From raw materials to wages, inflation is giving many CFOs a headache. To compound their misery, the cost of providing health benefits is set to surge as well.

Consultants at Mercer released a survey last month of more than 800 companies across Europe, with more than half reporting an increase in the annual cost of health benefits and only 4% reporting a decrease. Nearly 70% of employers said that they would struggle to retain their best workers if they didn’t maintain the benefits currently on offer. Still, many are taking action in response to an average annual cost increase of more than 5%, with steeper rises in store as government welfare systems shift responsibility for the ageing workforce to the private sector. (See “Cutting Care” at the end of this article.)

In addition to restricting the scope or eligibility of plans, Steve Clements, a principal at Mercer, reckons it is inevitable that employee contributions will rise. In 2007 nearly 60% of European workers contributed nothing towards their health benefits, compared with 20% in the US. While “there is a long way to go until we reach US levels,” Clements notes, European workers tend to take more sick days than their American counterparts, a growing problem as companies are forced to shoulder more of the burden for health programmes.

The most common causes of costly long-term absences — stress and repetitive-strain disorders — can be avoided if companies invest enough time, and money monitoring employee well-being closely enough to “trigger the right interventions at the right time,” Clements says. As many CFOs try to nurse ailing balance sheets back to health, this can come as an especially unwelcome expense.