Employee healthcare costs continue to soak up a large portion of the spending on personnel. The average per-worker cost of employer-sponsored health plans reached $16,500 this year, up 5%, and Mercer projects a 6% increase in 2025. Our 2025 CEO & Senior Executive Compensation Report shows that rate of increase is even higher for those at the top.”
Pharmacy benefits have been the fastest-growing component of health benefits costs, but large employers’ decisions to expand insurance coverage to GLP-1 medications (including for obesity) and fertility treatments have also led to recent cost hikes.
The scarcity of talent in a tight labor market combined with the need for companies to control costs coming out of an inflationary period puts CFOs in a tough spot: They need to keep a lid on budgets for health insurance plans but also maintain a level of benefits attractive to job candidates.
To learn how CFOs deal with these seemingly conflicting goals, we interviewed Quentin Pelser, CFO of The Vitality Group, a health and wellness solution provider for employers and individuals. Pelser has worked in the industry for 25 years, starting in accounting at Vitality’s South African parent company.
How can CFOs manage employee healthcare costs without gutting their benefits offerings?
Premiums for employer-sponsored health insurance continue to rise substantially, often outpacing inflation. They are the second largest expense for most organizations after payroll. The acceleration of innovations driving new treatments with high utilization and unit costs, such as GLP-1s, is another reason for these costs to warrant the CFO’s attention.
According to an Integrated Benefits Institute study, more than half of CFOs make all or most of their companies’ benefits decisions. CFOs play an essential role in managing this cost center: They must ensure health benefits align with the company’s overall strategy and goals as well as challenge the status quo in implementing cost-containment measures to better understand expenses, utilization and ROI. Sometimes, that requires asking critical questions about plan partners and hidden fees. Finally, CFOs must instill compliance awareness among their teams to meet regulations and address the complex legal landscape.
What are some of the positive benefits of a CFO spending time and energy to making health benefit packages more cost-efficient?
The impact of a robust benefits package on employee retention and recruitment can differentiate an employer. Research shows that 80 percent of employees prefer additional benefits over a pay raise. For several reasons, mental health platforms and financial wellness initiatives are becoming essential components of those packages.
Wellness programs address immediate employee needs and keep down long-term costs. They also shift the focus from sick care and illness management to preventive care and wellness. These programs can positively affect the health and wellbeing of employees and their families and boost an organization’s productivity and competitiveness.
What adjustments have CFOs made since the Covid-19 pandemic to propel their business strategies forward?
Post-pandemic, organizations made fundamental changes in operating models to encompass a wider variety of worker preferences, whether fully remote, in-office or a mix of the two. That shift requires a greater focus on building a strong organizational culture with defined values.
On the strategy front, the critical adjustments for driving the business strategy forward include an increased use of scenario planning. Given heightened volatility and uncertainty, CFOs need more scenario-based forecasting to prepare for a range of potential outcomes and calculate the necessary strategy adjustments.
Virtualized workplace operations must be near the top of an organization’s digital transformation initiatives to meet changing customer needs and improve operational efficiency. Post-pandemic changes in the labor market require strategic talent management to fill critical talent needs. Tactically, that might involve hiring skilled workers from other organizations or recruiting recent graduates. Benefits enhancement also belongs on that list.
Investment decisions require a long view. The CFO must balance short-term goals that may address immediate financial pressures with investment initiatives that drive sustainable growth. The bar on investments post-pandemic has also been raised because investors are looking for businesses with products and ideas that are environmentally sustainable.
