HR departments are under mounting pressure to control costs, particularly in employee benefits and HR operations. A recent AON report underscores this trend, projecting healthcare costs to rise by 9.2% in 2025, up from 8% the previous year. This reinforces the reality that HR remains one of the largest cost centers in most organizations. A recent article from WTW, “Recalibrating Employee Benefits: How Companies Are Delivering Value in a Cost-Constrained World,” calls for a shift in how organizations manage benefits, advocating a more proactive and strategic approach to cost management.

More than two-thirds of employers now prioritize cost pressures in their benefits strategy. In response to rising costs, economic uncertainty, and evolving employee expectations, organizations are transitioning from viewing HR solely as a cost center to recognizing the strategic value of benefits. The focus, according to the WTW article, is on smarter, more targeted spending that supports engagement, retention, and organizational purpose.

Cost control doesn’t mean slashing benefits. It means managing them more intelligently. A strong strategy begins with improving vendor relationships. This includes renegotiating contracts, exploring new pricing models, utilizing preferred provider networks, and selecting partners that offer transparency and measurable outcomes. These actions aim to reduce spending while improving support – a true win-win.

The second part of the strategy focuses on addressing high-cost health conditions. Targeted programs that prevent avoidable claims and improve outcomes, particularly in mental health, cardiovascular issues, and cancer, are essential. Investing in these areas through well-designed benefits can reduce long-term costs while improving employee wellbeing.

WTW emphasizes that wellbeing is not just a perk – it’s a business asset. When supported effectively, wellbeing boosts total rewards effectiveness, engagement, performance, and productivity.

While labor markets are stabilizing in some areas, talent challenges remain due to demographic shifts, aging populations, and skill shortages. Employers are responding by making benefits more employee-centric which is shaping offerings that directly support attraction, retention, and wellbeing.

Increasingly, organizations are also aligning benefits with corporate purpose and values. According to WTW, the number of employers using benefits to reflect organizational purpose is expected to rise from 30% today to 41% in the next three years. This represents a shift from simply matching market benchmarks to using benefits as a differentiator – one that strengthens employee connection and trust.

This strategic mindset requires a rebalancing of benefit offerings. Over half of employers (57%) plan to reallocate or rebalance benefits spend within the next three years. That means enhancing some benefits while scaling back or removing others.

This recalibration must be guided by data and a deep understanding of employee needs. It’s about making intentional decisions that optimize existing resources, improve administration, and enhance the employee experience. A thoughtful communication strategy is also critical to manage employee reactions and maintain trust during these transitions.

While WTW does not detail specific technologies, their services such as "Benefits Administration and Outsourcing Solutions" and "Global Benefits Management" aim to streamline complexity and improve efficiency, especially across global benefits programs.

Managing costs proactively is not just about preserving budgets, it’s about maximizing the value of every dollar spent. HR leaders must critically evaluate current processes, identify high-impact areas, and align benefits with broader organizational goals.

By focusing on “smarter spending, sharper focus,” organizations can use benefits as a strategic tool to drive engagement, retention, and purpose. In doing so, they not only optimize cost but strengthen organizational health and long-term success.

Source: https://www.wtwco.com/en-us/insights/2025/06/recalibrating-employee-benefits-how-companies-are-delivering-value-in-a-cost-constrained-world