RSM Resources

Many plan sponsors believe employee benefits programs are a vital competitive tool in today’s marketplace, according to a recent report by Prudential Financial Inc. And in the face of skyrocketing costs,employers are seeking new and inventive ways to control these costs while winning the war for talent.

Most employers — 80 percent,according to the Prudential study — believe it’s important to subsidize the cost of highly competitive benefits as much as possible in order to attract the best job candidates. And, while this opinion is more common for large businesses, the trend is true among companies of all sizes.

As plan sponsors look to balance rising costs with employee needs, they’re also looking for creative funding solutions. Many have begun to control their benefits expenses by asking employees to shoulder more of the costs, offering a wider range of voluntary benefits and introducing more-flexible plans, according to the study.

Health care costs continue rising

Health care premiums rose at a more moderate rate in 2006 than in previous years, but prices still increased. Premiums for employer-sponsored health coverage rose an average 7.7 percent last year, less than the9.2 percent increase in 2005 and the most recent peak of 13.9 percent in 2003, according to the 2006 Employer Health Benefits Survey from the Kaiser Family Foundation and the Health Research and Educational Trust.The 2006 Kaiser survey recorded the slowest rate of premium growth since 2000.

However, moderating cost increases are still not necessarily good news for employees. In 2006, premiums increased more than twice as fast as workers’ wages (3.8 percent) and overall inflation (3.5 percent).

"While premiums didn’t rise as fast as they have in recent years, working people don’t feel like they are getting any relief at all because their premiums have been rising so much faster than their paychecks," said Foundation President and CEO Drew E. Altman, Ph.D., in a press release on the study. "To working people and business owners, a reduction in an already very high rate of increase just means you’re still paying more."

Other statistics Kaiser determined for working families facing higher health care costs:

• Workers at small companies (up to 199 employees) contribute, on average,significantly more to their premiums ($3,550 for family coverage) than workers at larger companies ($2,658 for family coverage).
• On average, workers this year are paying about 16 percent of premiums for single coverage and 27 percent of premiums for family coverage, with their employers paying the rest. That share is essentially unchanged from recent years.
• In 2006, the average in-network preferred-provider deductible reached $473 for single coverage, and average co payments for drugs across plan types were $11 for generic drugs, $24 for preferred drugs and $38 for non preferred drugs.
• Few employers have much confidence in strategies to contain rising healthcare costs. For example, only 17 percent of small businesses and 28percent of large businesses say that they consider disease-management programs — which help patients deal with chronic conditions such as diabetes — "very effective" at controlling health care costs. Employers were even less likely to rate other strategies as very effective,including consumer-directed health plans, higher employee cost-sharing and tighter managed-care networks.

Employee cost burden to double by 2010

Employers and employees agree that the current level of benefits coverage should be maintained, if possible, the Prudential research suggests. But, to make that possible, most plan sponsors expect to shift costs to employees during the next five years.

Employers typically adopt the following practices to increase employee cost-sharing of benefits:

• Ask employees to pay a greater proportion of contributory benefits costs, such as premiums and co payments.
• Offer more voluntary benefits, with employees paying 100 percent of the cost of certain programs.
• Establish consumer-driven health plans (which give employees more choice — and responsibility — in their health care decisions) and disease management initiatives.

Adopting these practices makes choosing benefits more complex by pulling in growing numbers of internal and external influencers. Of Prudential study participants, 48 percent say that, by 2010, financial consultants will play a larger roll in evaluating and planning benefits programs.

Risk management and procurement functions will also grow more important in finding cost-effective benefits solutions. Among study participants, 27 percent anticipate they will seek external guidance from benefits consultants and insurance carriers to help build the right solutions.

Holistic approaches to maintaining benefits

The authors of the Prudential study identified companies they considered"progressive." They consider companies progressive if they offer benefits that are competitive within their industry or size segment,and understand their employees’ greatest financial and lifestyle concerns. On average, 11 percent of employers, or 68,000 businesses nationwide, consider themselves "progressive." Thirty-one percent consider themselves "above average," meaning they have a progressive benefit philosophy but take a slightly more conservative approach in adopting new programs, communication strategies, technology and outsourcing.

Across all plan sponsors surveyed, the percentageof progressive and forward-thinking companies is expected to increaseby 2010 to more than 50 percent of all employers.