EMERGING TRENDS IN EMPLOYEE BENEFITS

Being right in the thick of it, we have seen massive changes in the employee benefits landscape over the last half decade. Much of it initiated with the pandemic, but some trends began even before and were just exacerbated by Covid -19. This article contains insights from some of the big thinkers in the industry so take a look and see where perhaps you stand.

FROM ROUGH NOTES COMPANY / BY LEN STRAZEWSKI

Inflation and rising healthcare costs continue to drive employers away from a “we pay all” approach

As employees slowly stream back to their former worksites after more than three years of dodging COVID-19 infections, employers are struggling with meeting their evolving needs for healthcare benefits that extend beyond major medical insurance and other traditional employee benefits.

Major medical insurance is still a requirement for employers that want to recruit new employees and retain their top performers, and defined contribution retirement plans are still perceived as an important way to establish employee retirement security, but employers are now recognizing that their workers have diverse needs and limited resources.

Inflation and rising healthcare cost trends continue to drive employers away from their previous “we pay all” approaches that are forcing them to increase deductibles and coinsurance and shift more costs to supplemental benefits.

Supplemental benefits—some paid all or in part by employers—are more popular than ever with employees as they recognize their own individual and new needs. While supplemental benefits have been around for decades and include hospital indemnity insurance, critical illness insurance and various levels of life and disability insurance, insurers are responding to their customers for packaged portfolios of several supplemental benefits.

And employers are researching other costs such as mandated family leave, mental health benefits and financial wellness education that fit in with an evolved workforce.

Melanie Cannon, vice president of worksite benefits at Amalgamated Life Insurance Company, says insurers are learning to cope with a new workforce that will probably not return to pre-pandemic geography. “Hybrid workers,” who work from home mostly and return to offices only when necessary, are probably permanent even as the pandemic has ended.

“We have ushered in a new normal,” she says, “and companies must learn how to manage remote workers and understand their needs. Employers are still looking for ways to attract and retain employees and fine-tune their benefits to make them more effective. But they are going to need ways to communicate those benefits.”

Employers continue to need traditional healthcare benefits but as they attempt to contain their healthcare costs, they are looking for ways to provide the services their employees need without absorbing all of the costs, she explains.

Since the pandemic, some insurers are redesigning supplemental coverage to fit their new employee needs. Amalgamated Life is working on a group critical illness policy that employers can distribute to their employees, an accident policy with an additional gunshot benefit and a hospital indemnity policy with a COVID rider, among other innovations.

Communicating the details of those benefits when employees work from home is difficult, however, and employee benefits communications must also evolve, she says.

“Agents and brokers and their insurers will have to develop new communication approaches,” Cannon says. “Benefit portals are good approaches, but agents and brokers will need to learn to use them effectively.”

Challenges

Inflation has also had an impact on employee benefits as employees struggle to pay their own bills—which have been on the rise for the past couple of years. Now, inflation has also been affecting employer costs, driving employers to rethink their employee benefits structure, says Kevin Cranston, head of product development at Reliance Matrix.

As employers try to trim their benefits costs, they continue to shift costs to employees with high-deductible health plans and choices in supplemental health plans to fill in gaps. But that means that employees must also make more choices to manage their own costs.

“Inflation has been around for months, and it is not getting too much better,” Cranston says. “Households have to rethink what they buy and that applies to supplemental health benefits as well as groceries.”

As everyone focuses more on day-to-day costs, employer and insurer concerns may be regarding 2024 enrollment—getting their employees enrolled and making appropriate choices among supplemental options.

“Some health decisions may take a back seat to other consumer choices when inflation is high and money is tight,” Cranston says. “Employees may want to buy up with supplemental products like critical illness insurance and extra life insurance, but it may not always be an easy decision based on their financial circumstances.” They may not have money to make those supplemental purchases, he says.

“Overarching inflation may be the biggest worry for the foreseeable future. A lot of people see that need for supplemental insurance, including life, disability and hospital indemnity insurance, but I don’t know if they are enrolling in them as much as they should to ensure proper protection.”

However, Cranston says the need is still present and a challenge and an opportunity for insurers and their agents and brokers if they can educate their customers more effectively to support more careful choices.

The days of employee meetings in corporate conference rooms may be over, as workers only slowly return to offices, but ZOOM and Microsoft Teams meetings, along with decision support tools, can still provide interactive education, he says. And employees still need it.

“There’s only so much money to go around—for everyone—but employers and their employees have to be educated as much as possible regarding the benefit options they have,” he says.

Large employers may want to contribute a little more to the cost of supplemental benefits to encourage participation, and small employers who do not already offer supplemental benefits may want to consider choosing portfolios of supplemental benefits to offer to their employees, he says.

However, COVID is finally becoming less of a dominant factor in human resource management, according to David Healy, president of group benefits at SunLife U.S. “Everyone is recovering from the pandemic and people are beginning to see the issue in the rearview mirror.”

As a result, the healthcare panic that dominated employee benefits for three years may finally be over and “cost containment is back at the top of the list of concerns,” he says. “And we have solutions.”

The employers’ new goal is to give employees the right access to healthcare when they need it, and Healy says that SunLife has structured its products to provide that access while managing employer expense with medical stop loss insurance and providing choice to employees with supplemental health insurance.

Medical stop loss insurance allows employers to self-fund health benefits at levels that allow them to manage their costs at local levels. High-deductible health plans are more popular and supplemental health plans such as hospital indemnity insurance, critical illness insurance and short- and long-term disability insurance have become more popular with employees as they choose what levels of care to fund within their high-deductible plans.

New considerations

Absence management is also an important issue as employers seek to better manage their returning work force, and Healy predicts that a new range of issues is waiting for insurers, brokers and employers to tackle once they have cleared their attention of COVID concerns.

These issues include healthcare price transparency, the high cost of prescription drugs (driven by the soaring cost of biologics), mental health parity and state mandated medical leave.

The Employee Benefit Research Institute (EBRI) tracks social trends in employee benefits with annual employer surveys. The consulting organization reported in October that a trend toward increased self-insurance of benefits that has been accelerating since the 1980s has now been moderating but at an inconsistent rate and, in some cases, it has reversed.

The organization’s latest report says that the percentage of workers in self-insured plans has been “bouncing around” between 58% and 60% since 2010 but fell to 55% in 2022. This change occurred despite the continuation of an increase in self-insurance among small and medium-sized companies, and because of the drop in self-insurance among large firms, the EBRI study said.

Self-insurance also varied substantially by state. Overall, the percentage of private-sector enrollees in self-insured plans varied from a low of 33% in Hawaii to 70% in Ohio.

The EBRI also reports increased interest in employee services—uninsured benefits that provide a financial range of personal and professional support to employees. Termed “financial wellness” benefits, these services can include money management tools, employee discount services, financial planning and investment education programs.

Conducted in July and August 2023, the Sixth Annual EBRI Financial Wellbeing Employer Survey was collected through an 18-minute online survey of 252 full-time benefits decision makers. All respondents worked full time at companies with at least 500 employees.

The survey revealed the high costs of living as the top issue to address with financial wellness initiatives, supplanting retirement, which topped the issues in previous years. Healthcare costs, budgeting and money management and daily living expenses were among other issues. The EBRI said that the results may signal an increase in employers’ concern for their workers’ day-to-day finances.

“The survey shows that financial well-being programs are being used to increase worker satisfaction and retention. However, employers cited costs to employees, as well as to the company itself, as challenges in offering financial well-being programs,” said Craig Copeland, Ph.D., director of EBRI’s wealth benefits research.

“Perhaps as a result, employers frequently cited measuring their financial wellness offerings’ impact on employee productivity and worker satisfaction. At the same time, most benefits decision makers reported being optimistic that their company’s budget for these benefits will increase in the short term so that they anticipate continued development of these programs,” he said in a press briefing.