The Effect of Inflation on Benefits Enrollment: Reducing Benefits Means Increased Risk

By: Kelsey Bradbury, AVP Market Intelligence, Lincoln Financial Group

Editor’s Note: With many competing financial priorities, it’s not surprising that some employees may choose to decrease their benefit expenses as a way of managing their personal impact from inflation. Which is why it’s important that when enrollment time arrives, employees fully understand the purpose and benefits of long-term disability insurance. They see the premiums — but do they realize the value?

Just as some see market volatility as an opportunity to invest, it can also be a good time to engage with employees concerned about their financial future. After all, consumers are apprehensive about inflation and a possible recession.¹ They want to make the right moves when it comes to protecting their income, savings, and overall financial health — and they may be receptive to employer advice and support now more than ever.

Making the right choices for the financial future

When prices are soaring, the inclination to curb spending is understandable. The problem is that people may cut back on expenses that protect their financial future. Lincoln Financial’ s Consumer Sentiment Tracker found that today’s market conditions have 61% of respondents more concerned about inflation. As a result, two-thirds of employees surveyed want to reduce the amount they’re spending on workplace benefits to offset increased spending elsewhere in their budgets. But other responses show more than eight in ten also have less financial flexibility for unplanned costs, though due to inflation, it’s more important than ever to secure protection against expenses or lost income in case of unexpected events.

Short-term fears can interfere with long-term plans

On its own, each response is not surprising. But together, they show a disconnect between how employees view their short-term concerns and long-term goals. The way people react to inflation may help mitigate immediate issues and help them weather the current economic climate. But could today’s decisions damage future prospects and plans?

One clue comes from how these worries may affect upcoming benefit enrollment decisions. Nearly half of respondents (45%) say they expect inflation to impact their benefits enrollment decisions this year. Among this group, 33% expect to add coverage, 45% expect to remove coverage, with the remainder unsure.

Understanding the real financial impact of disability

For those who are thinking about removing benefits, it’s important they realize the very real financial impact of illness and injury and how coverages such as disability insurance may reduce the impact of an unexpected event.² Some may be young and not think they’re at risk. But one in four 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach normal retirement age.³

Disability insurance helps prepare employees for the financial stress resulting from an unexpected illness or injury. Employees receive a percentage of their paycheck while they recover — to replace income, pay for deductibles and copays, and keep up with everyday bills.

And that’s essential — because when disability strikes, employees experience more financial difficulties than just their increased healthcare bills. They also face the possibility of lost income while staying home to recover, which may leave them unable to keep up with both current bills, such as the mortgage or childcare, and saving for the future, including college and retirement funds.

With competing financial priorities, it’s not surprising that some employees may choose to cut back on benefit costs in response to inflation. Which is why it’s important that at enrollment time, they fully understand the purpose and benefits of disability insurance. They see the premiums — but do they realize the value?

^{Source: Unless otherwise noted, information provided in this article is from the Lincoln Financial Consumer Sentiment Tracker, 1Q-2Q 2022.}

^{Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates.}

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^{1 Johanna Maleh et al, “Disability and Death Probability Tables for Insured Workers Born in 2000, Table A,” Social Security Administration, June 2020, https://www.ssa.gov/oact/NOTES/ran6/an2020-6.pdf.}

^{2 “Disability Insurance is Income Insurance. Make Sure It’s Part of Your Plan for Facing the Unexpected.,” The Council for Disability Awareness, https://realitycheckup.info.}

^{3 “Risk of Global Recession in 2023 Rises Amid Simultaneous Rate Hikes,” The World Bank, https://www.worldbank.org/en/news/press-release/2022/09/15/risk-of-global-recession-in-2023-rises-amid-simultaneous-rate-hikes.}