Employee benefits are becoming more consumer-driven.
Picture your dream job—a fair salary, short commute, friendly office and flexible schedule. What’s not to love? Before you rush to sign that employment contract, you’d do well to ask a few questions about the company’s benefit packages.
A recent survey, conducted on behalf of accounting and financial staffing firm Robert Half International, found 33 percent—that’s up 2 percent from five years ago—of CFOs felt offering enhanced health care and insurance options was crucial to drawing top candidates, versus 37 percent who felt offering more salary was the key. Clearly, health care costs and access are a growing concern among employees.
But with ever-increasing health care costs, many employers have been forced to reevaluate what their employees really need and then look for a way to balance that with what they can afford. This has created a shift in the marketplace that’s affected not only employers but also employees, as the whole benefits industry has become more “consumer-driven.”
So what exactly does “consumer-driven” (or, as it’s sometimes called, “employee-centric”) mean? Definitions of this term range from employees being able to choose between health plans, to employees becoming more educated on options and costs, to what most insurance brokers mean by the term, which is employees now being expected to share more of the burden of their health care costs.
“We’re seeing double-digit rate increases with medical every year now so you have to start chipping away if the budget is a concern,” says Julie Daer, employee benefits producer for George Petersen Insurance Agency (GPIA) in Santa Rosa. “More employers are turning to self-insured plans, where the employer bears part of the risk for medical, dental and vision claims. Health Savings Accounts and Health Reimbursement Accounts are good examples of this and are increasing in popularity.”
“We look at every insurance option available, including self-insuring, as long as it makes sense for them,” agrees GPIA partner Mark Fess. “A self-insured plan is where the company takes the risk for the first $1,000 or more of benefits on an individual, and then the insurance comes in after that. So if you go with a higher deductible, you get a lower insurance premium. Then the company or individual will self-insure those smaller claims.”
This is just one example of how insurance carriers and employers have become more creative in the face of rising costs. Another is the HSA, or health savings account mentioned by Daer. HSAs are a form of self-insured plan and act as a tax-advantaged medical savings account available to taxpayers enrolled in a high deductible health plan (HDHP). The funds contributed to an HSA account aren’t subject to federal income tax at the time of deposit. Funds may be used to pay for qualified medical expenses at any time without federal tax liability. Withdrawals for non-medical expenses, like those in an IRA account, may provide tax advantages if taken after retirement age and incur penalties if taken earlier. In fact, some people call them “medical IRAs.”
“It’s like a PPO plan where you have insurance, but the first $2,500 per person comes out of your pocket,” explains Craig Ahlswede, president of Santa Rosa-based Staff Resources, which acts as an outsourced human resource department for a variety of companies and specializes in employment law compliance, payroll processing, benefit plan administration and risk management. “You can defer that out of your check, pre-tax, but in essence, you’re insuring your first $2,500. That rolls over from year to year. If you’re a healthy, young person and you open an HSA but don’t even use it for five or 10 years, you could have $15,000 toward your medical insurance and only a $2,500 out-of-pocket annual expense.”
This product has become an excellent option for companies on a tight budget, those just starting to develop a benefit plan or for employers with older employees who’re looking for more extensive medical coverage.
HSAs evolved out of a different benefit plan, called an HRA (or health reimbursement account), which is an IRS-sanctioned arrangement that lets an employer reimburse medical expenses paid by participating employees. HRAs reimburse only those items, agreed to by the employer, which aren’t covered by the company’s selected standard insurance plan (any health insurance plan, not just high-deductible plans). However, there are several important distinctions between the two, and many carriers no longer let brokers sell HRAs for some key reasons, including the fact that, since an HRA is still generally considered to be the employer’s money, there are no incentives for employees to behave cost-effectively.
“Long-term behavior change requires incentives for people,” explains Shauna Thomas-Gilbert, vice president for Heffernan Insurance Brokers. “We’ve learned that employees behave very differently with respect to health care when they know it’s their money [not the employer’s] that will be spent or saved. With HSAs, health care use goes down not just the first year, but every year. That’s because HSAs offer employees an incentive to regulate their own health care use, which, over time, reduces health care costs. Also, HSAs are portable. When employees leave a company, they take their HSA money with them. That creates a different mindset with employees, since any savings will stay with them. In an HRA, when an employee leaves, the employer keeps any unspent funds.”
Know what you need
No matter what program an employer chooses, most brokers agree that, when it comes to setting up a benefit plan, the first step is to evaluate your workforce and industry.
“I tell businesses, ‘If you don’t have a benefit plan and other companies in your industry do, then you’re going to become a training ground for those other companies, because people want the benefit plan,” says Ahlswede. “They want the health insurance, they want the life insurance, they want the 401(k).”
Companies also need to look internally, Ahlswede continues, determining the ages of their employees, their dependence status (that is, if they’ll also need to provide health care coverage for their families), their needs and their wants. If you’re not sure what an employee’s looking for, ask. A very young population, for example, may still be covered under their parents’ benefits plans and might not be interested yet in retirement savings vehicles.
“Younger employees are typically looking for major medical that’s less expensive. They’re probably not going to use it for a while, so they don’t want a very comprehensive benefit plan,” says Ahlswede. “Senior employees are more often looking for a comprehensive benefit plan that covers all their needs, including prescriptions and doctor’s visits.”
Once you know what your employees’ needs and desires are, many brokers suggest starting small to make sure the benefit plan you’ve chosen is something you can afford and maintain for the long-term.
“For new businesses, I don’t recommend carrying a benefit plan unless it’s such an industry standard that you need to do it to attract and retain quality people,” says Ahlswede. “Even once you’ve decided to offer a benefit plan, go with something that’s affordable for your company—meaning a large deductible, an HMO or something like that. You can always grow into a richer benefit plan, but it’s very difficult to pull back from a rich benefit plan with employees. Start small and work yourself into it slowly. As your company grows, you’ll have the resources, advice and money to start offering more options.”
Reeducation
Whether an employer is just starting out with a benefit plan or has had one for years, a key component to maintaining employee expectations is education. It’s not as easy as it was in the past for employers to provide insurance. Many employees today have a difficult time stomaching a $1,000 deductible when they used to pay minimal fees for doctors’ visits and prescriptions. Many have come to expect their employers will cover all of their health care needs.
“Over the last 20 years, employees have gotten pretty spoiled, benefits-wise, in that they’ve gotten rich benefits, such as HMOs, where they’re only paying a $5 co-payment to go to the doctor,” says Teri Sackett, president of Sebastopol-based Sackett & Associates Insurance Services. “We’ve gotten to the point where employees honestly haven’t been told what the true costs of these services are. Consequently, employees have these exaggerated expectations, and they get really upset when an employer then can’t afford a benefit.”
Sackett adds that a large part of the education process is helping employees understand that, if they’re like most people who only go to the doctor twice a year, a plan with a $400 monthly premium may not make any sense. If they can pay a higher deductible and a lower premium, they could very likely save themselves (or their employer) a lot of money that could be used more efficiently elsewhere.
“What our consultants are trying to accomplish is education,” agrees Steve Williams, president of financial services for Heffernan Insurance Brokers. “Educate the employers and the employees about what medical insurance was and what it is today. Costs have escalated. What the insurance industry is creating are ways to share these costs. All this is about getting the employee to participate more in their health insurance costs—and also to participate in their wellness. We’re seeing a shift in the marketplace from just HMOs and PPOs, even though those are all still there, toward a bigger deductible that can be covered, in part, by HSAs.”
Beyond the norm
Most employers that offer benefit plans today still, generally, concentrate on health care and, in some cases, a retirement account, like a 401(k) plan. However, some companies (usually large corporations with more money to spend and/or certain industries that are very recruitment-competitive, such as technology and telecommunications) offer benefits above and beyond the norm. These can include matching amounts contributed to retirement plans, long-term and short-term disability, long-term care insurance, stock options, life insurance, orthodontic coverage (above regular dental care), accident coverage and even cancer treatment plans (that offer pre-taxed premiums paid right out of an employee’s paycheck). Some employers have gotten even more creative to give their firm an edge in recruitment and retention, offering anything from half-day Fridays to free food, flexible spending accounts, dry cleaning and other free services.
“We have some doctor and dentist clients who offer dental and medical to their employees,” says Ahlswede. “Sometimes a company has products or services it offers to employees at a substantial discount. Working at a restaurant, for example, you get discounted meals. Those are pretty unique and company-specific benefits.”
Another unique benefit that’s gaining ground are “wellness programs,” meant to keep employees healthy and energized, with the idea being that healthy employees aren’t only more productive, they also help keep insurance rates down. Employers can receive deductions when employees participate in these programs in multiple ways—specifically, through education and injury prevention programs that lower workers’ comp claims and participation in high deductible/HSA programs. The main indicators of a successful wellness program are measured by increased presenteeism, lowered absenteeism and enhanced performance.
“Anytime you initiate a wellness program, the return on your investment takes about three years,” explains Adam Cox, wellness director for Heffernan Insurance Brokers. “So when you hire a wellness company or you hire somebody [to oversee your wellness program], you’re really looking at about a three-year turnaround to monitor and see the benefits. We know for a fact that if you stop smoking, eat better and exercise more, you’re not going to cost as much in our medical system, because you’re going to be healthier and not use as many resources. So by encouraging [your employees] to have healthy habits, they’re not going to need as many regular [medical] visits.”
While wellness programs can differ depending on the company and who’s running it, Cox’s wellness curriculum and training program includes yoga, diet, exercise, smoking cessation programs and frequent traveler exercise programs in both group and custom, one-on-one sessions. In addition, he designs specific fitness and nutrition programs for individual employees as needed, and develops and motivates teams for competitive sporting events like triathlons, road races, running races, walks and more.
Facing the challenges
Although the insurance industry and employers have become more creative in recruitment and retention efforts, as well as cost-cutting, challenges nevertheless remain for any employer establishing a benefit package, big or small, beyond the obvious financial ones.
“Trying to keep all the employees happy [can be a major challenge],” says Fess. “Some employees may want Kaiser, some may want the freedom to choose their own physician. Offering multiple carriers in a plan and staying cost-effective can be a challenge.”
Another challenge, noted by Sackett, which, she says, especially applies to our North Bay workforce, is caused by our high immigrant population, not only because it brings with it many uninsured individuals, but also because we’re essentially serving two different populations with different cultural expectations of how medical services should be accessed.
“[In California], we’ve had a real problem with immigration in that, when immigrants need medical assistance, they don’t go to the doctor, they go to the emergency room,” explains Sackett. “That’s been a huge problem, because the emergency room is so extremely expensive for the system. We need to educate them to go to either urgent care centers or to doctors.”
Again, it all comes back to education, not just for immigrants but for some in the general population as well, who may have no idea how much a doctor’s visit, hospital stay or even a prescription costs.
“I look at that as a problem with doctors’ offices,” says Sackett. “When somebody pays their $5 co-payment, I’d love to see the receptionist say, ‘OK, it’s $5 for you, but if you didn’t have insurance it would cost you $200 for this visit.’ Someone needs to actually let them know what the true cost of the care is, because I don’t think many people know that.”
Despite the challenges, offering some sort of benefit package—even if it’s just the affordable minimum—is still better than nothing. It not only helps with recruitment and retention, but contributes to a healthier, more productive workforce.
“For a brand new company to be competitive, it definitely has to look at some vacation and some sick-leave or personal time off,” says Debbie Brandon, vice president of administration for Petaluma-based Don Ramatici Insurance. “That would be the minimum, and if they can afford it, a medical plan. Those three things would be just the beginning steps. Nobody wants to work for a year with no vacation, and it’s great if it’s a paid vacation. It’s great taking time off, but everybody has bills to pay.”
So with employees picking up more and more of their own health care tab, what’s in store for the future? Will benefit plans become obsolete? No, say most brokers. While there doesn’t seem to be an end in sight in terms of rising health care costs, employers and insurance carriers will continue to think of creative solutions to keep people insured while managing costs, and employers will continue to use not just health, but a variety of benefits, to recruit and retain employees.
Debbie Brandon sums it up: “If you have a great benefits package, you’re going to think twice before leaving."
