How Small Businesses Can Optimize Benefits Spending in 2025

JANUARY 7, 2025

In 2025, smaller businesses can reduce costs and compete against larger companies by taking a comprehensive approach to employee benefits, retirement and compliance. Following is a summary of the top 3 benefits trends employers should stay abreast of this year, and how USI Insurance Services helps companies optimize benefits spending amid rising healthcare costs.

Healthcare Costs in the U.S. Continue to Go Up

According to the Centers for Medicare and Medicaid (CMS), health expenditure in the U.S. grew 7.5% in 2023 to $4.9 trillion, accounting for 17.6% of the country’s gross domestic product (GDP). As healthcare costs continue to rise, driven by higher prescription drug prices and increasing health conditions like obesity, diabetes and cancer, small businesses will struggle to provide affordable, competitive benefits. Employers looking to control costs should consider switching to a level-funded health plan.

Because of how rates are determined for fully insured small group health plans, employers with a better-than-average claims experience could see significant savings by switching to a level-funded health plan, and have an opportunity to receive a partial refund if the plan runs better than expected. This can help companies save 5% to 10% on premium at renewal.

More States Require Employers to Offer Retirement

More than 20 states have proposed legislation requiring employers to offer some form of retirement, while 12 states already have retirement plan mandates in place. Offering retirement can help organizations attract and retain workers they need to operate. One survey found that 71% of employees are more likely to stay with their current company if they’re offered a retirement plan.¹

However, not all retirement plans are the same — the minimum to satisfy this requirement is usually an independent retirement account (IRA), which is not as robust an offering as a 401(k) plan. Compared to an IRA, 401(k)s offer higher contribution limits, greater flexibility for employer contributions, and more investment options. Since a 401(k) retirement plan is considered a “must have” for many workers, employers offering the bare-minimum IRA will lose out to competitors offering this highly sought-after benefit.

Many employers are reluctant to offer this benefit because of the cost. However, eligible employers may be able to claim a tax credit of up to $5,000 for three years by starting a 401(k) plan. Companies with fewer than 100 employees may be eligible for additional tax credits on employer-matching contributions. Adding a 401(k) can be a smart move for employers looking to enhance their benefits package and ensure compliance with state mandates.

Benefits Compliance Will Be More Difficult to Navigate

Navigating benefits compliance could be more challenging, increasing the risk of costly penalties and fines. For decades, employers relied on the rulemaking and guidance of federal agencies to interpret ambiguous statutory provisions, including health and welfare plans governed by the Employee Retirement Income Security Act (ERISA) and more recently the Affordable Care Act (ACA). However, a recent U.S. Supreme Court decision removed deference to federal agency interpretations (referred to as the Chevron deference). This change means that federal courts must now exercise independent judgment on whether an agency has acted within its statutory authority. While the ruling does not invalidate current regulations, it opens the door for new legal challenges, potentially impacting how executive agencies approach issuing rulemaking and guidance.

A new presidential administration and Congress could further affect healthcare regulations. Potential reforms to the ACA and other proposals like caps on tax exemptions for employer-sponsored health insurance, as well as the expansion of options like individual coverage health reimbursement arrangements (ICHRAs) and health savings accounts (HSAs) are among the possible changes. This could further complicate how employers offer benefits and ensure regulatory requirements are being met.

But, until new legislation or guidance is issued, employer plan sponsors should continue to comply with existing rules and regulations and stay vigilant about benefits compliance.

How USI Can Help: Comprehensive Solutions for Small Business

To help your business optimize benefits spending and reduce the impact of rising healthcare costs, USI can:

• Evaluate funding options and make recommendations based on risk profile
• Benchmark benefit plans to ensure market competitiveness
• Improve benefits administration and employee engagement
• Respond to employees’ claims and benefits questions
• Provide tools and resources to help meet regulatory compliance obligations

Contact your USI representative and read USI’s 2025 Employee Benefits Market Outlook to learn more about the trends and issues impacting employers, and how we can help you.