Rising benefits costs are forcing HR to get smarter, not leaner

The legal and turnover risk of getting benefits cost control wrong

Oren Barbalat, an employment lawyer at Littler – which operates extensively across the US – says organizations can expose themselves to serious liability when cost-cutting decisions intersect with termination. The most common mistake is cancelling coverage too early. While employment law varies by state, the underlying risk is consistent: ending benefits before notice obligations are fulfilled can leave employers on the hook for far more than a premium.

“If an employee becomes disabled after termination [during the legal notice period], and the insurer says there’s no coverage because it was cancelled, the employer would effectively become the insurer and be on the hook for the underlying benefits,” Barbalat says. “Whereas if the company just continued to pay the premiums, it would be limited to the cost of the premium.”

Even contractual language giving employers discretion to change benefits can face court scrutiny. “It’s something that happens usually not because anyone is trying to do anything nefarious, but because they don’t know or maybe they’re not paying specific attention to individuals who might have different needs in their various risk profiles,” says Barbalat.

There are recruitment implications too. Recent data indicates replacing a single employee can cost more than $30,000 – a figure that can quickly dwarf any premium savings from a benefits rollback. “If we’re cutting benefits that other organizations aren’t cutting, what are we signalling in the market?” says Barbalat. “Are we saving or are we kind of cutting our nose to spite our face by saving some money on the front end but then building a culture where it’s a stopgap type of role?”

Data, communication, and the long view

The smartest route through rising cost pressures requires better data, clearer communication with employees, and a total-cost view that accounts for disability, absenteeism, and turnover alongside premium spend. US employers navigating this environment can benefit from understanding how global benchmarks are shaping benefits strategy in 2026.