What’s Ahead in 2008 Concerning Employee Benefits
By every indication, employee benefits—particularly health care—are primary concerns for American workers. As medical costs continue climbing, the issues will only become more critical for businesses of all sizes. Here is an assessment of what companies can look forward to in 2008 and beyond:
1. Rising costs in health care rates. Despite attempts to ameliorate bad news, costs will continue to go up and premiums will rise anywhere from 6 percent to 20 percent, depending on the plan and the group. The Towers Perrin annual health care cost survey for 2008 indicates a 7 percent increase, bringing the average corporate health benefit cost to $9,312 per employee. When will it level off? Not in the near future. PriceWaterhouse Coopers indicates that the three major factors driving up health care costs are inflation, an aging population and advances in medical technology and treatments.
2. More states will be mandating health care programs. With hospital emergency rooms serving as the health care delivery system for 45 million people across the nation who have no coverage, the bills for billions of dollars of these services are falling on taxpayers.
In an effort to push back the tide, we can expect to see more states following the lead of Massachusetts. California’s Governor, Arnold Schwarzenegger, supports the concept of compulsory coverage, and in Illinois, the idea is part of the broader issue of health care reform. While mandatory coverage seemed unlikely just a few years ago, the tide may be turning even though there are many hurdles, particularly regarding pricing and enrolling the young.
3. Greater interest in Health Savings Accounts. Expect to hear both pros and cons about health savings accounts (HSAs) this coming year as more employers seek to discover what is involved. As with most new financial products, it takes time for both employers and participants to develop a comfort level before the actual implementation curve begins to climb. HSAs hold out the promise of lower costs and are tax-advantaged at the same time.
That said, HSAs are “consumer-directed,” an approach that’s quite foreign to most employees, and one that requires financial management. For most people, this means going from total inattention to cost, to making spending choices. In addition, there is concern that saving for medical expenses may not be particularly appealing to lower-paid employees, and in the case of a high deductible, some consumers may delay seeking medical care when it will do the most good.
In other words, employers should not look upon HSAs as a “silver bullet” for solving the health care cost problem. If there is to be success, it will depend upon a high level of consumer education. As Blair Woodbury writes on the Bell Policy Center website, “Enrollees have been people with higher incomes than the average American, and the tax deduction for contributions to an HAS provides little or no incentive for low-income people, who have little or no incentive to open an account.”
4. Innovative ways to control health care costs. Expect to see insurance companies trying out a variety of concepts for controlling costs. Tiered pricing is one example. There’s a lower co-payment if subscribers select this option, which includes providers who meet certain cost and quality benchmarks. A second tier offers a higher co-payment and includes providers who have not met those benchmarks. Another innovation comes from Precedent of Dallas, a division of American Community Mutual Insurance Company in Michigan. Since those with a mini medical plan having a high deductible can face a serious financial situation should they have substantial medical costs, the company has plans allowing participants to purchase additional coverage when exhausting their underlying benefits.
5. Long-term care protection. Individual policies are costly and the trend will be upward in the coming year, as insurance companies re-price products based on experience factors. It’s almost to the point where those who can afford to buy it may not really need it, since they have adequate financial resources to cover costly contingencies. However, expect to find more businesses looking favorably on group long-term care coverage programs. As a company-paid and tax advantaged benefit, it’s emerging as a way to reward and retain valued employees. At the same time, you’ll see more companies paying for basic, low-cost, long-term care coverage and giving employees the option to buy up.
6. 401(k) retirement plans. There are indications that most Americans underestimate the financial resources necessary to maintain the lifestyle they expect to enjoy in retirement, yet many employees fail to enroll in 401(k) plans, even when employers match their contributions. Hewitt Associates found that only 31 percent of eligible workers ages 18 to 25 have caught 401(k) fever and are taking advantage of employer matches, while 63 percent of those 26 to 41 years old are enrolled, and 72 percent of Boomers. More employers are using “automatic enrollment” with new hires in an effort to help employees get started saving for retirement. Clearly, more employee education is needed, particularly among younger workers who say that they can’t afford to put money into a 401(k) plan. They need to be shown that the program is tax-advantaged, so their net take-home pay may not be affected. An employer’s match could be an additional incentive.
7. Voluntary benefits. Why are some employers skeptical about offering voluntary benefits to their workers, particularly when the employees bear the full cost? Some executives find it difficult to believe that their employees will actually sign up for products such as disability income coverage, cancer insurance, accident plans and critical care.
However, as the need to take responsibility for one’s financial situation has grown over the past decade, employees are far more interested in protecting themselves and their families.
Disability income is attractive since many employees live paycheck-to-paycheck. Now, workers are asking for critical care insurance that provides a lump sum payment when the policyholder has been diagnosed with cancer, Alzheimer’s disease, heart attack and stroke, as well as other conditions, depending on the particular policy.
The money can be used as the policy holder decides. Since these are group plans, they are more inclusive, the cost is low and the underwriting is minimal. Most importantly, they give employees choices and offer peace of mind.
8. Increased patient participation in making health care decisions. If there is one word to describe a broad-range of trends in health care, it’s transparency, and the driving force is the Internet. A report by researchers at Bryant University in Rhode Island showed in 2004, 82 percent of women and 75 percent of men used the Internet for health information. Going forward, expect the public to demand more information from providers such as Internet access to hospital and physician ratings.
Clearly, health care costs will be a chief concern in the year ahead and long after. It’s equally clear Americans are taking responsibility for their health and retirement—two issues so closely intertwoven they are, for all intents and purposes, inseparable.
By David A. Proctor
David A. Proctor is president of Proctor & Company, a Natick, Massachusetts-based employee benefits firm founded in 1985. A Chartered Life Underwriter, he also holds Chartered Financial Consultant and Chartered Property and Casualty Underwriter designations. He is a graduate of the Wharton School of the University of Pennsylvania, and has an MBA in Insurance from Boston University. He can be contacted at (508) 651-7777 or email@example.com. The company website is proctorandcompany.com.