Cost Shifting: Change of Heart?


Some employers are now re-thinking one of the biggest trends in health insurance benefits in recent years: cost shifting.


Over the past several years, companies have tried to address rising healthcare costs by shifting more of the burden toward workers. Those changes include increased premium share and/or deductibles, less-expensive alternatives such as consumer directed health plans and HMOs, and cutbacks in prescription coverage.


The 2017 United Benefit Advisors (UBA) Health Plan Survey released last fall showed that total health insurance costs for employers rose 1% between 2016 and 2017. Compare that to employee costs, which increased 5%.


Cost-shifting hasn’t gone over very well

It seemed like a good idea at the time. The cost of offering and administering employee benefits is increasing. The rate of increase has slowed considerably now, but companies still need to find ways to keep their bottom line happy. The problem with cost shifting, as many employers are discovering the hard way, is that it makes their people unhappy.


Job satisfaction almost quadruples when employees are satisfied with their benefits. On the other hand, unhappy employees look elsewhere. And with the economy and job market greatly improved, looking elsewhere has become a lot easier. To remain competitive, companies will have to look past the short-term benefits of passing costs along to employees to the long-term implications for recruiting and retention.


The Gallagher 2017 Benefits Strategy & Benchmarking Survey studied group health plans in more than 4,000 organizations, and correlated that data with each company’s talent management results. About three-quarters of participating companies were mid-size, the remainder large employers.


Overall findings revealed that “best in class” mid-size firms invested more in employee wellness and disease management efforts, with a goal of boosting greater satisfaction by encouraging greater participation and engagement. These companies were less inclined to shift more cost to employees for deductibles, copays, or coinsurance. And they were less likely to shift health plan premium costs to employees.


Bill Ziebell, president of Gallagher Employee Benefits Consulting and Brokerage, also notes that employees may retaliate. “There’s a fear that if you shift too much cost to your employees they’ll go somewhere else.” He suggests that fear is the reason 62% of the companies surveyed – the ones who are doing the best job of balancing benefits costs and retention — spend less than $10,000 per eligible employee on benefits. For companies in general, that figure is just 42%.


He goes on to say that “a competitive advantage can be gained by employers who leverage and optimize their compensation and benefit approaches.” To do that, he says they are focusing on three key goals:

  • Attracting and retaining talent
  • Increasing revenue
  • Curbing operating costs


Ziebell also points out that, in addition to promoting stronger employee participation in wellness programs, best-in-class companies are working to boost ongoing benefits communication with employees and focus on long-term strategies that will encourage employers to renew their plans from one year to the next.


Shannon Enders, managing partner at Lakeshore Employee Benefits in Norton Shores, agrees that employers are re-examining their approach. “For the first time in years,” she says, “we’ve actually had some customers who have said, ‘Maybe I went too far and we’re having trouble keeping people.’” She says client companies are now asking her how they compare to others in their industry. And they’re starting to offer alternative health insurance options rather than a single plan.


Employees definitely want more choices

Consider this. In a survey conducted by Towers Watson:

  • 45% of employees said that health benefits helped sway them to accept the job. However, that number rose to almost 75% if the company offered benefits employees can customize to fit their own needs.
  • 55% said health benefits keep them on the job. But that percentage soared to 88% when customized benefits were available.


They want options that go beyond choosing a deductible. Choices that directly relate to their lifestyle and their family’s needs. Companies are responding in a variety of ways, offering two or more healthcare plans and adding specialized offerings that range from assistance with student loan repayment to pet insurance and identify theft coverage.


Upping the benefits ante to compete for workers is nothing new. It’s the genesis of our employer-based health insurance system – something you don’t see in other countries. Back during World War II, workers were in short supply and the government froze wages to head off a potential “price war” to attract labor. Enterprising employers looked for other ways to lure people, and started offering health insurance.


Today, some industry watchers suggest that what is needed is better collaboration among the three key players in this marketplace: employers and employees, of course, but also the insurance carriers themselves. Ultimately insurance providers cannot compete successfully without catering to both companies and consumers.


Offering a wider array of options employees will find relevant is something that benefits both employers and their workers. But companies are looking for administrative relief, too. Making more plans available and increasing the number of options within plans exponentially increases the complexity of administering the benefits program. That adds cost for employers – costs they can’t as easily shift to workers.


For some, self-funding may spell R-E-L-I-E-F

The United Benefit Advisors survey revealed another trend in health care benefits: self-funding. Generally thought to be a viable option only for large employers, self-funding is gaining popularity with more mid-size and small businesses because they can sidestep some health care reform compliance and cost elements. This has the potential to save money on administrative efforts as well as out-of-pocket health care expenses.


Self-funding also offers another benefit companies are finding to be particularly valuable. It gives them complete control over their health care program, in turn giving them full access to the data. That data holds the key to efficient, meaningful benefits offerings. With the ability to study usage patterns and associated costs, the company can determine which benefits and options matter to employees. Weeding out offerings no one wants streamlines everything.


Further, by studying costs associated specific usage, companies can see where they are most financially vulnerable. Armed with that information, they can work with carriers or internally to make cost-saving changes. The closer companies and insurance providers can work together, the better-equipped they will be to devise plans that work well for employers and also employees.


Gallagher’s Bill Ziebell agrees. His company is seeing movement toward self-funding “everywhere across the spectrum.” He notes that “employers that are doing the best of the best in terms of balancing cost and retention [are] using data to drive their decisions.” Ultimately, those decisions will enable companies to offer desirable health benefits without endangering recruiting or retention by shifting costs onto employees.

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