The great benefits pivot: How smart HR leaders are navigating exploding healthcare costs
Economic pressures are forcing HR executives to fundamentally rethink their benefits strategies, moving away from the “more is better” approach that dominated the talent wars of recent years.
Fresh research reveals that 90% of U.S. employers now cite rising benefit costs, including exploding expenses related to employee healthcare, as their primary strategic concern — a dramatic jump from the 67% of two years ago.
The shift represents a maturation in benefits thinking, according to the 2025 Benefits Trends Survey of nearly 700 U.S. employers by professional services firm WTW. Rather than expanding benefit portfolios, organizations are focusing on extracting maximum value from existing offerings while addressing the evolving needs of their workforce, according to the report.
HR leaders are navigating multiple headwinds simultaneously. Beyond the headline issue of cost inflation, 52% point to ongoing competition for talent, while 43% cite heightened employee expectations for enhanced experiences. The persistent impact of economic uncertainty shows up in concerns about cost of living (39%) and rising mental health issues (32%).
“After a long period of high benefits inflation and in the face of a possibly weakening economy, employers are taking a step back and looking to focus on what drives real value for employees and the business,” said Jeff Levin-Scherz, population health leader for North America Health & Benefits at WTW.
This environment is particularly challenging for core benefit areas experiencing the steepest cost increases. Health benefits, well-being programs and leave benefits are each proving difficult to deliver effectively for employers.
The data reveals a fundamental shift in HR strategy. Whereas only 8% of employers reallocated benefit spending in the past year, 63% now plan to rebalance their investments over the next three years. This represents a move toward strategic optimization rather than simple cost-cutting.
The reallocation strategy centers on value maximization. Nearly three-quarters of employers (73%) plan to enhance value or switch to better-value vendors across health, retirement and risk benefits. Additionally, 44% are targeting high-cost medical conditions directly, while 37% are adopting preferred provider networks to manage expenses.
Despite cost pressures, employers aren’t retreating from employee support. Instead, according to the report, they’re concentrating resources on five key areas over the next three years:
Value maximization. Extracting more impact from existing benefit investments through better design and delivery
Mental health. Addressing the growing prevalence of mental health challenges in the workforce
Health benefits. Optimizing core medical coverage despite double-digit cost inflation
Financial well-being. Supporting employees facing cost-of-living pressures
Family support. Recognizing the evolving needs of modern families
Meanwhile, HR leaders are investing heavily in how employees interact with their benefits. Organizations are increasing their use of communication strategies, behavioral nudges and navigation solutions to help employees make better decisions and extract more value from available offerings.
This focus on employee experience isn’t just about satisfaction — it’s about return on investment, the report suggests. By helping employees better understand and utilize their benefits, organizations can improve outcomes while potentially reducing costs through more appropriate utilization patterns.
The survey also reveals a more sophisticated approach to vendor management. Employers are regularly reviewing vendor performance and incorporating employee feedback into these assessments. This data-driven approach to vendor relationships reflects the broader trend toward accountability and measurable value in benefits administration.
For HR executives, the message is clear: the era of benefits expansion is giving way to an age of strategic optimization. Organizations that successfully navigate this transition are those that are able to turn myriad constraints into a catalyst for more effective benefits strategies. As Levin-Scherz puts it: “There is still a long way to go to address these pressure points, but employers are headed in the right direction by focusing on what matters most to their employees.”