When Employees Don't Understand Their Benefits, Everyone Pays for It
Your benefits package is only as valuable as your employees' ability to use it.
That sounds obvious. The execution, for most organizations, isn't.
The average mid-market employer spends thousands of dollars per employee on benefits each year. A meaningful percentage of those dollars goes toward coverage that employees either don't know they have, don't understand how to access, or avoid using because the process feels too complicated. The investment is there. The return isn't.
Employee financial wellbeing is directly tied to benefits literacy. Employees who understand their plans make better decisions — at enrollment, at the point of care, and in the dozens of small moments throughout the year where a single choice affects their out-of-pocket costs, their retirement trajectory, or their ability to access support when they need it. Employees who don't make the default choice. Which is usually the most expensive one.
This is a business problem. Not just an HR communication problem.
The Enrollment Decision Nobody's Supporting
Open enrollment is where the financial stakes of benefits literacy are highest — and where the support is typically lowest.
An employee who doesn't understand the difference between a high-deductible health plan with an HSA and a lower-deductible PPO without one is making a financial decision worth hundreds or thousands of dollars annually. They're doing it in a 15-minute enrollment window, with materials that were written for compliance rather than comprehension, on a platform that shows premium differences but not total cost modeling.
Most make their choice based on the premium line. That's the only number that's immediately legible.
What they're not calculating: how their expected healthcare utilization maps to each plan's cost structure. Whether they can afford the high-deductible plan's out-of-pocket maximum if something goes wrong. What happens to their HSA balance if they choose the HDHP and then consistently skip preventive care. Whether the lower-premium plan is actually cheaper for someone with their family's health history.
When employees make uninformed enrollment decisions, two things happen. They select plans that don't match their actual financial situation — sometimes paying more than they need to, sometimes under-insuring in ways that create financial exposure. And plan-level cost distribution shifts in ways that eventually affect the employer's renewal position.
Employee financial wellbeing starts with supporting the enrollment decision, not just administering it.
The Cost of Unused Benefits
Benefits that go unused aren't neutral. They represent a clear cost — dollars the employer spent that delivered no value to the employee.
Mental health benefits have high utilization ceilings at most organizations and chronically low actual utilization. Employees often don't know what their plan covers, don't know how to find an in-network provider, or don't realize that their EAP includes a set number of free counseling sessions. The benefit exists. The employee can't access it.
HSAs are among the most valuable tax-advantaged vehicles available to employees — triple tax-advantaged, portable, and investable. The IRS Publication 969 outlines contribution limits, eligibility rules, and qualified expense definitions in plain terms. The majority of employees who have them use them as spending accounts for current-year medical costs rather than as long-term financial planning tools. Nobody explained the long-term strategy.
Preventive care benefits covered at zero cost by virtually every major health plan consistently see below-target utilization rates. Employees skip annual physicals, bypass recommended screenings, and defer care that their plan was designed to cover without cost-sharing. The downstream result is higher claims costs from conditions that early detection would have caught.
Voluntary benefits — supplemental life, disability, critical illness, accident — are selected poorly or skipped entirely when employees don't understand the coverage events they're designed to address. The employee who declines short-term disability coverage because the premium feels unnecessary is the employee who calls HR in a panic eight months later because they can't work and have no income protection.
All of this has a cost. For the employee, it's financial and personal. For the employer, it flows back into utilization patterns, plan cost trends, and eventually the renewal number.
What Breaks Down Between Benefits and Employee Financial Wellbeing
Employee financial wellbeing isn't only about compensation. It's about whether the full compensation package — including benefits — is structured and communicated in a way that employees can actually use.
Retirement plan decisions made without context. An employee who doesn't understand employer match mechanics — when vesting occurs, how contribution rates affect take-home pay versus long-term accumulation — is leaving money on the table. In many cases, a significant amount of it. The employer offered a meaningful benefit. Nobody translated it into a decision the employee could make with confidence.
Compliance consequences employees don't see coming. Benefits decisions have compliance and tax implications that most employees don't anticipate. Contributing too much to an HSA in a year when they switch plan types. Taking a distribution from an FSA that can't be substantiated. Electing COBRA incorrectly after a qualifying event. The employer followed the process. The employee didn't understand it. The consequence lands on the employee.
Informed decision-making at critical life moments. Adding a dependent. Going out on leave. Managing a serious illness. Terminating employment. Each of these is a benefits decision point where the quality of the decision depends on the quality of the information available. Employees navigating these moments without clear guidance from HR or their broker make avoidable mistakes — and then surface them as employee relations problems.
Engagement and retention signals nobody's reading. Employees who feel financially insecure — whose benefits feel opaque, inaccessible, or insufficient — disengage. Turnover research consistently surfaces compensation and benefits in exit interviews. The connection isn't always a plan design problem. Sometimes it's a literacy problem: the plan was competitive, but the employee never understood what they had.
The Employer's Role in Employee Financial Wellbeing
A comprehensive employee financial wellbeing strategy isn't a wellness program. It's an operating system for how your benefits are explained, accessed, and used.
That requires three things.
Benefits education that is ongoing, not annual. Open enrollment is one touchpoint. Employee financial wellbeing is built through year-round communication — timed to when the information is useful, not when the plan year starts. January deductible resets, mid-year HSA contribution reviews, Q3 retirement plan benchmarks, and pre-enrollment financial modeling are all opportunities to give employees the information they need in the moment they need it.
Decision support at the points where decisions are made. Enrollment decision support tools that model out-of-pocket cost by plan type, household utilization, and risk tolerance give employees the context to make enrollment choices that match their financial situation. This isn't a large technology investment. It's a design decision.
A benefits partner who takes employee education seriously. Most employers leave this entirely to carriers — who have their own communication templates, their own incentives, and their own definitions of adequate explanation. An advisor who provides employee-facing education as part of the service model treats employee financial wellbeing as a component of plan performance, not as an afterthought.
The question worth asking: do your employees understand their benefits well enough to make decisions in their own financial interest? Not in the abstract — specifically. Do they know what their deductible is and how it resets? Do they know what their HSA balance is and what they're doing with it? Do they know who to call when something goes wrong with a claim?
If the answer is uncertain, the gap is worth closing.
What's Actually at Stake
Employee financial wellbeing isn't a soft priority. It's a business outcome.
Employees who understand and use their benefits effectively have better financial resilience — and that resilience shows up in how they perform and how long they stay. Employees who are stressed about healthcare costs, under-insured against income disruption, or making avoidable financial mistakes because nobody explained their retirement options bring that stress to work.
The employer invested in the benefits package. The question is whether the investment is working — whether employees can actually access the value that's been put in front of them.
That's worth measuring. And it's worth building a strategy around.
That's not just better benefits management. That's better business.
BSP works with employers to build benefits programs that employees actually understand and use — from plan design through employee education and year-round communication. For more on building a year-round communication strategy, see How to Improve Employee Benefits Communication. Or schedule an introductory call to talk through where your program stands.
