Navigating rising benefits costs: A guide for HR leaders

Employers are increasingly grappling with the challenge of managing salary budgets amid rising renewal costs for benefits, insurance, and other compensation-related expenses. In 2026, insurance premiums for employer-sponsored health plans are expected to rise significantly from projections ranging between 6.5% and nearly 10%.

As inflationary pressures and market competitiveness drive up the cost of retaining talent, organizations may find it difficult to balance fair compensation with fiscal responsibility. This tension can be especially pronounced in sectors where wage growth expectations are high or where benefits packages are a key part of recruitment and retention strategies.

HR teams will likely be expected to explain these changes during this open enrollment season. They must navigate these constraints carefully, often needing to prioritize strategic compensation planning, transparent communication, and creative non-monetary incentives to maintain employee satisfaction without exceeding budget limits.

Strategic compensation and benefits planning

HR can manage budget constraints effectively by adopting a strategic and data-driven approach to compensation and benefits planning. This includes conducting regular benchmarking to ensure salaries remain competitive without overspending, and prioritizing investments in programs that deliver the highest impact on retention and engagement. HR can also explore cost-effective alternatives such as flexible work arrangements, wellness programs, and professional development opportunities that add value without significantly increasing costs.

Communicate with confidence and compassion

Open enrollment will be a critical time to reinforce the employer’s commitment to employee wellbeing. Transparent communication with employees about budget realities and the rationale behind compensation decisions helps build trust and understanding. These conversations don’t have to be stressful. By following these tips, you will communicate with confidence and compassion.

• Set the right tone. Be transparent and empathetic. You can acknowledge the impact on employees while explaining the broader context. Be sure to reinforce the employer’s commitment to employee well-being and support.
• Provide context. Explain why costs are rising, whether that be inflation, increased healthcare utilization, or regulatory changes. This is a great time to share industry trends and benchmarks to show this is a widespread issue and not unique to your organization.
• Highlight what’s staying the same. Be sure to emphasize benefits that remain unchanged, and especially any benefits that have improved. HR can reassure employees that the organization continues to invest in their health and financial security.
• Explain the changes clearly. Be sure to break down what’s changing — whether that be premiums, deductibles or copays. Remember that benefits can be complicated, so try to use simple, jargon-free language and incorporate visuals.
• Highlight the employer’s contribution. Share how much the company continues to contribute toward benefits. If applicable, consider explaining the company’s efforts to absorb costs or minimize increases.
• Offer support and resources. Provide access to HR contacts, benefits counselors, or Q&A sessions.
• Reinforce the value of the total rewards package. To offset concerns about rising costs, HR should use open enrollment to remind employees of the full value of their compensation, including retirement plans, PTO, wellness programs, and other perks.

Future proof your strategy

The HR team can invite feedback from employees to ask questions or share concerns. Consider implementing surveys or listening sessions to gather input for future planning. Even if you haven’t in the past, this is an opportunity to begin tracking employee satisfaction with benefits. This can help you understand trends and plan for the future. When employees share what matters most to them, HR can allocate resources more effectively, justify budget decisions to leadership, and forecast future needs with greater accuracy.

This is also a good time for HR to collaborate with finance and leadership to forecast future needs, identify efficiencies, and align workforce planning with organizational goals. Through collaboration, an employer can plan for cost volatility.

During open enrollment season, HR leaders have a pivotal opportunity to turn challenges into strategic advantages.