Rising costs force employers to rewrite employee benefits

The move comes as employee costs escalate, and health insurance premiums balloon, prompting firms to redesign their benefits programs to align with the needs of a multi-generational workforce and ensure financial discipline.

“Rising costs—driven by medical inflation at 11% outpacing general inflation—are compelling organizations to optimize benefit strategies without compromising employee experience. The true cost of benefits depends on utilization, prompting a recalibration of what remains standard versus what becomes flexible,” said Vinod VK, head of health and benefits, India, WTW, a global advisory, broking and solutions company.

Companies are phasing out benefits like telemedicine, which was indispensable during the pandemic but no longer essential, as they seek to cut unnecessary costs, he said.

WTW’s Benefits Trends Survey 2025, shared exclusively with Mint, shows that 55% of the more than 500 employers studied in India underlined that the pressures of rising benefit costs on budgets are a “key business issue”. About 38% said that financial constraints are limiting their ability to deliver on wellbeing programs, while 34% acknowledged that a tighter budget impacted health benefits offered to employees.

To be sure, technology is reshaping employee profile, prompting companies to look at their benefits programs through a new lens.

According to a C-suite executive at one of the top three private banks in India, employee costs along with the advent of artificial intelligence (AI) have pushed them to rethink what benefits will work for the firm. “AI has pushed the banks to relook if certain profiles are needed. In that case, the kind of benefits offered also change,” said this executive who did not want to be named.

Also, the new labour codes mandate firms to ensure annual health check-ups for employees above 40. “That benefit will up our expenses and, therefore, one has to look at which benefits stay and which ones go away,” the executive added.

In its 2025–26 Benefits Scorecard, Mumbai-based Prudent Insurance Brokers said that although more firms are shifting to flexible benefits to offer employees greater choice, scaling these programs remains difficult due to year-round engagement needs, inconsistent participation, and fast-changing workforce expectations.

“This is more than just flexibility; it’s about building a benefits ecosystem that’s intuitive, inclusive, and deeply personal,” it said, adding that “forward-looking companies” are adopting choice-based and personalised benefit programs, including both insurance and non-insurance options, often powered by wallet-based solutions. These may include wellbeing plans that cover physical fitness, elder care, pet care, pregnancy care, financial wellness, health check plans, health coach, women-specific wellness, and disease management.

In November, the government consolidated the country’s employment statutes into four codes that guarantee minimum wages, early gratuity, social security, and occupational safety, which are likely to raise costs for employers.

Pradeep Chauhan, founder and chief economic officer of Finfinity, a fintech focused on employees’ financial wellbeing, said that legacy firms are looking at ways to introduce benefits that deepen employee connect with their workplace. For example, refining medical plans to focus on high-impact care, directing wellness efforts towards common medical needs, giving more choices to employees within the same budget, or financial guidance tools that help employees manage their money better, without the companies incurring any extra costs.

“Today’s flexible hiring market is giving employers more room to explore new approaches with less risk. This transition is giving companies the opportunity to redesign benefits in a way that is practical, mutually beneficial and aligned with real needs,” Chauhan told Mint.

Companies are also tailoring health insurance benefits and offering those who need them, in a reflection of the multi-generational worforce profile. Many young employees still have their parents working, and may not need separate or additional healthcare insurance.

A Mint analysis shows that for the Nifty 500 firms, employee costs were 15% of the net sales in the September quarter, versus 15.4% in the same period last year. The employee costs had dipped to 14.4% in the March-end quarter, before rising again over the next three months.

Anand Rathi Insurance Brokers highlighted that corporates are “rejigging benefits that have become high-cost or inefficient”, primarily in group health insurance. This comes on the back of rising medical inflation and high claim ratios that are forcing the introduction of co-pays, room-rent caps, disease-wise sub-limits and employee-funded top-ups.

A co-pay is a fixed amount that the beneficiary has to incur, with the insurer paying the rest.

Outpatient and wellness benefits are being redesigned as they often lead to excessive, unnecessary use. Hence, many employers are shifting to capped or reimbursement-based models to curb misuse. Parental covers, maternity limits and dependent coverage are also being restructured, as they are the key contributors to premium escalation.

“The shift to an employer’s market certainly gives organisations more confidence to tighten or redesign their benefits, but the real push comes from rising healthcare costs and unsustainable premium increases,” said Milind Tayde, head – employee Benefits, Anand Rathi Insurance Brokers.

London-based Howden Insurance Brokers, in a 19 November report titled ‘The Changing Face of Employee Health’, said that globally, 93% businesses expect medical costs to rise, even as health and wellness is emerging as a top priority for employees. As a result, more than two thirds or 67% of businesses are investing in preventative healthcare to tackle soaring medical inflation.

Around 61% employees are more likely to stay with an employer who offers a good healthcare package, and 47% view it as an important factor in looking for a new role, the report said, adding that while “this emphasises the need for businesses to address their healthcare offering, it is challenging to navigate in a high-cost environment”.