The comprehensive list of HR trends to watch in 2023

• Published Jan. 27, 2023

In 2023, compensation and benefits teams will face a crucial challenge: how to balance the need to offer competitive total rewards that attract and retain key talent with the reality presented by an economy in flux.

This is reflected in research by firms including insurer Principal Financial Group, which found in a survey of 500 U.S. employers that while 70% said they agreed a recession is likely to happen by midyear, 52% would not reduce the level of benefits they offered and 58% would not reduce salaries. Small employers were more likely than large employers to say they would not make cuts.

Cost containment has long been a priority for benefits leaders, according to Regina Ihrke, North America well-being leader at WTW, and 2023 is shaping up to be no different in that respect. WTW survey data from last September showed that more than two-thirds of U.S. employers said they planned to prioritize controlling healthcare costs over the next three years.

The question, Ihrke said, is “How do you try to have the most robust programs you can within the budget, as much as possible?” To answer that, employers will need to ensure their packages meet employees’ most pressing needs, from mental health to financial security to preventative care, all while ensuring that executive leadership is on the same page.

Going to bat for your benefits

The latter portion of that strategy is particularly top of mind for benefits teams in the early stages of 2023, said Tony Guadagni, senior principal in Gartner’s HR practice. Organizations are expecting that this year will be more “cost constrained” than years past, but benefits are inherently a difficult function in which to cut costs.

“Offering benefits generally doesn’t get cheaper over time,” Guadagni said. “In fact, it’s the opposite. It becomes a challenge to reduce costs on that front.”

Healthcare alone defies cost reduction. Employers are likely already accustomed to annual healthcare cost increases, and 2023 seems poised to deliver on the front. In December, Mercer published results from a survey of U.S. employers that showed an average projected cost increase of 5.4%, compared to 2022’s actual average cost increase of 3.2%.

Ihrke said some organizations can attribute ballooning costs to delays of care that began during the pandemic and have resulted in an increase in high-cost claimants. She said she has not seen many employers respond to the resulting increases by shifting costs to employees: “That really is not the strategy that we see as much.”

Instead, employers are doing what they can to buy benefits smarter and connect their plan designs to offerings from higher-quality provider networks, Ihrke said. And if they do need to try cost shifting, employers may be able to do so without putting too much pressure on the lowest-earning members of their organizations, she added.

Employers are also seeking to address areas of prevention and primary care, such as vaccination, cancer screenings and ongoing management of chronic diseases, Ellen Kelsay, CEO of the Business Group on Health, said in an email.

Guadagni said that his conversations with employers have generally yielded little in the way of plans to roll back healthcare contributions. “Health contributions are just such an important part of the employee value proposition,” he said. “When you look at what retains individuals, it’s usually personal relationships and core medical benefits that are just so impactful.”

Look beyond spend to demonstrate ROI

Despite the C-suite’s recognition of the value of certain benefits, the need to justify spending is real. Ihrke said she had recently spent five hours working with a client in the technology sector discussing the return on investment and value of various benefits programs. While those conversations can be difficult, she said benefits teams should not shy away from ROI, as there many ways they can demonstrate that metric.

“ROI is not so much about the dollar amount,” Ihrke said. “It’s also about, ‘Am I providing a service that solves for a gap in the system? Do my employees value and want this?’ Sometimes, in these services, I’m only touching a small group of people. Only 1% of people use this, but it’s very high-value for that 1%.”

That could be especially true for solutions that fill needs not met by existing medical plans. For example, Ihrke noted the strong level of employer investments in virtual care solutions for conditions ranging from musculoskeletal health to diabetes management and mental health. These solutions may provide services that didn’t previously exist, and they can lead to better regiment and condition management for employees, which in turn can lead to better productivity for those employees. Nonetheless, these services cost money, Ihrke said and it may be hard to calculate the cost savings they provide.

“There are other programs where we’ve said you have to spend some money,” she added. “We’ve been honest. You may not see that ROI.”

Benefits teams may need to think through the kinds of qualitative evidence that they can present to leadership to demonstrate the impact that total rewards programs are having, Guadagni said. That may include placing employee success stories showing how a particular service affected an individual as context behind the numbers.

Still, there may be opportunities for employers to consider simplifying the webs of vendors they may have created over the years. “Most employers have at least 15 vendors that they’re managing at this point,” Ihrke said. “That’s a lot for small teams … They’re starting to be like, ‘I bought this, but what’s the governance structure and decision-making process for whether or not I should continue to do this?’”

Employers will be increasingly looking to — and expecting — their health plan and vendor partners to deliver more robust quality outcomes measures and to implement solutions that drive towards value and address long-standing challenges related to healthcare affordability,” Kelsay said. “There will be increased scrutiny — and potential removal — of health plan and vendor partners who cannot deliver on these expectations.”

Aside from financials, benefits teams also will need to evaluate how a particular benefit connects with the organization’s overall environmental, social and governance values, Ihrke said. If a solution has positively affected the business’ diversity and inclusion goals, for example, that may justify keeping it, she added.

Employee voice can be a powerful tool as well. Benefits teams may be undertaking survey research of employees to understand which benefits they value and why, which is a good starting point, according to Guadagni. But if employers are not already engaging in focus group studies of employees, “This is a year where it’s worthwhile to make that type of investment,” he said.

“Employers are still very concerned about retaining and also recruiting top-level talent,” said Candice Sherman, CEO of the Northeast Business Group on Health. “In order to do that and be competitive, employers are certainly offering a robust array of benefits.”

It also may be helpful to enlist clinicians, or other experts, who can review particular solutions to determine whether they are having their intended impact on workers, Ihrke said. 

Mental health stigma being ‘slowly broken down’

Mental health has emerged as an area of concern for both employers and vendors, Ihrke said. A 2022 WTW survey of employers found that 67% said they planned to make mental health and emotional well-being programs one of their top three health priorities over the next three years, and 88% said they took measures to address mental health in 2022.

Stigma about the topic “is slowly being broken down, especially among the youngest generation,” Ihrke said. Kelsay noted that adolescent and youth mental health is one of several emerging areas of focus for employers in 2023, along with substance abuse disorder treatment and suicide prevention and postvention.

Employers also have concerns about whether there are a sufficient number of care providers to meet demand, she added, and about the extent to which employees pay out of pocket for services.

That may explain why some employers have opted to expand the number of employee visits with mental health professionals that they will cover. Ihrke said employers are generally looking to improve contracting for these services as well as create better access and timeliness.

“There’s been tremendous investment on the well-being side over the course of the last two years, and it’s coming to a point where organizations are feeling like they need to defend those investments to the people who okayed them in the first place,” Guadagni said. While total rewards professionals believe such investments are worthwhile, he continued, “it’s a real struggle to connect something like a well-being program to the company’s bottom line.”

But some well-being solutions are also lower in cost compared to other benefits areas, he noted, which can strengthen the case for keeping them. Ihrke noted that mental health benefits in particular may lead to improvements in metrics such as the volume of disability leave claims organizations experience.

For 2023, Ihrke said employers are also looking more into wellness benefits after a lull in that area during the pandemic, as well as navigation and advocacy services that help ensure workers can get the most of available solutions. “That’s the biggest challenge,” she said of well-being benefits utilization. “Employees just don’t know.”

Addressing financial health during a downturn

Financial well-being benefits, on the other hand, may be experiencing their own kind of shift entering 2023, according to Ihrke. Whereas retirement savings may have been at the forefront of employer attention to this segment, “now it’s all about the instant time of need in that space,” she said.

Employers, for example, have sought solutions to ensure employees can access funds more quickly — like same-day pay — as well as helping employees to set up emergency funds or pay off loans. These kinds of solutions have seen integration support from payroll providers, Guadagni said, and they’ve earned positive feedback from workers.

“We’ve heard it’s something for employers that’s really highly valued,” he said of early pay access benefits. “Employers know they’re competing with the likes of Uber [and other] ways that employees can make money and have it on the same day, and this is real competition.”

Pay increases may be on the table, too. “We’re going to see pay raises that we haven’t seen in the last decade,” said Ihrke. Last November, WTW published survey data indicating the employers planned average pay increases of 4.6% in 2023, up from 4.2% the year prior.

A 2022 Willis Towers Watson survey found that employers projected average pay increases of 4.6% for 2023, up from 4.2% the year prior.

MJHollinshead via Getty Images

 

Still, rising living costs due to inflation mean that many employees have seen their purchasing power decline, Guadagni said. “There’s going to be a lot of disappointment in this upcoming merit increase cycle,” he added, due to workers not getting wages that cover the cost of inflation. “What’s important is that while benefits are critical, they have to be balanced carefully and considerably with salary demands.”

Aside from pay, employers are also paying attention to how they may be able to address equity concerns through their total rewards programs, Ihrke said. For example, they could explore ways to help low-wage workers cover emergency expenditures.

A separate 2022 Mercer report found that employers are considering a variety of other strategies to address equity gaps in benefits as well as health disparities in their employee populations. Those strategies range from specialized behavioral health support to providing communications in languages other than English to search functionalities to identify acceptable providers.

Virtual care programs have particularly resonated with diverse populations, said Tracy Watts, senior principal and national leader for U.S. health policy at Mercer.

Similarly, voluntary benefits offerings may help in areas like critical illness, hospital indemnity or pet insurance, but education is important as employees may not realize the spectrum of voluntary benefits available to them, Ihrke said.

Ensuring employee awareness

In an effort to tackle that issue, employers are upping efforts to more deliberately experiment with benefits communication this year, Guadagni said. “We’re coming into a year where communication around total rewards is more important than it’s been in recent memory.”

Time remains a key hurdle to communications efforts, and employers will need to strategize around how to best provide workers with training and education while maintaining focus on their day-to-day work. “People aren’t going to do this at night,” Ihrke said. “You start to see this connection of, as an employer, ‘How am I going to give you time off to do this?’”

Employers also may need to take into account the ways in which different segments of the workforce prefer to receive information, Sherman said. Some may be more comfortable interacting with virtual chats or internal social media sites, while others may prefer physical mail, email or text messages.


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