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Large employers historically have led innovations in employee benefits, as their size provides credible samples for experimentation, while midsize employers generally take advantage of lessons learned by their larger brethren as they move into uncharted territory.
For example, large employers were among the earliest adopters of consumer-driven health plans, which combined high-deductible insurance programs with health reimbursement arrangements or health savings accounts. Such plans yielded significant savings for employers while encouraging employees to become more conscientious consumers of health care.
More large-company trends to consider are:
Now that the plans have proven their value, many large employers are going full-replacement, a trend many benefits experts expect midsize employers to follow.
Though only 10% of U.S. employers now offer only a CDHP, 44% of employers with 500 or more employees say they are considering doing so in the next three to five years, according to research by Chicago-based Aon Hewitt.
“Consumer-driven plans are particularly important for midsize employers since their operating margins may be lower and less flexible than at large companies,” said Scott M. Wood, a principal at Benefit Commerce Group L.L.C. in Scottsdale, Ariz. “Full-replacement CDHPs … put all employees on the same field and allow the employer to communicate and promote consumerism in the same way for all. Our clients that implement full-replacement CDHPs consistently see 10% to 15% first-year savings and 2% to 3% additional savings each year thereafter.”
In conjunction with the full-replacement CDHP movement, many large employers are adopting a defined contribution approach to health care funding, allocating a specific amount of pretax dollars that employees can use to buy health coverage, deposit in an HRA or HSA, and then use remaining funds to purchase ancillary benefits such as dental, vision or disability coverage.
A defined contribution approach also may help employers avoid the 40% excise tax that will be assessed on health premiums that exceed $10,200 for single coverage and $27,500 for family coverage starting in 2018.
“Because of the possibility of triggering the excise tax in the future and having to manage health care costs overall, HDHPs and HSAs will continue to be part of that dialogue,” said Jim Winkler, chief innovation officer of health and benefits at Aon Hewitt in Norwalk, Conn.
As large employers share more of the cost of health care with employees, they also are offering voluntary benefits on an employee-pay-all basis. “Traditionally, they've been a larger group-type offering, but the market has evolved, so there are more carriers writing smaller groups and middle-market employers,” said Brian Celiberti, executive director of Crystal & Company in New York. In particular, accident, hospital indemnity and critical illness “are filling the gaps that might have been covered by the health plan previously.”
Private health insurance exchanges established by benefit consultants to cater to large employers ineligible to participate in the public exchanges set up for small employers under the health care reform law could hold promise for middle-market firms.
“In fact, they might be better served by exchanges than large employers,” said Helen Darling, president of the Washington-based National Business Group on Health. “They will perform the work of selecting the right plans and negotiating price — the things that midsize companies typically do not have the staff to do.”
Large employers have self-funded health benefits for decades, but it was hard for midsize employers to do so until recently. However, the availability of stop-loss insurance, a form of excess coverage triggered when individual or total claims surpass a predetermined threshold, is making self-funding feasible for companies with as few as 100 employees. Self-funded health plans often are less expensive than fully insured arrangements because they are exempt from state benefit mandates and many of the PPACA provisions.
“The reasons for moving to self-funding are the additional taxation (on health insurance premiums), carrier margins, commissions paid to brokers and (adverse) selection issues if you give employees a number of choices and good decision-support models,” said Rick Kahle, president of Lockton Benefits, a division of Kansas City, Mo.-based broker Lockton Cos. L.L.C. “You can save 7% to 12% by going self-funded.”
Large employers were among the first to embrace worksite wellness initiatives designed to reduce costs by improving employees' health status. In many cases, those employers also offered financial incentives to encourage employee participation. But participation often was inadequate, and many in recent years instituted outcomes-based incentives that require employees to achieve measurable health status improvements before qualifying for the incentives. In fact, the PPACA permits employers to offer incentives valued at up to 30% of single employee premiums for outcomes-based wellness programs if they provide a reasonable alternative standard for employees who cannot meet established criteria because of medical reasons.
“It's a natural transition if you've done participatory wellness,” said Bob Klonk, CEO of Oswald Cos., a Cleveland-based broker. “Employers want to see financial results, which they are more likely to see if they concentrate on outcomes.”
Large, self-funded employers typically use data warehouses to analyze their health care claims data to target their wellness and disease management programs. While sophisticated data analytics had been out of reach for many midsize employers because of its cost, today “there are newer players in this space that have built solutions targeting the middle market, and the health plans are becoming more cooperative” by sharing information with employers, said Aon Hewitt's Mr. Winkler.
Many large employers have taken data analytics a step further, combining health claims information with their workers compensation, disability and absence data to get a clearer picture of what factors affect worker productivity.
“What we're seeing on the larger end of the market is greater emphasis on centralization,” said Chris Kroger, managing director of national accounts for Liberty Mutual Insurance Co. in Boston. “Large employers recognize the need to figure out why somebody is not on the job and to manage those absences. They also recognize the importance of marrying absence data to medical events.”
Though companies of all sizes have moved away from defined benefit plans in recent years, replacing them with defined contribution plans such as 401(k) plans, large companies with legacy DB plans have tried to reduce the financial risk associated with those plans. Among popular de-risking strategies used by large employers are lump-sum distributions or purchasing annuities to transfer the risk to insurers.
“The interest in de-risking pension plans will continue in the coming year and will not be limited to large companies,” said Joanne Jacobson, a principal at Buck Consultants L.L.C. in Washington. “Many plan sponsors want out of the pension business. As (investment) rates go up, plans are better funded, making both lump sums and group annuities cheaper.”
With an improving economy comes a war for talent. While large employers have effectively used their strong benefits to attract the best and brightest, midsize employers can compete if they know what they are up against.
Benchmarking “is understanding where an employer is relative to similar companies, then taking that information and letting employees know that you've checked the market and you know you're competitive,” said Michael S. Grant, executive managing director at New York-based Crystal & Company.
In fact, a recent MetLife Inc. study found that employees perceive their benefits as being better than average if they are communicated effectively, he said.
Retirement readiness is another benefits-related issue that is capturing much of the attention of large employers and also should be on the radar for midsize employers, experts say.