The Rising Cost of Employee Benefits: What Nonprofits Need to Know
May 7, 2025
Why this topic matters
Employee benefits, from health insurance to retirement plans, are now one of the fastest growing line items in a nonprofit’s budget. Recent national surveys show benefit costs rising faster than both wages and general inflation, squeezing organizations that already operate with lean overhead. Understanding the forces behind the increases and how to respond is essential to protecting your mission and retaining talent.
How fast are costs climbing?
- Health insurance premiums continued their upward march in 2024. The average annual premium for single coverage reached $8,951, while family coverage hit $25,572, representing 6 percent and 7 percent year‑over‑year increases Claremont Insurance Services.
- Employers expect total health‑benefit cost per employee to rise another 5.8 percent in 2025, based on Mercer’s 2024 National Survey of Employer‑Sponsored Health Plans Mercer.
- Overall benefit costs grew 4.8 percent for the twelve months ending March 2025, outpacing wage growth over the same period, according to the Bureau of Labor Statistics Employment Cost Index Bureau of Labor Statistics.
For a midsize nonprofit, these percentages can translate into five‑ to six‑figure jumps in annual expenses, dollars that could otherwise support programs or staff expansion.
What is driving the surge?
- Medical inflation and high‑cost therapies
- Newly popular GLP‑1 weight‑loss drugs such as Wegovy and Zepbound are pressuring plan budgets, and coverage for these medications is expanding among large employers HR Dive.
- Greater utilization of mental‑health services in the post‑pandemic environment, often at higher professional fee schedules.
- Regulatory expansions such as California’s paid sick‑leave increase and phased CalSavers retirement mandate, both of which add direct benefit or compliance costs.
- Competitive labor‑market pressure that forces nonprofits to match richer private‑sector benefits in order to hire and keep talent.
Specific challenges for nonprofits
- Grant and contract ceilings rarely grow fast enough to absorb benefit inflation, so rising costs can erode program funding.
- Overhead‑ratio scrutiny makes passing higher premiums on to funders complicated, forcing boards to choose between boosting administrative rates or trimming services.
- Smaller risk pools mean single‑site nonprofits cannot leverage the same economies of scale that large corporate employers enjoy.
Strategies to manage costs without cutting value
How CalNonprofits Insurance Services can help
CalNonprofits Insurance Services (CNIS) specializes in benefit solutions that respect nonprofit financial realities. Our Employee Benefits team conducts independent market analyses, leverages nonprofit purchasing coalitions, and provides compliance support on ACA, ERISA, CalSavers, and paid‑leave laws. We also supply decision‑support tools that help employees pick the right plan the first time, reducing surprise out‑of‑pocket costs and HR workload.
If you are planning your next renewal or thinking about adding benefits for the first time, request a strategy session through our Request a Quote page. Beginning the process three to six months before renewal maximizes your leverage with carriers and gives staff more time to understand their choices.
Key takeaways for nonprofit leaders
- Benefit costs are rising faster than wages and inflation, driven by medical‑trend factors and new compliance mandates.
- The increases directly pressure program budgets and staff retention, making proactive cost management essential.
- Pool purchasing, data‑driven plan design, preventive‑care investments, and disciplined vendor benchmarking can curb cost growth without slashing coverage quality.
- Partnering with a broker that understands nonprofit realities turns a reactive annual renewal into a strategic advantage.
Act early on your 2025 renewals to keep your dollars working where they matter most: serving your community.
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