Inflation is taking a toll on open enrollment

Soaring inflation—which this summer hit a 40-year high, soaring 9.1% year-over-year in June—has made an impact on nearly every aspect of Americans’ financial decisions, from their grocery store and gas budgets to how they are saving for retirement and for emergencies.

Now it’s causing employees to rethink yet another factor in their life: their benefits selections.

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With open enrollment on the horizon at many organizations, employees are poised to make their annual selections. And rising cost-of-living and financial concerns are causing them to rethink the process, reviewing offerings more carefully, considering benefits that may help with unexpected costs, and in some cases, scaling back on offerings.

“In our current economic environment, people are looking more closely at their finances and may be making some tough choices on where they are spending their money,” says Dana MacKinnon, head of relationship management strategy and enrollment for group benefits at The Hartford. “This includes the benefits they select during open enrollment.”

In fact, a new survey of some 900 employees from The Hartford, an employee benefits and absence management provider, found that 40% of U.S. workers reported inflation will make them scale back on the employee benefits they choose during open enrollment. Additionally, 48% of U.S. workers said inflation is making it difficult for them to pay for their benefits.

Meanwhile, other research from health and investment firm Voya reveals that nearly three-quarters of Americans (74%) agree that inflation has made them more stressed about their personal financial situation—up from 66% in March. And the vast majority say it’s causing them to look more carefully at their benefits selections.

Employees may cut back on voluntary or supplemental benefits. Others might choose cheaper healthcare options for themselves and their families. Employees already have been scaling back on their retirement contributions throughout the year, according to some reports.

“Pay increases, at least in the short run of this inflationary environment, are not keeping up with inflation. They’re not coming close,” John Lowell, an Atlanta-based partner with October Three Consulting, a retirement plan advisory firm, told HRE recently. “That means, assuming that they can meet their basic needs, people have less discretionary spending power. Employees are cutting back somewhere, and it’s probably not on the basics of life, like their groceries or mortgage.”

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It’s not much of a surprise that inflation is likely to have a big impact on benefit selections: Inflation has soared in the last year and has eaten away at employees’ paychecks, forcing them to rethink their spending. Without relief in the form of salary increases or help in increased employer contributions, for instance, many workers are expected to cut back on their benefits.

Despite the cutbacks, inflation may also have a positive impact on open enrollment, says Rob Grubka, CEO of Health Solutions at Voya Financial: Some employees might more carefully review their options and make decisions that will enhance their financial situations long-term. The majority of employed individuals (70%) say they plan to spend more time reviewing their benefits selections during open enrollment to help make the most of their benefits dollars, the Voya survey finds.

More time on benefits decisions is a good thing, as experts warn that cutting back on benefits may place employees in more financial harm, says The Hartford’s MacKinnon. “Workers may not see an immediate need for some of the benefits being offered by their employer right now, but it is important to think about the future and reflect on what changes have occurred in their life and select the benefits that best fit their individual needs and budget to help protect their finances in the long run,” she says. “The reality is that the average worker can’t afford to pay for a $500 unplanned expense. It could be financially devastating if they become sick or injured outside of work and do not have disability insurance.”

Supplemental products, like hospital indemnity or accident insurance, can make an impact for workers who have a high-deductible health plan. “There is a risk that workers who don’t understand how supplemental benefits integrate with a high-deductible health plan may scale back or not elect to buy these employee-paid protections,” says MacKinnon.

Likewise, the Voya survey found that 70% of employees are interested in receiving support to help optimize their benefits dollars across retirement savings, healthcare insurance, health savings accounts and voluntary benefits like critical illness, hospital indemnity, disability income or accident insurance.

That’s why employer support is especially important this year, experts say, including extra communication and education so employees understand their options and how and why certain benefits can help. “Workers often want to understand what benefits ‘people like me’ typically purchase. Providing examples and using storytelling during the annual enrollment process can help workers see how the products relate to their own life circumstances. We continue to see employers offer decision-support tools that provide these types of examples, which U.S. workers value,” MacKinnon says.

Another strategy for HR and benefits managers is more personalized messaging to demonstrate how the insurance products relate to employees’ lifestyle, financial security, and wellness, rather than simply listing what benefits are being offered, MacKinnon says. “Transparency is key. Making the products accessible to all income levels and backgrounds is an imperative from a diversity, equity and inclusion perspective as well. There’s also a shift to clearer language. Your carrier of choice needs to commit to delivering their products using plain language.”

Although extra benefits education and support for open enrollment are paramount this year, industry insiders say in today’s complex economic environment, extra support is needed year-round.

“While it is vital to ramp up communications at annual enrollment time, it is just as important to continue to communicate about benefits offerings year-round,” MacKinnon says. “I believe we’ll see more of this moving forward.”

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Kathryn Mayer
Kathryn Mayer is HRE’s former benefits editor and chair of the Health & Benefits Leadership Conference. She has covered benefits for the better part of a decade, and her stories have won multiple awards, including a Jesse H. Neal Award and honors from the American Society of Business Publication Editors and the National Federation of Press Women. She holds bachelor’s and master’s degrees from the University of Denver.