For many employers, the ultimate goal of their benefits plan is to retain a high-quality workforce and reduce turnover. For others, their aim is to spend as little as possible while remaining compliant with laws and regulations. Still others don't have a specific benefits objective and simply react to change as it occurs.
Decisions about employee benefits are complex during the best of times. In the post-Affordable Care Act (ACA) world, additional workforce management decisions bring new challenges. For instance, a 2013 Deloitte health-care-cost study revealed that 21 percent of large organizations (those with more than 2,500 workers) believe that the ACA's public exchanges provide a viable alternative to employer-sponsored coverage.
Strategic benefits planning can help employers to better meet objectives and manage risks appropriately. Below are two potential scenarios that highlight some of the challenges employers face in choosing a benefits strategy today:
Employer Scenario No. 1:
A large consumer-based organization with multistate employees has historically offered health coverage to part-timers. The employer analyzes the potential effect of the ACA on its workforce and discovers that 20-hour-per-week employees would generally receive more affordable health plan options under a state-based exchange. Depending on household income, these individuals might qualify for expanded Medicaid or subsidized coverage, which would cost them less in premiums and cost-sharing than coverage through the employer’s plan.
To give employees access to premium subsidies and cost-sharing options, the organization realized that it would have to stop offering health coverage to its part-time workers. Employees with a household income of between 100 percent and 400 percent of the federal poverty level are eligible for tax credits on exchange coverage only if they lack access to affordable employer-sponsored coverage that provides minimum value . If the employer were to offer its part-timers coverage meeting these standards, then, even if they refused it, low-wage workers would not be eligible for subsidies or cost-sharing through the exchange.
Employer Scenario No. 2:
A large national retail conglomerate with more than 100,000 employees planned to decrease staff hours to less than 30 per week in advance of the ACA’s employer-mandate deadline . After an initial testing period and feedback from employees and customers, the employer abandoned this plan. The company instead explored a “defined contribution” approach to health care by offering coverage to full-time workers using a private insurance exchange operated by a large consultancy. Under this approach a set dollar amount is contributed to each employee, who then has the opportunity to purchase insurance through the private online exchange. In offering this option, the business was responding to employee requests for more health insurance options.
This approach also allowed the employer to more accurately predict health care costs year over year and to shift the risk of premium increases to employees. A recent Algeus Technologies survey shows increased interest in employer adoption of private exchange models into 2015.
The above scenarios are just two divergent approaches to a benefits strategy, based on respective corporate goals and objectives.
Strategic Benefits Approaches
Competitive benefits offerings continue to remain a high priority for employees. In a multiyear survey on health and voluntary workplace benefits by the Employee Benefit Research Institute (EBRI), workers consistently ranked health coverage as the first or second most important benefit . However, employers face high health insurance and medical care costs, with premiums spiraling upward every year. The Kaiser Family Foundation’s 2013 Employer Health Benefits Survey showed that, over the past decade, the average premium for family coverage rose by 80 percent, while workers’ average dollar contributions to family coverage increased by 89 percent .
Although medical inflation is more than twice the Consumer Price Index, inflation-adjusted household income has fallen. Workers and employers alike are caught in the pinch.
In August 2013, 18 percent of employees under age 65 were contributing less to their retirement plan than they had a year earlier in order to pay rising health insurance premiums, according to Bankrate’s 2013 Financial Security Index. Similarly, Bank of America Merrill Lynch found that among the eight out of 10 employees who have experienced an increase in health care costs during the past two years, more than half (56 percent) were saving less for retirement as a result .
In this challenging environment, many companies are exploring new options for both health care and retirement plans. High-deductible health plans coupled with health savings accounts (HSAs) are one strategy to help employees manage health care costs. HSAs can offer an attractive retirement-savings boost, with tax-deferred savings and the ability to carry over funds from year to year.
Also, more employers are going down the road of self-insurance, which has become increasingly popular in recent years to help control health care costs. Up to 58.5 percent of workers were in self-insured plans as of 2011, according to EBRI.
In addition, HR professionals can take other steps to help employees control costs and prioritize savings. These include:
In the years ahead, HR practitioners will be required to further analyze health benefits and retirement benefits more holistically and to develop plans that help their employer meet its objectives. Setting a thoughtful, flexible total benefits strategy aligned with an employer’s business objectives is an important first step.
Shelby C. George, J.D., CEBS, is a practice leader at Manning & Napier Advisors LLC . Before joining Manning & Napier, in 2011, she worked as an ERISA attorney and benefits compliance consultant.
Related SHRM Articles:
Employers Need to Start ACA Measurement Periods, SHRM Online Benefits, September 2013
Proposed Rule Clarifies Employer Mandate Calculations, SHRM Online Benefits, revised July 2013
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