Healthcare Benefits and the Cost of Overreaction

MarketFacts Home

Author

Grace Rafferty
Corporate Vice President, Head of Workplace Benefits Research
LIMRA and LOMA

November 2026

In today’s benefits environment, employers face relentless pressure to manage rising costs. Cost containment matters, but an exclusive focus on reducing expenses can create unintended consequences. Employers that scale back benefits, narrow options or shift more costs to employees may achieve short-term savings, but they risk eroding workforce satisfaction, retention and productivity. The challenge is to balance financial discipline with the ability to attract, support and protect employees.

Healthcare Costs Redefine Benefits

Healthcare cost pressure is reshaping the entire workplace benefits portfolio, influencing what employers protect, how they communicate change and what they expect from benefits partners.

LIMRA’s 2026 research shows nearly half of employers are experiencing high or very high healthcare cost pressure, most expect costs to rise again next plan year, and nearly 9 in 10 saw premiums increase in 2026. For workplace benefits carriers, medical inflation creates risk for nonmedical lines and an opportunity to become a more valuable strategic partner.

Three questions are especially important:

How are employers responding?
What do those choices mean for voluntary and employer-paid benefits?
Where can carriers provide the support employers and employees need most?

Medical Plans Take Priority

The clearest pattern is that employers are trying to preserve the benefits they believe employees value most. Seventy-one percent say they protect or strongly protect medical plan affordability, 70% protect medical plan richness, and 65% protect employer retirement contributions when managing rising healthcare costs.

Employer-paid nonmedical benefits are more vulnerable. While 53% say they protect these benefits, 23% say they would reduce them. In practice, 23% of employers reduced contributions to nonmedical benefits for 2026, while 26% introduced or expanded voluntary benefits.

This is not a simple shift from employer-paid to employee-paid coverage. Employers are balancing several levers: increased employee medical cost sharing, voluntary benefit expansion and prescription coverage changes. Among employers that offer voluntary benefits, 47% say a primary reason is to keep other benefit costs low so the company can devote more money to the medical plan.

For carriers, voluntary benefits should not be presented as a stand-alone solution to medical inflation. It is a complementary strategy that can preserve access to valuable protection while giving employers more budget flexibility.

Figure 1. When Managing Rising Healthcare Costs, How Do You Prioritize Protecting Versus Reducing the Following Areas?

Filter the data in this chart by clicking on a color bar in the chart legend.

Employers Need Confidence

Because employers are using multiple cost-management levers at once, the bigger risk is not that they will make changes; it is that they will make changes without enough evidence about how far to go. Forty-three percent believe their organizations responded more aggressively than necessary to healthcare cost pressure, while 45% say their response was about right. Small employers and organizations with flat or relatively low premium increases are especially likely to believe they went too far.

That creates a clear role for carriers: benchmarking, scenario modeling and evidence about the likely workforce effects of a change before employers make it. Demand for this support is nearly universal: Only 6% of employers say they need no additional help. Their top needs include evaluating voluntary-benefit strategies to preserve medical coverage (36%), assessing workforce impacts (31%), accessing technology or artificial intelligence (AI) solutions (29%), and benchmarking against similar employers (26%).

Employer workforce measurement remains limited. Most assess the effects of benefit changes at least occasionally, but only one-quarter use formal, ongoing analysis. Just 47% track turnover or retention, and 35% monitor absence rates. Carriers that connect benefits decisions with enrollment, engagement, retention, absence and utilization can help address a workforce-impact measurement gap.

Figure 2. Support Needed for Managing Rising Healthcare Costs

Communication Matters

Even well-calibrated benefit changes can miss the mark if employees do not understand what changed, why it changed or how to use their options. In focus groups, employees described greater stress when faced with high deductibles, opaque coverage rules, narrow networks and surprise bills. Some reported delaying care, choosing lower-cost care settings, requesting generic prescriptions or tightening household budgets.

Employers recognize the importance of communication, but they overestimate how well they are doing. Eighty-five percent say they clearly communicate how healthcare costs affect the broader benefits package; only 43% of employees agree. Employers also overrate employees’ understanding of the factors driving premium increases.

When employees do not understand why a change was made, they may assume it benefits the employer at their expense. Clear explanations, simple materials, personalized education and practical navigation can help employees understand trade-offs and use benefits effectively.

Carriers should treat communication and navigation as core components of the value proposition, not implementation extras. Employers are already expanding healthcare navigation and advocacy services: 54% have done so recently or plan to do so. Forty-three percent have expanded mental health or employee assistance program (EAP) support.

Conclusion

Rising healthcare costs will continue to force difficult choices across the benefits portfolio. Carriers cannot remove that pressure, but they can help employers respond with greater precision — protecting employee value without overcorrecting.

The action items are practical:

Quantify the employee and business value of dental, life, disability, vision and supplemental health benefits
Position voluntary benefits as a budget-preservation strategy within the total benefits portfolio
Provide peer benchmarks and scenario modeling before employers reduce coverage or contributions
Build workforce-impact reporting around enrollment, engagement, retention, absence and utilization
Deliver simpler, employee-friendly communication and navigation support that explains both the change and the reason behind it

The carriers that stand out will bring employers more than products. They will bring evidence, context and confidence when employers need them most.

November 2026 MarketFacts Cover