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Passing storm: the recession has employers taking a hard look at their group employee plans for ways to cut costs while sparing benefits.


The downturn in the economy continues to wreak havoc on workplaces around the world.

More than half of the companies surveyed in the Society for Human Resource Management's 2009 Employee Benefits Survey report their employee benefit offerings have been affected by the current U.S. and global economic crises.

The U.S. Bureau of Labor Statistics cites the number of unemployed individuals topped 14 million in July.

Employers are scrambling to cut operational costs and identify new approaches to lower expenses associated with their group benefits plans.

Some are doing that by paring back their offerings, while others are shifting more costs to employees or introducing voluntary benefit options. Some carriers have developed products or services designed specifically to help employees in transition.

Tactics vary, but one consistent trend has emerged: Many employers are relying on brokers more than ever to cut costs.

Employee benefit programs are feeling the effects. Hardest hit is medical coverage, said Christopher Burns, CEO of Willis Global Employee Benefits.

"Medical costs are going up the fastest and are more immediately critical, and it's the benefit that gets used the most," Burns said.

The Kaiser Family Foundation and Health Research and Educational Trust said the average cost of an employer-provided family health plan now tops $13,375, up 5% from 2008.

Also, 401(k) plans have been impacted by the recession. Many companies are being forced to "reduce, eliminate or suspend their matches," said Burns.

That's a similar trend for some defined benefit plans. A growing number of employers are eliminating those plans, he said. "We expect defined contribution plan assets to outweigh defined benefit plan assets globally over the next two to three years."

While the group life market has been less affected by the economic downturn, Kent Lonsdale, executive vice president of Gallagher Benefits Services' MidAtlantic region, said "policyholders remain fundamentally underinsured and have gaps in coverage when unemployed for long periods of time."

As for group disability--historically known to see a spike in claims activity during challenging financial times--"things are different in this particular recession," said Mike Simonds, senior vice president and chief marketing officer for Unum. "Job losses have come so quickly and deeply and are expected to last a while. Holding on to your position rather than going out on disability becomes more important when the job market may not be attractive for another three to four years."


New Pathways

Employees value their benefits. So much so that even during times of economic hardship, most see their benefits as more valuable than cash, Sun Life Financial's 2009 What's Driving Enrollment in Voluntary Benefits Today? survey unveiled when asking employees what they would do as health care costs increase.

That's packing a powerful blow to employers. Companies spent an average of 20% of an employee's salary on mandatory benefits, 19% on voluntary benefits and 11% of pay for time not worked benefits, according to the Society for Human Resource Management survey.

As a result, more than four in 10 employees in a recent Watson Wyatt survey plan to raise deductibles, copayments and out-of-pocket maximums in 2010. That's no surprise, given that health care costs are expected to increase an average 10.5% over the next year, according to Aon Consulting.

Employees also may find other changes in their 2010 benefit packages, including more financial rewards for promoting healthy lifestyles, full coverage for preventive services, closer scrutiny of dependent and spousal coverage, and greater use of consumer-directed health plans, according to Watson Wyatt.

Prudential recently discovered, in its A New Day in Employee Benefits survey, that less than half of plan sponsors' benefits budgets increased from 2008, compared with increases reported by two-thirds in the prior two years. Also, about one-third of companies are maintaining their 2008 budget levels, while another 15% say their budgets have decreased by an average of 16% over the last year.

Despite the recession's brunt on companies, most employers aren't being forced to make drastic changes to their group benefits programs, said Burns.

According to a recent LIMRA survey, most are retaining benefits offered to employees. Only 2% of employers dropped a group insurance, health care or retirement benefit within the last year; companies with fewer than 100 employees were less likely to cut benefits than larger companies.

Of those employers that dropped a benefit, the survey said, employers were more likely to say they dropped their 401(k) plans, life insurance and medical insurance.

Employers who recently considered offering new benefits or changing their offerings, however, "have frozen them, haven't gone through many positive changes or added new benefit programs because of costs," said Burns.

Elective benefits are gaining the attention of more employers.

"That's not a new trend, but one that seems to be a more applicable strategy than ever in terms of dovetailing with core benefits and to address greater diversity of needs among employers" said Kerry Finnegan, who heads Mercer's mid/small employer health and benefits business.

Added Burns, "At a time when companies have to cost-shift or take away some benefits and morale lowers, the fact that employers can offer an array of voluntary benefits and advertise and sponsor them is still a plus from a communication standpoint for employers and employees."

Two years ago, Unum rolled out an integrated benefits platform it calls Simply Unum. Designed for small- and midsize-business owners, it provides a base of group disability and life insurance coupled with voluntary benefits. With thousands of possible product combinations, an employer can offer benefit options that best meet the specific needs of its work force. Simonds said Simply Unum combines a broad set of products under a single technology platform, and "is a terrific solution in the current times by offering choice, cost control and communications."

According to a 2007 study by marketing advisory firm Eastbridge Consulting Group Inc., about 65% of employees in companies with more than 10 workers own at least one voluntary product.

Among the most commonly owned are life, disability and dental insurance. Employees don't seem to mind footing the bill. Sun Life Financial's survey found that, even if employees had to pay all their benefits costs, they still highly value the benefits.

Carriers also are developing their own approaches to help employers and employees weather the financial storm.

"The economic outlook, changes in what businesses can afford are forcing employers to change offerings. Great product diversity and delivery are coming to the marketplace," Lonsdale said.

Recently, ING introduced its newly repackaged "Taking Control" suite of transition services, designed to help employees navigate through the complexities of workplace transitions. Services include transition counseling, retirement readiness and benefits solutions that holistically support employees undergoing work-force reductions and arms them with information and products.

Julie Kozlowski, vice president of ING's financial solutions group, said the services are focused on addressing employees' pressing concerns, such as comparing COBRA to other health insurance alternatives, evaluating life insurance options, maximizing 401(k) plan benefits and managing severance packages and other income sources.

Lending a Hand

In addition to having a serious impact on unemployment, "the recession is also causing employers and brokers to look closely at the value they are getting from employee benefit plans," said MetLife Senior Vice President Todd Katz.

"When it comes to benefits, the first call an employer usually makes is to their broker. Brokers' clients are looking at every dollar being spent and that's putting more pressure on them to demonstrate value," he said. "Brokers are looking to get that much closer to clients to understand what they can deliver and how they are unique in the markets they serve. We're rallying with brokers to help them with their benefits programs to become efficient from a cost perspective both locally and globally. Companies are looking for brokers to supply competitive benefits programs and value-based plan designs that are both compliant and highly transparent."


And, he added, brokers play a key role in helping employers seek more-competitive vendor terms through bids and other strategies.

They're also pivotal in helping employers "figure out ways to help employees make better lifestyle decisions," said Mike Brewer, president of Lockton Benefits Group. Wellness programs continue to become part of many employers' menu of benefits offerings. "If the cost of health care isn't coming down, the smart play is to keep people well," he said.

Brokers also help communicate benefits' value. "There needs to be open lines of communication with employees with shared attitudes and outlooks. Companies are intensifying the frequency and effectiveness of communications to boost morale and help employees better understand appropriate benefits in light of other things occurring, like salaries being frozen or cut," he said.

And, added Katz, "it's important to find creative ways to partner with carriers to give employees information in a way they want, such as via the Web or mail."

That's a boon for workplaces, Simonds said. A Unum survey of more than 1,000 full-time employees found highly engaged employees are 26% more productive.

"Elective benefits education leads to higher workplace satisfaction, which in turn leads to increased engagement, loyalty, morale and productivity," the survey said.

More to Come?

While experts believe the world is slowly regaining its financial footing, Brewer still foresees "two storm fronts" coming in.

"The economic climate with benefits costs tends to stabilize when employment grows. During difficult economic times, trend is exacerbated by declining employment because claims costs are increasing at a time premium contributions are falling, so we're helping them understand that further declines in employment may affect their benefits costs," he said.

And, he added, "the majority of our attention now is focused on health care reform and what impact that may have on benefits."

Despite current challenges, "opportunity presents itself in difficult times," Brewer said. "We just have to be smart enough to identify the opportunity and be a first mover."

"In good times people tend to not focus as much on their benefits," said Burns. "But in difficult times there's a greater appreciation for what they have. We see a tremendous future for employee benefits now and down the road."

Added Katz, "This is a time for employers to take a step back and think about how to use benefits to meet their business goals. Those who do will maximize the value they get from their benefits programs."

Only 3% of employers plan to drop a group insurance or health care benefit over the next 12 months, according to the LIMRA survey. The good news: 8% of employers plan to add a benefit this year, especially dental, vision and short- and long-term disability.

"Employers are trying to do the right thing," said ING's Kozlowski. "They're looking for opportunities to add value where they can and not add cost. As the economy improves, hopefully these conversations will continue as we search for ways to ensure benefits are something that won't be cut from employer offerings."

* State of the Market: The recession is taking a toll on group benefits, and many employers are looking for ways to cut costs in these offerings.

* What's Being Done: More companies are introducing voluntary benefits such as health, life, disability and dental coverages to their work forces.

* What Lies Ahead: Job reductions, cost-cutting measures and health care reform may have some impact on group benefits.

Learn More

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Scaling Back

Impact of economic downturn
on organizations and employee
benefits offerings:

 Organizations * Employee Benefits Offerings **

To a large extent 31% 7%
To some extent 63% 53%
To no extent 6% 40%

* 368 Respondents

** 488 Respondents

Excludes respondents who answered "not sure."
Source: Society for Human Resource Management

Note: Table made from bar graph.
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Article Details
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Title Annotation:Health/Employee Benefits: Group Benefits
Author:Chordas, Lori
Publication:Best's Review
Article Type:Survey
Geographic Code:1USA
Date:Nov 1, 2009
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