme care” included in the 2022 guidance is not included in ERISA and is a departure from and the act’s ordinary fiduciary principles in a compliance assistance release issued Wednesday. 

Instead, “ERISA itself requires that a fiduciary curate a plan’s investment menu ‘with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims’ for the ‘exclusive purpose’ of maximizing risk-adjusted financial returns to the plan’s participants and beneficiaries,” DOL said in the compliance assistance document. 

The department noted that while the new guidance specifically references cryptocurrency, the same considerations should be made regarding other digital assets like tokens, coins or crypto assets. 

In its 2022 guidance, DOL warned about the risks to participants’ retirement accounts that cryptocurrency could pose, including fraud, theft and loss. The department at the time characterized these investment options as speculative and volatile and noted that participants “are less likely to have sufficient knowledge about these investments, as compared to traditional investments, or to have the technical expertise necessary to make informed decisions about investing in them.”

The Biden administration’s warning against cryptocurrency was published March 10, 2022, and was the subject of an lawsuit by that June, in which a retirement plan provider unsuccessfully alleged that the federal government overstepped its authority in cautioning employers against offering cryptocurrency as an investment option.

SAN DIEGO — As the U.S. population ages and more workers find themselves in the “sandwich generation” — those who care for both their parents and young or dependent children — companies need to start thinking about how to juggle meeting those employees’ needs with business ones, Deborah Hanus, CEO of leave management provider Sparrow, told HR Dive during SHRM’s annual conference.

If not now, soon.

“I think we’re still very much on the leading edge. A lot of companies are not thinking about it yet. They don’t even acknowledge it,” Hanus said. “But five years from now, it’s going to be everyone; it’s going to be like half your workforce.”

Pew Research Center found that already about a quarter of U.S. adults are part of the sandwich generation, according to a survey conducted in late 2021. Among those in their 40s, more than half have a parent aged 65 or older and have either a young child or an adult child they assisted financially in the past year.

“Employers do really need to be thinking about how to retain that part of their workforce,” including what investments they can make in doing so, Hanus said.

Without action, companies risk losing these workers, a May report from Motherly and the University of Phoenix Career Institute found. Half of the 1,000 mothers in the sandwich generation surveyed said they’ve left a position because of their caregiving responsibilities. And more than two-thirds said the benefits offered by their employers weren’t sufficient enough to meet their caregiving needs.

A June report by Prudential Financial also warned of the risks of underestimating workers’ caregiving demands; employees identify caregiving leave as a top benefit, yet only half of employers provide this type of paid leave, the survey of nearly 3,000 full-time employees and 750 employers found.

To that end, an absence and leave expert previously told HR Dive that, as companies make inroads in parental leave benefits, caregiving leave stands to get more attention.

Companies traditionally think having a leave policy covers their bases, but that’s not necessarily true, Hanus said. 

“In a lot of caregiving situations, it’s not one and done. You might be caring for someone for 10-plus years,” meaning there needs to be a more flexible, long-term solution, Hanus said.

Companies need to consider the options and decide how, as a team, they want to manage this and develop a philosophy toward caregiving needs, she said. That can involve educating managers and employees and considering flexible work options.

Successful caregiving leave involves a tight communication and partnership loop between the executive team and HR, Hanus said.

Managing caregiving leave is almost like looking at an accommodation, she explained, and requires going through an interactive process to understand the right way to be flexible and have the most impact.

Some workers may have a caregiver with their parents in the morning and just need to take over by mid-afternoon, while others may need to check in every 30 minutes and may not be able to be reasonably accommodated, she said.

“From a company perspective, you also can’t be infinitely flexible,” Hanus said.

Apart from understanding workers’ caregiving needs, employers also should not shy away from continuing performance reviews, she said. “It’s possible that they hired someone with a lot of family needs who also isn’t good at their job.”

SAN DIEGO — Applied Materials’ student loan repayment program for employees reaped such rewards that the company more than doubled its annual contribution after the first year, Tes Fernandez, director of U.S. benefits for the company said during a panel discussion at SHRM 2025.

In year one, the manufacturing company contributed $2,000 per employee in direct repayment of workers’ student loans. In the years that have followed, Applied Materials now pays out $4,800 per employee and uses the benefit as both a way to support generally newer hires, recent graduates and some underrepresented groups and as a recruiting tool.

“They had to go up to the CFO and ask for extra millions of dollars to add this benefit. A year later, they more than doubled the benefit amount, not because the CFO got generous, but because they were seeing the results of the benefits,” Chris Rinko, VP and student debt and health and wellness benefits administration account executive at Fidelity Investments, said during the panel, which he moderated.

When it comes to student loan debt assistance, employers have two choices, Rinko explained. They can either provide a direct payment to student loan servicers to help pay down employees’ loans, or they can elect to offer matching contributions in the 401(k) plans of workers who demonstrate they are making student loan payments.

The direct payment method can be targeted to only apply to certain groups — those who earn less or those in a specific job, for example — and can have a set end date, Rinko said, while matching contributions are tied to a company’s overall 401(k) plan offering and can’t exclude any workers.

Tracey Gannon, a senior benefits manager at eBay, said it was “kind of a no-brainer” for the e-commerce company to offer matching funds after the passage of the SECURE 2.0 Act. The law gave employers the ability to match employee contributions to certain student loan payments.

“We felt that this was just such an easy first step,” Gannon said.

The company already budgets for all employees to get the full matching contribution in their retirement plans and has a 96% participation rate, Gannon said. That meant the new offering wasn’t a big budget item for the company but could provide support to some employees in need.

Similarly, offering a matching contribution seemed like “an easy win” for The Walt Disney Co. and its workers, said Marianne Lynch, a senior manager of executive benefits and hypercare for the company.

“It’s a huge, huge benefit to reduce that burden” of student loan debt, Lynch said. At Disney, 97% of employees already receive the full 401(k) match, but for those who don’t, it’s a way not to miss out on the matching funds to which they’re already entitled, she added.

“The only change here is you're giving them another way to earn that match by paying their student debt,” Rinko said.

At companies where most employees already receive the full matching contribution, some leaders may ask, “Why bother?” with a student loan repayment match, Rinko said.

“The reason is, if it's just 1% or 2%, if you can find a path for that small number, for those people who are usually in the greatest need to earn the match, why not?” Rinko said.

While 86% of employers think their benefits are modern, only 59% of workers agree,  according to the results of Prudential’s 2025 Benefits and Beyond study. 

Workers say their their top challenges are saving for retirement (45%), cost of everyday goods (44%), cost of housing (29%) and making it paycheck to paycheck (26%); and 1 in 10 workers identified being able to survive paycheck to paycheck as their No. 1 worry, the study found. 

“The study’s findings are clear: When it comes to workplace benefits, there is a disconnect on what companies offer and what employees actually need — now and in the future,” the press release said.

“The workplace is at a critical juncture and employee benefits are at the center of the shift,” the study said. 

Employers seem primed to make changes to better meet employee needs, the report found. Nearly 7 in 10 employers said they expect to make some change in their benefits offerings in the next two years, including 22% who plan to make either a significant change or a complete overhaul. 

Of the 750 employers surveyed, more than half cited wanting to improve employee well-being, employee retention and the employee experiences as reasons for reassessing their benefits. Cost was a factor for 4 out of 10 employers. 

“Employees want benefits that go beyond traditional coverage and more completely address how they live and work,” Michael Estep, president of Prudential Group Insurance, said in a statement. “The workplace is at a tipping point, and there’s so much at stake for employers.”

Employers could tailor benefits to help employees address challenges involving saving for retirement, making it paycheck to paycheck, concern about job security and a need for flexible work arrangements, per the report. 

The gap between workers’ wages and the rising cost of living is causing concern among workers, a Resume Now report from January found. Nearly 3 in 4 workers said they struggle to afford anything but their basic living expenses, and 12% of workers said they can’t always afford their basic living expenses.

Employers can help by offering better benefits, like healthcare and retirement matching; providing clear pathways to career growth and raises; and offering access to education and certificates that can improve workers’ earning potential, per the Resume Now report.