Optimising benefits strategies for 2024: Navigating inflation’s impact 

Given the current dynamic situation, many insurers will be reluctant to release renewal terms far in advance. However, plan sponsors are advised to get ahead of renewals by developing cost-containment strategies as soon as possible and creating plans to manage change — especially intrusive changes — within the organisation.

In our opinion, the next few years will be challenging for those negotiating medical insurance premium rates. Adding to the complexity of this task is the need to balance cost prudence against stiff competition for skills. In the pandemic era, there has been an increased appreciation for the critical role of health and risk protection benefits in protecting employees and businesses. Cutting such benefits — for example, by increasing claims or premium cost-sharing — could disengage key talent. In light of this, advisers and plan sponsors should engage in dialogue early to:

• Make sure renewal negotiations are data driven and transparent. For the most efficient and effective renewal process, engage early in active dialogue with insurers to set expectations. Broker-led discussions should cover the premium-rating methodologies and the assumptions being used.
• Confirm primary renewal objectives, and consider plan design changes before seeking rate quotes. Revisit caps and maximums under life, disability, accident and medical plans to ensure they keep pace with inflation and to check that health services remain affordable. Cost levers like deductibles may also be eroded by inflation, so a similar review of these is recommended.
• Explore alternative financing options. These may be worth implementing if insurer- and market-proposed premiums are inherently conservative. For example, employers could consider surplus-sharing arrangements or midyear premium adjustments.

This raises a number of possibilities and questions: Can you, as an employer, beat inflation with a well-rounded and compelling employee value proposition? If your organisation is facing a long-term labour shortage, will compounding year-on-year cash increases be sustainable, or will it be better to divert a portion of this expenditure to health and wellbeing benefits that will position you as a caring employer?

Employers wary of the future implications of inflation on enhanced defined-benefit medical plans have a unique opportunity to think and act creatively. One key approach is to use the common inflation-control technique of product substitution. Especially in the case of new types of benefits, such as the wellbeing benefits expected by today’s workforce, there are opportunities to prioritise options that are less exposed to inflation (when compared to traditional medical insurance plans). These options include: defined-contribution health and wellbeing spending accounts, credits toward the purchase of preventive care or lifestyle supports, and supports to improve financial and mental health.

Another key consideration is to ensure plans provide sufficient flexibility and that they feature affordable employee contributions. This is especially important as employers start to consider expanding plan eligibility to groups of employees not typically covered under medical plans, such as part-time and contract workers and low-wage employees.

This is because their wage adjustments are typically below inflation, and their biggest expense increases are for essential goods, such as energy and food. They also have limited access to credit and higher-yield investments that could limit the impact inflation has on their purchasing power.

In 1990, Brazilian hyperinflation peaked at more than 2,500% for the year.⁵ Products quickly disappeared from shelves as the population, fearful of scarcity and higher prices, stocked up on food and other household goods. Businesses were repricing products on a daily basis. The purchasing power of those who were not well off evaporated almost overnight. However, the richest sector of society had access to investment vehicles to protect their wealth. Inequalities grew bigger, with some wealthy people even buying additional refrigerators to store the extra food they’d bought. This extraordinary time provides a clear demonstration that it’s the most vulnerable who are hit hardest by inflation.

Benefits specialists seeking to position their organisation as responsible employers can learn from places like Brazil that have faced high levels of inflation in the past. They must work to “flip the pyramid” and ensure that the people who need benefits the most can access those benefits via mechanisms like lower co-insurances.

There is already significant cause for concern: Our latest Health on Demand research shows that 22% of the workforce globally (including 26% of women) are not confident they can afford the healthcare their family needs, and 56% of employees are extremely or very concerned about the impact of economic downturns on them or their families.