The word “inflation” has probably been said more in the last two to three years than in the previous 20 years. Recently, it has been front and centre for many Canadians on a personal level, but inflation has always been and will continue to be a significant issue for employee benefits plans. Employee benefits plan inflation has fluctuated from year to year, but has generally averaged about six per cent per year over the past 25 years.
During the COVID-19 pandemic years, annual inflation rates rose higher than the historical average, but thankfully, there was a steady decline through 2025. However, the bad news is that employee benefits inflation is starting to increase again and is still well above general market inflation, which has recently come down.
Going forward, this “Perfect Storm” is expected to continue to drive inflation for group benefits; more employees are using the plans, using them more often and using them for more expensive items. Despite this ongoing and persistent inflation for group benefits, businesses are under continuing pressure to not only maintain, but enhance their employee benefits plans. Employees place a high value on group benefits plans when choosing to join a new company and stay with an employer. As well, employees indicate that they value their benefits plans more today than before the pandemic.
Last year, ZLC Employee Benefits Solutions projected the cost of employee benefits for 2025 to increase approximately six per cent, as compared to seven per cent for 2024. What follows is a forecast for key components of benefits plans.
Life
For most small- and mid-sized Canadian companies, annual renewal adjustments to life insurance benefits are primarily driven by changes in insurers’ broader block of business (manual rates). The Canadian working population continues to age, and the recent positive impacts seen on aging from the strong flow of immigrants to Canada have now disappeared as immigration levels have returned to historical levels. The life benefit increases are expected to be about three to five per cent.
Long term disability
In the same way as for the life benefit, the aging population has largely been driving disability rates. While the incidence and duration of mental health claims was subsiding, that appears to no longer be the case and Canadians continue to struggle with mental health issues. As well, disability claims continue to be further complicated by a general reduction in the quality of health care across Canada.
It is important to note that most plans require employees to pay for the long-term disability premiums to ensure a non-taxable benefit, so inflationary pressures in this area are more often a burden to employees rather than plan sponsors. Long term disability benefit increases are expected to be about six to eight per cent.
Extended health
The “Perfect Storm” for employee benefits plans is felt the most in the extended health area. Last year saw the introduction of some new generic drugs for a couple of high-cost drugs, which yielded savings, but new generic drugs of significance are not expected in 2026. There has been speculation for years around the introduction of the National Pharmacare plan and this is coming to fruition for B.C. in 2026, with the federal government covering the cost of diabetic medications, supplies and devices, along with hormone replacement therapy in the coming year.
Another major item to watch is the cost of Ozempic, as this drug lost patent protection, only in Canada, and a generic/biosimilar version is now available. Extended health benefits are expected to increase about six to 10 per cent.
Dental
For the past 10 to 15 years, annual dental inflation has generally ranged from six to eight per cent each year, ignoring the COVID-19 pandemic years, but it returned to historical norms in 2025. Despite that, there are still insurers using much higher trend factors in their renewal calculations and the fee guide increases are expected to be consistent with historical norms.
Lastly, the impact of “corporate dentistry” on plan costs is still to be determined as there is ongoing consolidation of dental practices. The dental benefit increase is expected to be about five to seven per cent. From there, it is really just simple math:
- Life accounts for about five to 10 per cent of total benefits plan costs.
- Long term disability accounts for about 15 to 20 per cent.
- Extended health accounts for about 40 to 50 per cent.
- Dental accounts for about 20 to 30 per cent.
- Other benefits such as, employee assistance plans and spending accounts, account for up to another 10 per cent (running more at general inflation levels).
When put all together, the expectation is for approximately seven per cent projected annual inflation for 2026. That said, if a plan has additional cost drivers such as, older population, higher historical use, high employee turnover, companies could be looking at higher increases. Use an inflation assumption within a range of five to 10 per cent when doing any multi-year business planning.
ZLC Employee Benefits Solutions is one of the fastest-growing advisors in Vancouver for employee benefits and group retirement programs. They provide value by leveraging a skilled benefits team; collectively, they have over 450 years of experience among their 21 employee benefits specialists. They have been working with businesses ranging from three to over 75,000 plan members for the past 40 years.
