Planning for Benefits Costs — and Avoiding Surprises

How do you budget for benefits costs? In this article, we explore some of the drivers of benefits, costs, and how organizations can budget for these costs in the year ahead.

Employee benefits are one of the most meaningful investments an organization makes — but they’re also one of the most complex to forecast. In a world of changing inflation, higher claims costs, and evolving employee needs, taking a proactive approach to budgeting helps ensure your plan remains sustainable.

What Drives Benefits Costs

Every benefits plan has moving parts, and several key factors influence what you’ll pay at renewal:

• Claims experience: The number and type of claims submitted by plan members directly affect renewal rates.

• Utilization patterns: Changes in how employees use benefits — like more frequent mental health visits or new health technologies — can shift costs.

• Inflation and trend: Inflation affects what health providers charge. Trend reflects expected increases in claim costs over time, influenced by things like new drug therapies and evolving care needs.

• Plan design: Enhancing or expanding coverage adds value but can also raise costs. Sometimes, small adjustments can keep your plan sustainable without reducing support.

Understanding these elements helps you see the “why” behind your renewal — and gives you options to respond strategically.

Defined Contribution: Predictability and Flexibility

More organizations are introducing defined contribution features to bring predictability to their benefits budget.

In this approach, the employer commits to a fixed dollar amount or percentage, while employees have more flexibility in how to use their coverage. It can create a balance between cost control and individual choice, making budgets more stable without compromising care.

Employee Composition

At any given time, there can be varying splits between plan members who are Single / Couple/ Families. Budget based on all employees as family to determine the top of your potential benefits budget.

Proactive Steps for the Year Ahead

Budgeting for benefits works best when it’s intentional and informed. Consider these practical steps:

• Review your claims data and renewal report to spot trends early.

• Understand your insurer’s inflation and trend assumptions.

• Revisit your plan design — does it still reflect your team’s needs?

• Explore contribution models that align with your organization’s philosophy and goals.

Building a forward-looking benefits strategy now helps prevent surprises later — and reinforces your commitment to employee well-being.

How can you contain benefits costs

If your benefits costs are higher than expected, there are practical ways to restore balance without reducing value.

• Many organizations review their cost-sharing approach. Plan sponsors must cover at least 50% of total benefit costs (excluding Long Term Disability), which means that employees can contribute the remainder through payroll deductions.

• Introducing optional or employee-paid coverage, such as Life or Critical Illness Insurance, can add valuable protection without increasing employer spend.

• Revisiting plan design — for instance, adjusting co-pays, maximums, or coverage tiers to better reflect current needs.

• Finally, conducting a plan marketing exercise can help organization compare quotes and funding options to ensure that your financial arrangement is competitive. You can also evaluate different plan design options to reflect your organization’s needs and goals.

  
  

Benefits are about more than costs — they’re about care, culture, and commitment. Planning ahead ensures you can keep doing what you do best: supporting healthy, thriving teams.

If your organization is facing uncertainty or financial strain, please reach out. We can proactively adjust plans, communicate employee cost sharing changes or market your plan if suitable.