Health Costs, the Current Cost of Living, and Your Employees’ Wellbeing — A Tricky Trio

Den Bishop and Ali Payne

As we kick off this blog, we have a question for you — have you increased the wages of your employees an average of $18,915 since COVID began?

A bit of an unfair question, right?! Well, there’s a reason we ask it. The economy is in a very tricky state right now, which isn’t doing much for the bottom line of businesses or the cost of living for employees.

Healthcare Costs Simultaneously Matter Less and More Than Ever

First, let’s talk healthcare costs. I, and by that, I mean Den, have been in the health insurance business for 35 years, and health insurance inflation outpacing the rest of the economy has been a consistent tune for 3 ½ decades! The economy in 2022 has finally changed it…for the moment. Health costs are out of the spotlight with prices for gas, food, housing, transportation, and virtually everything else rising at levels Americans have not seen since the Carter administration.

Therefore, we must question, “does healthcare inflation still matter?”

“YES!”, but not necessarily why you think. Half of the healthcare spending comes from 2.5 percent of the population. The dollars in health benefits have shifted to covering the high-cost claimants. Rising deductibles and out-of-pocket limits mean the other 97.5 percent of the covered population often don’t perceive much value from the health benefit because they are paying such a large share through payroll deductions and plan cost-sharing.

With all of the other economic pressures, healthcare costs on their own matter less than ever for most Americans, but the story does not end here.

The Economic Pressure on Employees

It’s hard for many employers to grasp the real economic pressure their employees are feeling. Changes in prices for gasoline and groceries are in consumers’ faces every day. Major purchases, like a home or a car, have less frequent visibility, but they could be having a much more significant impact on the hopes and aspirations of workers.

Analysis of how costs associated with these major purchases have changed between Q1 of 2020 when the COVID pandemic introduced all of us to social distancing and the start of Q4 of 2022 in Dallas, Texas, produce a cold splash of economic reality.

Housing

Using Dallas as the example, take a look at this. We have all seen the news that house prices rose dramatically over the past year. Since the start of COVID, the average house price in the Dallas area has risen from $277,500 to $404,800, which represents a 46 percent increase. Does this mean the cost to an employee buying this median house increased 46 percent? No way, my friend!

Mortgage interest rates have climbed from 3.5 percent at the start of COVID to 6.7 percent. The combination of the price increases and the interest increases means that a family purchasing the median home in Dallas has seen their monthly principal and interest payments increase 110 percent from $1,246 per month to $2,612. The $1,366 increase is higher than the total payment less than three years ago. The annual principal and interest payments for the average Dallas home have increased $16,392!

There are big shifts like this happening all over, not just in Dallas.

Transportation

Used car prices in the U.S. have risen sharply. Thankfully, interest payments for a used vehicle are almost the same today as they were in Q1 2020.

The average used car price has increased 43 percent from $23,295 to $33,341! The monthly payment on a 60-month car loan for the average used car has increased $210.28 per month from $475.69 to $685.97. Annually, this represents a $2,523 increase for the average used car, and this does not account for increases gas, maintenance, or insurance costs.

The average employee buying the average house and driving the average used car is seeing their costs increase $18,915 per year for these two items since the start of 2020!

Employees Faced with Tough Economic Choices

So, what does this mean? It could mean many workers are putting off their dream of buying the first home or upgrading their existing one. It could mean they choose to duct tape their beater Sedan to make it last one more year. It could mean that offer from another employer for more money might sound more better than ever. It could mean their hopes of really getting ahead economically are bruised if not broken.

It does mean increased costs for health insurance in the form of per-paycheck contributions or higher deductibles feel like a slap in the face with the much bigger economic pressures. Because of all of the economic headwinds facing employees, employers must be more diligent and creative than ever in eliminated waste and providing real value in not just their health and other benefit plans, but also the benefits that aren’t traditional in nature.

Tips for Navigating the Recession with Employees

There’s no doubt about it — the cost of living is weighing heavily on your employees, whether they’re vocal about it or not. This can put you in a tough spot, but there are things you can do to help your employees through this time.

Financial Wellbeing

Historically, when we talk with employers about educating their employees about financial wellbeing, the topic that comes up right away is retirement. That’s great, but that’s not helpful when employees need immediate help. The key question to ask yourself as an employer is “what can I do to help my employees with minor changes to their financial predicaments now?”

Now, don’t get us wrong. This doesn’t mean giving everyone a raise or a bonus. It’s more about providing tools and resources to help employees who have maybe never gone through a recession, who are just moving out of their parents’ house for the first time and don’t quite understand what this current environment could do to them, or those who are at another stage in their life but impacted just the same.

Here are two key ways we believe you can help your employees in the immediate.

Education

Education is key. Teaching your employees about what a recession is and isn’t is important. Where can your employees go to get educated, especially if they’ve never been through a recession? Do you have resources you could offer employees to help them understand what a recession does to not only their own pocketbook but also to your business’ bottom line so they can understand some of the decisions you may have to make?

Transparency through Communication

In unsettling times like this, the more transparent you can be as a business, the better. This can help ease the tension of employees who may be worried about losing their job or getting their pay cut.

Along the same line, how often you communicate to your people is more important than ever. Just like during the COVID pandemic, keeping in steady contact with your people is crucial. In fact, during the pandemic, the amount of communication increased. The same should apply here, as this is a big enough issue impacting everyone.

As you talk with your people, be sure you’re also communicating resources you have available — not just the traditional resources, but the resources your people may not even know you have or think about.

And, if you need help with this, please don’t hesitate to reach out to us. Our ethOs team has experts on hand who are equipped to talk about your inventory of resources, discuss what you may be missing, offer advice to creating a culture of wellbeing for your employees, and helping you navigate through this unprecedented time. Please don’t hesitate to reach out.

December 5, 2022