Attracting and retaining employees and increasing employee job satisfaction continue to be the 2 most important goals of benefit plans, according to a recent Eastbridge Consulting Group study of over 500 employers with 10 to 2000+ employees. Helping employees plan for their financial future is also key, our survey found.
Still, employers are most influenced by cost issues when making benefits decisions, which can often undermine these goals.
In Eastbridge’s 2006 study, 90% of the benefit managers surveyed rated “controlling costs of both health and welfare benefits” as the most important factor they consider in making benefit decisions. Reducing human resources administrative costs was significantly lower in importance this year compared to a similar study by Eastbridge in 2002. This is perhaps a sign that cost increases in medical plans are taking precedence over reducing administrative costs.
The most popular approach to controlling costs is to increase employee contributions toward benefits. Interestingly, though, significantly fewer said they were likely to do this now compared to 2002 (39% today vs. 47% in 2002). Thirty-two percent said they would most likely increase deductibles, copayments or other features of their plans to control costs. More importantly, however, most employers favor these methods rather than opting for more drastic measures such as dropping benefits, moving benefits to an employee-pay-all basis or even moving to a defined-contribution approach.
Despite all the press coverage about employers wanting to reduce their benefit costs, employees still have access to a significant range of insurance coverage, and employers seem committed to continuing to offer this choice. More than 9 out of 10 employers in the study offer medical, prescription drug, and dental insurance. About 80% offer term life, accidental death and dismemberment, and short-term and long-term disability coverage to employees (either as employer-paid, employee-paid or on a cost-sharing basis). Few employers are looking to reduce the number of benefits or to cut benefit amounts. Most benefits are paid for by a combination of employer and employee funds. Only a few benefits (term life, AD&D and disability) continue to be paid by the employer alone.
Over half of the employers surveyed prefer to purchase benefits through a commissioned broker. For many, this is typically their core group benefits broker. (One-quarter prefers to work directly with carriers.)
The role the broker plays in an employer’s benefits decision-making is divided fairly evenly among 3 different options, all offering to take care of varying degrees of the “legwork” (see Table, “Role of the Broker.”) But for all 3, the employer retains the final decision. Only 6% of those using a broker said they leave most of the decision-making to the broker.
About 70% of the employers offer at least one voluntary product today, an increase from 64% in our 2002 study. The percentage of employers offering voluntary is similar in all but the smaller accounts. Small employers (with 10 to 100 employees) are the least likely to offer voluntary benefits, with only 50% in this survey offering at least one voluntary product. Because of this, on a weighted average, reflecting the actual mix of businesses (by size) in the U.S., about 54% of employers offer voluntary. But the numbers for larger employers are much better, and about 70% of employees in businesses with 10 or more employees have access to voluntary benefits through their employer.
Most employers offer voluntary products because of employee interest as well as cost savings to the company.
Almost three-quarters of those surveyed said they include employee feedback and input in their decisions about which products to offer. Those that don’t currently offer voluntary benefits think their program is adequate without them. Interestingly, those employers that discontinued offering voluntary did so due to lack of employee participation and due to dissatisfaction with the service provided by the carrier.
Cancer/critical illness and short-term disability insurance are the most commonly offered voluntary products. Health savings accounts, high deductible health plans and long term care insurance rated the highest in terms of future voluntary product sales potential, according to the benefit managers surveyed. These products are related to helping employees with health care expenses and to helping employers control costs. There is some concern, though, with moving towards these types of plans, given the need for educating employees well enough to make sound benefit decisions.
When asked who they would like to contact them for information about a new voluntary product, the benefit managers basically indicated having no preference. In other words, the study found brokers with existing relationships with their employers have no real competitive advantage over others offering similar benefits. Among those that have a preference, the broker handling the medical plan was named most frequently.
Clearly, benefit managers are looking more closely at product and price of all benefits (employer-paid, employee-paid or shared) more so than in years past–even though voluntary products aren’t using company dollars. They want to be sure that the voluntary products they offer to employees provide real value. If not, they will switch to another carrier if they think it has better value.
But don’t be fooled; value does not necessarily mean the cheapest price. Today’s benefit managers look at the benefits paid as well as the price and choose those that best meet employee needs. Indeed, voluntary benefits have become a mainstay of almost every employer’s benefit program, and their importance is here to stay.
The survey, “The Worksite MarketVision 2006–The Employer Viewpoint,” includes quantitative interviews conducted with benefit managers during June and July 2006. A total of 504 surveys were completed, with roughly the same number of employers from each of 4 different size categories (10-100 employees; 101-500; 501-2,000; 2,000+). Qualitative interviews were conducted with an additional 31 plan administrators.