How to reduce employee benefit costs amidst inflation

Inflation in the U.S. has risen over the past five years, with the most significant year-over-year increase being 8% in 2022. Due to rising inflation rates, many organizations struggle to keep up with worker demands and provide competitive benefits packages.

As an employer, how do you balance your benefits budget while still offering a comprehensive benefits package that attracts and retains employees? And how can employees make the most of their benefits to lower consumer costs?

This article will cover tips for employers and employees for managing inflation without sacrificing benefits or pay.

In this blog post, you’ll learn:

• How inflation is affecting employer benefit costs and employee financial well-being.
• Strategies to reduce employee benefit expenses without sacrificing value.
• Actionable tips for employers and employees to navigate rising healthcare costs and maintain access to essential benefits.

How is inflation impacting employers and employees?

In a May 2025 news release, the U.S. Bureau of Labor Statistics announced that the Consumer Price Index (CPI) increased 2.4% over the past 12 months¹. While this is down from the annual increase of 4.1% in 2023, it still affects consumers.

The most significant year-over-year price increases were for:

• Utility gas services (15.3%)
• Shelter (3.9%)
• Food away from home (3.8%)
• Healthcare services (3%)

However, inflation hasn't only affected consumer goods. Employee benefit costs are also rising. According to a PwC survey, experts projected an 8% increase in medical expenses in 2025 for the group health insurance market and 7.5% for the individual market, due to inflation². Moreover, a recent Pew Research Center study found that 27% of Americans had trouble paying for healthcare for themselves or their family in the past year³.

But employees aren't the only ones struggling with healthcare spending these days. Employers are also feeling the financial pressure due to rising group health insurance costs.

According to KFF's Employer Health Benefits Survey, average annual premiums for employer-sponsored health coverage in 2024 reached $8,951 for self-only plans and $25,572 for family coverage. On average, employees paid $6,296 toward their family health insurance plan, leaving employers to cover the rest⁴. This increased cost has led some employers to reconsider their employee health plans.

Even though inflation has slowed slightly in the past few years, the buying power of workers' take-home pay has mostly stayed the same. The Bureau of Labor Statistics found that employees' real earnings, or wages, increased 1.8% from May 2024 to May 2025, with no change in the average workweek. To put it in real dollars, the average hourly earnings only increased from $11.14 to $11.30 per hour⁵.

Even with slowed inflation and stabilization of wages, many consumers can expect the costs of goods to remain high. This creates an additional financial burden for many workers whose salaries can’t keep up with the increasing costs.

Why is it important to offer employee benefits during periods of high inflation?

When employees face higher living costs due to inflation, they can’t live as they used to, even with the same salary or benefits. Many Americans are cutting costs to save money on rent, utilities, and healthcare.

Offering compensation packages and annual salary increases during periods of high inflation is essential for remaining competitive in a job seeker's market and caring for your people. Without a robust compensation package, your employees may look for better opportunities. You must carefully balance your budget and benefit offerings to continue attracting and retaining the best employees.

How to reduce employee benefit costs

So, how do you reduce the cost of your employee benefits while still supporting your employees? Personalized benefits allow you to offer a variety of perks your employees love while maintaining cost control compared to traditional employee benefits.

We'll cover the specifics for each type of benefit in the sections below.

Health benefits tips for employers

Employee health plans are a critical part of any compensation package. To effectively retain your staff, you must offer health benefits that your employees want and value.

The rising cost of traditional group health insurance has left many employers in a pinch. Thankfully, personalized benefits such as health reimbursement arrangements (HRAs) can help replace or supplement your group healthcare coverage while keeping costs low.

Offer your employees a stand-alone HRA instead of group coverage

Are you seeing double-digit rate increases with your group plan? Or is the risk of self-insuring becoming too much? Instead of offering a traditional group health plan, you can switch to an HRA to save time and money.

An HRA allows you to reimburse your employees tax-free for their individual health insurance premiums and qualifying medical expenses. This empowers employees to choose the individual coverage and other medical services and items that work best for them.

Two types of HRAs can replace your group health insurance plan:

1. The qualified small employer HRA (QSEHRA)
   1. The QSEHRA is for businesses with fewer than 50 full-time equivalent employees (FTEs) that don’t offer group health coverage. It has annual maximum limits set by the IRS, but no minimum contribution limits. To participate, employees must have a health plan with minimum essential coverage (MEC). You can vary allowances by family size and age.
2. The individual coverage HRA (ICHRA)
   1. The ICHRA is similar to the QSEHRA, but has more flexibility. For example, it’s for employers of any size with no minimum or maximum contribution limits. You can also vary allowances and eligibility by employee classes, age, or family status. Employees must have a qualified individual health plan to use the benefit.
   2. Under the Affordable Care Act (ACA), applicable large employers (ALEs) must offer their full-time employees affordable health insurance that provides MEC and minimum value to comply with the employer mandate. Instead of opting for group health coverage to satisfy the mandate, an affordable ICHRA benefit design can help ALEs fulfill the ACA’s requirements.

With the above stand-alone HRAs, you set a monthly allowance for employees to buy out-of-pocket healthcare costs and individual insurance policies. Then, you reimburse them up to their allowance amount after they show proof of a qualified purchase. HRA reimbursements are payroll tax-free for employers and income tax-free for employees.

Unlike other employee health benefits, HRAs offer complete cost control and predictability. Your allowances only change year-to-year if you choose to provide more money to your employees. Additionally, HRAs don’t have a pre-funded benefit design. You only pay employees after they buy an eligible item. Lastly, unused HRA funds stay with you at the plan year's end or if the employee leaves your company.

Supplement your group plan with an integrated HRA

If you already have a group health plan and want to keep it in place, you can lower your health coverage costs by switching to a high deductible health plan (HDHP). Then you can supplement your HDHP with a group coverage HRA (GCHRA).

Also known as an integrated HRA, a GCHRA allows employers of any size to reimburse employees tax-free for out-of-pocket medical costs their group plan doesn’t fully cover. Only employees enrolled in your employer-sponsored plan can participate in the HRA.

While a GCHRA can work with any group plan, an HDHP has lower monthly premiums for you and your employees. Like stand-alone HRAs, you offer a tax-free allowance for your employees to spend on medical care costs and reimburse them after they buy an eligible expense. GCHRAs also have no contribution limits, and you can adjust allowances and eligibility using employee classes.

By law, employees with a GCHRA can’t receive reimbursements for insurance premiums. But they can use their GCHRA funds to pay for the plan’s deductibles, coinsurance, copayments, and other medical expenses.

Offer your employees a health stipend

A health stipend is another affordable option. A health stipend is a fixed amount of money you offer your employees to help them pay for health insurance and other out-of-pocket costs. While they can cover a wide variety of expenses, like HRAs, health stipends are taxable. This means you have to report them as income on your employees' W-2s.

Health stipends are an excellent choice for companies with 1099 contractors or international workers who can't receive traditional health benefits. They can also benefit employees who receive advance premium tax credits (APTC).

A major perk of stipends is that they have a customizable benefit design. You can offer them as a one-time bonus, on a regular basis, or use a reimbursement model, like an HRA. This allows for greater budgetary control and planning.

However, a stipend doesn’t satisfy the ACA employer mandate for organizations with 50 or more FTEs. You also can’t make your employees show proof that they used their stipend money on health insurance coverage or qualified medical items. If you want to offer a cost-controlled and compliant health benefit, an HRA is a better option.

Other health benefits options

Another way to support your employees' healthcare expenses is by offering a health flexible spending account (FSA) or a health savings account (HSA). Like HRAs, these are tax-advantaged benefits.

Here’s a quick look at how each one works:

1. An HSA is a bank account that allows individuals to save pre-tax dollars for future qualified medical expenses. Both you and your employee can contribute funds to this account. But if an employee leaves your company, they can take the HSA and all contributed funds with them. Like the QSEHRA, the IRS sets annual contribution limits for HSAs.
2. A healthcare FSA allows for tax-free reimbursement of qualified healthcare expenses. Health FSAs are also employer-owned accounts. But employers and employees can contribute to them up to the annual maximum limit of $3,300 in 2025. However, employees can’t keep the funds if they leave your company.

HSAs and FSAs are excellent additions to any benefits package. However, they don’t replace traditional benefits or HRAs. That’s because they don’t directly provide medical coverage to employees.

Encourage healthy lifestyles

Lastly, encouraging a healthy lifestyle is another way to help save on employee and employer healthcare costs. This is because healthy employees are less likely to have health issues that require medical treatment.

Wellness programs help reduce medical care expenses while addressing health concerns. When employees take better care of themselves now, they can prevent severe chronic conditions such as heart disease and cancer treatment in the future.

There are many different types of wellness programs. But offering all of them can be expensive and time-consuming to manage. Thankfully, many wellness benefits are budget-friendly and effective.

For instance, with a taxable wellness stipend, you can give your employees a set amount of money to help them pay for various wellness costs, like gym memberships, home exercise equipment, and mental health services. With a good mix of eligible expenses that support nutrition, fitness, and stress management, your employees can live healthier lives while you boost team morale and increase productivity.

Other benefits tips for employers

Other ways to reduce the cost of benefit programs at your company and improve retention include dropping any underutilized benefits, offering small pay increases, and adding various employee stipends to your compensation package. Let’s go over them in more detail below.

Drop your underutilized benefits

The first option is eliminating the benefits you're spending money on, but your employees aren't cashing in on. For example, suppose you offer a monthly gym membership, but none of your employees have signed up. In that case, you can drop the benefit and spend those dollars elsewhere, such as increasing your HRA’s monthly allowance.

Sending out an employee benefits survey is a great way to learn which benefits your employees are using and which they aren't. Our template has free sample questions you can use to help get you started on your journey to benefit utilization control.

Offer pay raises

Small pay increases can help your staff remain on track and fight declining purchasing power. After all, if you aren't giving your employees a raise during inflation, they're earning less than before.

Think about increasing your hourly wage or salary for all employees by 3.7% or more (the amount that WTW’s Global Salary Budget Planning Report projected to be the average salary increase for 2025)⁶. You can also raise your company’s minimum wage to combat rising consumer costs.

Considering that the average salary increase was 3% pre-pandemic, offering a higher pay raise can help your company stand out among your competitors and better tap into the talent market.

Add employee stipends to your benefits package

With employee stipends, you can easily offer various lifestyle benefits that support your employees' needs during high inflation without breaking the bank.

Stipends also allow you to save time and money by consolidating your various benefits programs into one program. For example, suppose you’re providing a wellness program, internet access reimbursement, and other perks through multiple third-party vendors. In that case, you can offer a stipend, reducing time spent on benefits management and overall costs.

Other than health and wellness stipends, here are some popular benefits you can offer through a stipend:

• Transportation benefits: With rising gas prices, providing commuter benefits — such as a free or discounted parking pass, ridesharing, company shuttles, and mass transit passes — can help your employees financially.
• Remote work expenses: If you have remote workers, you can help them pay for cell phone reimbursement, home internet access costs, and any tools or equipment they need to perform their job.
• Professional development: By offering your employees the opportunity to pay for training, courses, and certifications, you can help keep your current employees while leveraging your existing talent to fill high-level vacancies.

Benefits tips for employees during high inflation

Employees looking to stretch their healthcare dollars have a few ways to save money during times of inflation.

Educate yourself on your benefits

The first step employees can take to lower costs is to use all their health benefits. You and your HR team should offer proper education on the available benefits so your staff understands what they are and how they work. That way, they can make the most of their offerings.

Employees should contact their HR team or benefits administrator to ensure they're taking advantage of their perks. By properly using their benefits, your employees can reduce their various monthly out-of-pocket expenses.

Negotiate your medical bills

A little-known tip about lowering healthcare spending is negotiating your medical bills. Many Americans don't realize there are several handy tips for lowering their medical bills, getting financial help, reviewing claims data, and even negotiating a more reasonable payment plan with their healthcare provider.

Knowing how to negotiate bills can help employees reduce their medical debt for healthcare expenses their insurance company may not fully cover, such as an unexpected medical event.

Take care of your health

Lastly, one of the simplest things employees can do to lower their medical care costs is to take care of their mental and physical health. The healthier they are, the fewer trips they'll make to the doctor and other costly specialists. This also benefits employers, as better employee health generally results in a more productive workforce and lower health coverage costs.

Making simple changes can make a big difference in your employees' health, such as

• Switching to sparkling water instead of sugary drinks
• Going for a walk on lunch breaks
• Establishing a regular sleep schedule
• Taking the stairs instead of the elevator at work
• Practice relaxation and stress management techniques, like deep breathing, meditation, or yoga

Conclusion

When it comes to health benefits, you don't need to sacrifice quality of care to save money. While consumer prices and healthcare expenses have risen due to inflation and other factors, you can help lower your employees' costs while maintaining your budget in several ways. Reducing your benefits offerings may be a tempting option. But by following the tips in this article, you'll be able to provide cost-effective benefits without compromising value.

If you're ready to offer personalized employee benefits to your employees, PeopleKeep by Remodel Health can help! Our HRA administration platform allows organizations like yours to manage their benefits in minutes each month. Schedule a call with an HRA specialist today to see how we can help you save money over traditional benefits.

This blog article was originally published on January 19, 2022. It was last updated on July 14, 2025.

1. Consumer Price Index Summary

2. Medical cost trend: Behind the numbers 2025

3. A growing share of U.S. adults say their personal finances will be worse a year from now

4. 2024 Employer Health Benefits Survey

5. Real Earnings News Release

6. US salary budgets expected to remain the same in 2025