A Health Care Benefits Evolution

By Rita Pyrillis

Health care remains employees’ most valued benefit, but few give their health plans much thought except when they’re choosing one during annual enrollment. However, that is changing as employers make significant changes to their plans and employees dig deeper into their pockets to pay for them.

With the steady climb of health care costs and the increase in medical debt for employees, health benefits are critical to recruiting and retention and job satisfaction. More than half of employees recently surveyed by insurer Aflac Inc. said that they would likely take a job with lower pay but better benefits, and three-fourths believe that benefits are “extremely or very important” to job satisfaction.

And yet most employees seldom use their health benefits or understand why they value them, according to Tom Sondergeld, senior director of benefits and well-being at Walgreen Co.

“It’s amazing that something employees spend about 20 minutes a year thinking about is so highly valued,” he said. “There is a very interesting dynamic being created around health care benefits right now. People don’t leave because the benefits are bad, but they will come and stay if they are good.”

Health care benefits give employees a sense of financial and emotional security, Sondergeld said. So tampering with them is likely to trigger an outcry. Sondergeld would know. He helped lead the Deerfield, Illinois-based drugstore chain’s highly publicized move from traditional health benefit plans to a private exchange two years ago.

With 160,000 employees nationwide, Walgreen’s move to join Aon Hewitt’s private exchange was widely viewed as a major turning point in employer-provided health care. But not all of the publicity was positive.

“The press was going crazy saying that we were pushing employees out to Obamacare and people were bringing us newspapers saying, ‘Look what you’re doing to us,’ ” he said. “It was a huge fight, and we had to get out in front of it with HR and managers and really fight hard to gain the trust back.”

Evolution of Benefits

Health benefits are evolving rapidly as more employers adopt high-deductible health plans, scale back on plan choices, change coverage levels or drop coverage for part-time employees. And employees are being asked to pay a greater share of the costs and take more responsibility for their health care choices.

Many employers are easing workers into these changes in order to give them time to learn about new offerings and to ease the financial pinch that some employees will feel, said Julie Stone, a senior consultant with Towers Watson & Co.

“We’re seeing planning now in stages, so by the time employers get to 2018, they will have redesigned their plans,” she said. That is the year that the excise tax, also called the “Cadillac tax,” on costlier health plans takes effect and it’s a target date for employers who are making changes to avoid the penalty.

Much is being asked of employees these days, and that concerns Cheryl Larson, vice president of the Midwest Business Group on Health.

“What is the saturation point for the consumer?” Larson said. “This cost-shifting trend is going to backlash in terms of health outcomes, out-of-pocket costs and productivity. There’s a huge issue of people in high-deductible plans not going to get preventive care because they don’t know that it’s covered at 100 percent. Everyone is talking about consumerism, but the bigger story is helping people navigate the health care system and understanding their benefits.”

In fact, 80 percent of employees say that a well-communicated benefits plan would make them less likely to leave their jobs, according to the “2014 Aflac WorkForces Report,” compared with 44 percent in 2012.

The need for greater clarity around benefits led Glassdoor, the online career community website, to launch a benefits-comparison site in August that lets potential hires know exactly what kind of benefits and perks a company offers before taking the job. It also allows companies to tout their perks and benefits and respond to questions from users.

“Companies are now looking for new ways to highlight aspects of their culture, and benefits are one of the ways that highlight how an employer values its employees,” said Will Staney, head of global recruiting for Glassdoor. “Before employees couldn’t really see what a company offered, and employers didn’t have a way to communicate that on a granular level.”

The Sausalito, California-based company is known for its database of employee-written company reviews.

“Employers are figuring out that benefits and perks and the subtleties of working in a place are becoming really important in selling the full package of what a company offers,” he said. According to Aflac, 59 percent of employees are likely to accept a lower salary in exchange for better benefits, but Staney said most employees don’t find out what those benefits are until they’ve accepted the job, and recruiters normally don’t know what their competitors are offering.

“In the past, when employers talked about benefits, it was usually in the interview phase or employees found out about the benefits at orientation,” Staney said. “Knowing this stuff when going in to negotiate a compensation package can help both sides.”

The benefits comparison site is another tool that employers can use to better educate themselves about their benefits, Staney said. Users can click on a company profile and browse a checklist that includes health and wellness plans, financial and retirement benefits, work-life programs, vacation and time off, perks and discounts, and professional support programs. They also can read employee comments and see what benefits employees are talking about most. For example, at Hewlett-Packard Co., the health insurance, 401(k) plan and vacation and paid time off are the most talked about benefits.

Benefits and perks are especially important to younger workers, according to Staney. “I think millennials are pushing this transition toward transparency around benefits, beyond salary, bonuses and stock options,” he said. When employees’ children turn 26, “they drop off of their parents’ insurance and they’re on their own. They are coming out into a job market where you’re not getting great salary increases, so employers are getting more creative with benefits and perks to attract them. They really care about getting as much information as they can.”

While employee benefits are becoming more complex, employers and employees continue to see their value as a recruiting and retention tool.

“Employees value health benefits almost as much as pay,” said Brian Marcotte, president and CEO of the National Business Group on Health. “That hasn’t changed. But whether or not employers will continue to offer health benefits for the foreseeable future is where it gets murky. There is a lack of confidence in their ability to control health care costs, and there’s only so much that they can do. The long-term question of the value proposition around benefits is going to take several years to prove out.”

He recommends that employers carefully examine the needs of their workforce and what kinds of benefits that they value most and plan their rewards strategy accordingly.

What Employees Want

For employees of Santa Barbara County in California, accident insurance and long-term-care insurance are the most-requested benefit plans, according to Andreas Pyper, the county’s benefits manager. Critical illness insurance also ranked high on employees’ wish lists, so the county introduced them this year.

During an open-enrollment meeting last year, Pyper said an employee told him that he was struggling to pay the bills for his son’s broken arm and his daughter’s treatment for a rare genetic disorder. His family used to be covered by an accident policy through his wife’s job but she no longer worked there, Pyper said.

“He said, ‘$1,800 for a broken arm may not sound like much, but given all the other expenses, it [accident insurance] was a lifesaver,” Pyper said. “So I did some research. It doesn’t cost anything, which means that we’re not spending any taxpayer money, and that’s important to us.”

Accident insurance covers a wide range of incidents and injuries; like other voluntary benefit plans, workers pay the full cost but at a lower rate than they could get on their own. However, costs for long-term-care insurance are extremely expensive, so it’s unlikely that the county will be offering that anytime soon, he said.

Offering employees the benefits they value is especially critical to recruiting and retention in the public sector, which must compete for talent with private employers who can offer more lucrative compensation packages, Pyper said.

But there is little doubt that for the vast majority of employers benefits are an important recruiting tool, and health care is the benefit that’s most important to employees.

“Employers have been offering health benefits for 70 years as a way to recruit and retain workers, and that hasn’t’ changed,” said Paul Fronstin, director of health and research at the Employee Benefits Research Institute. “Today we may be on the verge of change, but just about every employer offers health benefits. However, that doesn’t mean what they are offering hasn’t changed.”

And those changes will no doubt affect future workers who will face a different benefits landscape, said Towers Watson’s Stone.

“How will they approach the workforce in their lifetime?” she said. “There will be no pensions, and the value of their health care benefits will not be as high as those of older workers. Are they more likely to freelance, to work part-time? What will they value? And how will we attract and engage this next generation? And how does health care fit into that?”

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