Understanding Employee Benefits

September 4, 2007

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Neither executives nor their employees are happy with the state of company benefits programs. It doesn't help that many employees don't understand what their company is providing.

Rising employee health-care costs are prompting some employers to reduce benefits, according to a recent survey from New York-based trade group the American Institute of Certified Public Accountants. Among 230 financial executives polled, 81 percent said health-care costs were up significantly in the past year, from as little as 5 percent to more than 20 percent, and about a quarter of respondents said employees will end up shouldering more of these costs.

The number of employers offering consumer-directed (also referred to as consumer-driven) health plans continues to grow. In March, a survey from Watson Wyatt and the National Business Group on Health found the portion of companies offering a consumer-directed health plan (CDHP) increased from 33 percent to 38 percent in the last year.

CDHPs, which include a personal employee spending account and a high-deductible policy, are designed to persuade employees to become more prudent about their treatment decisions since they're spending their own money. As of five years ago, only a handful of companies offered such plans.

Such plans are expected to continue to increase among large employers, and small to medium-size employers should see some growth as well this year, Watson Wyatt senior consultant Tom Billet said at Workforce Management earlier in the year.

Unfortunately, Americans have not yet warmed to these types of health plans, a relatively new kind of coverage that offers reduced premiums but carries higher annual deductibles, according to the second annual Consumerism in Health Care Survey by nonpartisan organizations the Employee Benefit Research Institute (EBRI) and The Commonwealth Fund.

As companies slowly implement these health plans as a way to alleviate rising medical costs, organizations are now focusing on teaching their employees how to be better consumers of health care.

To help employees make smarter decisions, says Workforce Management, employers are offering online financial modeling tools. The trend to educate employees better could help boost enrollment in consumer-directed health plans, which has proven to be a difficult task for employers.

Even those who are covered don't even understand to what extent they are covered.

A majority of workers misunderstand the value of their total compensation packages, including salary and benefits, according to a recent survey from Harris Interactive and Charlton Consulting Group.

The results, released in April, show that 51 percent of full-time workers in the United States workforce believe their employer pays 30 percent or less — over and above their wages — for employee benefits such as health, life and disability insurance as well as retirement benefits and paid time off. Yet most employers are actually paying 43 percent over and above wages and salary for employee benefits, according to a report from the U.S. Department of Labor's Bureau of Labor Statistics last fall.

The problem lies in a lack of communication between employer and employee.

What Your Peers Are Providing Sixty percent of establishments in private industry offered medical care benefits to their employees in March 2007, the U.S. Department of Labor's Bureau of Labor Statistics reported last month. These findings, from last month's National Compensation Survey: Employee Benefits in the United States, March 2007, say that employers paid 81 percent of the cost of premiums for single coverage and 71 percent of the cost for family coverage for workers participating in employer sponsored medical plans.

The following are some of the major findings:

One-third of all establishments with 100 workers or more (large establishments) offered a defined benefit plan to their employees, compared with only one out of every 10 establishments with fewer than 100 workers (small establishments). Eighty-two percent of larger employers offered defined contribution plans, compared with 42 percent of their smaller counterparts.

Paid leave was the most commonly provided employee benefit in the private sector: paid holidays and vacations were available to 77 percent of employees. Paid jury duty and paid funeral leave benefits were also common, and nearly half (49 percent) of the workers had paid military leave benefits.

Sixty-one percent of workers had access to retirement benefits, with 51 percent participating in at least one type of retirement plan. Twenty percent of employees participated in defined benefit retirement plans, and 43 percent in defined contribution plans. (Some employees participate in both types.) See today's Relax into Retirement.

Fifty-eight percent of workers had access to life insurance, and nearly as many (56 percent) participated.

Short- and long-term disability benefits were available to 39 percent and 31 percent of workers, respectively. If offered, nearly all workers participated.

Seventy-one (71) percent of workers had access to medical care benefits, and 52 percent participated in a medical care plan. Access and participation to health care and other benefits varied by employee and employer characteristics.

Most employees covered by medical care plans were in plans requiring employee contributions for both single and family coverage. Employee contributions for medical care premiums averaged $81.37 per month for single coverage, and $312.78 per month for family coverage.

Employer premiums for medical care plans averaged $293.25 a month per participant for single coverage and $664.04 for family coverage; employers paid higher premiums for those employees who were not required to contribute than for those who were.

Health Savings Accounts (HSA) were available to 8 percent of workers, although they are offered more often to management, professional and related occupations and sales and office occupations, as well as to full-time workers, and those in occupations with average hourly earnings of $15 or higher than to other worker groups. Workers in large establishments also had greater access to HSAs than did workers in small establishments.

Conclusion Despite these numbers, neither executives nor their employees are happy with the current state of company benefits programs. A study by Towers Perrin found that both sides of the equation are displeased with the system.

"Ultimately," says Dave Guilmette, managing director for Towers Perrin's Health and Welfare practice, "it may be time to revisit certain assumptions about benefit design and delivery, because this survey shows that current approached are not working as well as they should for employers or employees.

"Program changes are not yielding desired savings. They are not serving to attract and keep top talent as effectively as they could. And they are not being communicated to employees in a way that helps them take on a more active role in the process."

Resources

Financial Executives Concerned About Employee Healthcare Costs AICPA, July 24, 2007

More Companies Offering Consumer-Directed Health Plans Watson Wyatt/National Business Group Health, March 15, 2007

Consumer-Driven Health Plans Slow To Catch On, 2nd Annual Survey Finds EBRI and Commonwealth Fund, Dec. 7, 2006

An Ever-Changing Workforce Management Landscape by Leslie Gross Klaff Workforce Management, December 2006

Fifty-one Percent of Employees Underestimate the Value of Their Total Compensation Harris Interactive and Charlton Consulting Group, April 11, 2007

Employee Benefits in Private Industry, 2007 U.S. Department of Labor, Bureau of Labor Statistics, Aug. 22 2007

National Compensation Survey: Employee Benefits in Private Industry in the U.S., March 2007 Bureau of Labor Statistics, August 2007

Survey Shows Neither Employers Nor Employees Are Getting What They Need From Current Benefit Programs Towers Perrin, March 7, 2007

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