Employee benefits are one of the major overhead costs of running a business. With health care costs steadily increasing by approximately 10 to 15 percent every year, managing the expense has become a challenge.

"When we talk to our employers, their biggest concern is really the inability to control and predict a lot of the costs," says Valerie Bogdan-Powers, vice president of group operations at HORAN, an employee benefits and wealth management company.

"You can have high claimants coming in, you can have cost increases from your providers. All of those pieces can get very nerve-wracking, even if you do accrual spending and good budgeting," she says. Those costs are spilling over onto the rank and file, with employees shouldering more upfront premium costs and paying high co-pays.

Increasingly, companies are opting for catastrophic, high deductible health care plans (HDHCP).

High deductible plans are a quick solution to the problem because employees must bear more of the expenses and the overall premium drops for the employer.

Supposedly, consumers will be more cautious about their spending because they share more of the financial burden, but this could just as easily make some employees less likely to seek care when they really need it.

"Employers have been forced to cut pay, cut jobs. They're seeing lower profit margins, and then meanwhile the "¢ health costs continue to go up," says Jennifer Homer, an employee benefit specialist with Strategic Employee Benefit Services, a division of Northwestern Mutual.

"It's been very difficult for employers because they don't want to pass along more burdens to the employees and they don't want to lessen their benefits, but they're being forced to," Homer adds.

Diverse Plans

Larger employers have long implemented spousal waivers, which limit the coverage extended to spousal dependents if they have access to health insurance through their own workplace.

Recently, small businesses have enacted similar strategies.

"Traditionally, smaller employers just really want to take care of their employees, so they've got a very rich contribution strategy and a very rich benefit structure, which basically attracts every dependent to their plan. [Spousal waivers] really help drive costs off the plan, and a lot of groups are doing it as a defensive measure," says Jim Foster, vice president of employee benefits at CAI Insurance Agency.

To supplement a HDHCP, employers can self-fund deductibles underneath the carrier deductibles by creating a Health Reimbursement Account (HRA), which allows them to set money aside to pay for employees' medical expenses. HRAs have the added benefit of being tax deductible.

Employees might also have the option of a Health Savings Accounts (HSA) in conjunction with a HDHCP, which allows them to pay for regular expenses out of a personal account while still being protected from a catastrophic accident or illness.

"A lot of these employers may be too small to self-fund their insurance plan completely, but they're using the insurance company with those catastrophically high deductibles and putting the (self-funded) plan underneath it. That's been a real creative way for a lot of our employers to save on cost on their medical plans," Foster says.

"We have also used hybrid self-funding products for groups down to 25 lives that is fairly new and unique to this market and will continue to grow as we go down the road of healthcare reform."

Health reimbursement and savings accounts are part of consumer-driven health care, an approach that has enjoyed popularity in the past few years, says Homer.

Both HDHCPs and consumer-driven plans increased by one percent nationwide from 2009 to 2010, despite the overall drop in health coverage caused by unemployment and the recession, according to the Employee Benefits Research Institute.

Need for Education

With employees sharing more of the cost for health care, they have become more cautious consumers. Employees on consumer driven plans are more likely to compare treatment costs, ask for generic prescriptions and engage in wellness programs, according to the Employee Benefits Research Institute.

"We've seen a huge shift in the need to do much greater employee education," says Homer, who often meets one-on-one with employees to determine health plan options rather than hosting the traditional company-wide group meeting.

Employees aren't the only ones in need of education.

HORAN takes a "health management" approach to educate organizations about their employees' health behavior. For instance, data about why and how frequently employees visit the ER can be used to tailor educational programs and determine health plan options.

"It really is about bringing health management solutions to our clients, around integrating data with action to start impacting your health care costs," Bogdan-Powers says.

Creative Solutions

Carriers are responding to rising costs by offering employee wellness programs built directly into health care plans. Employers sometimes get premium breaks when employees participate in wellness programs.

"The only way an employee health and wellness program works is if you make it fun for them to get involved," Foster says.

Scorecard and points systems are springing up in an effort to engage employees.

United Healthcare launched a Personal Rewards program that allows employees to track their healthy behaviors with scorecards and offers financial incentives such as reduced premiums.

The HumanaVitality program rewards employees for healthy behavior by offering points that can be redeemed for movie tickets, hotel stays and brand-name merchandise.

Bogdan-Powers says that the most successful wellness programs have company executive support and become part of the long-term organizational culture, such as getting rid of soda machines in the office.

Overall, organizations and employees are being stirred to action and finding creative solutions to address rising health care costs, focusing on wellness incentives and flexible plan options. Their efforts are paying off.

"If you do nothing as an employer and just sit back and wait for next year's renewal, you're going to get about a 15 percent term increase," Foster says.

"We see that employers who are getting more engaged in the process are not looking at 15 percent trends, they're looking at 5 percent trends." 


Steve Wolf
Senior Vice President

Q: What are examples of how businesses are implementing creative benefit packages?

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