By Eric Helman, Hodges-Mace | July 2016
As Y2K stimulated change in the tech world in the 1990s, the twin catalysts of health-care inflation and the Patient Protection and Affordable Care Act of 2010 (PPACA) are causing seismic shifts in the world of benefits. Responding to these stimuli, employers are moving away from a multiple decades-long preoccupation with health insurance coverage as the sole point of value in their benefits program. The new benefits landscape is gravitating toward a more diverse set of benefits that not only allow employees to pay for health care, but also cover the risk of unexpected health-care expenses at a lower cost than traditional health insurance. The overall financial health of employees is the ultimate objective. Unfortunately, the benefits strategies to accomplish this objective are often complex and difficult to understand — even for benefits professionals.
While health insurance is increasingly being commoditized by the constraints established by the PPACA, it still serves as the centerpiece of the benefits portion of the total rewards strategy. While some employers are throwing up their hands and pursuing a strategy centered on a single-choice, high-deductible option, savvy organizations are pursuing a choice strategy more closely resembling a car maker's approach to the varied needs of the consumer. Employers know some consumers are price sensitive and merely want inexpensive transportation, while others prefer a luxury SUV with all the bells and whistles. By offering a range of health insurance options, employers can meet the wide and varied needs of their employees. This strategy also recognizes that for middle- and upper-income employees, the most valuable element of the benefits package is the tax exclusion provided by employer-sponsored benefits. This increases the necessity to speak to the tax effect as a portion of delivering the total rewards message.
As health insurance becomes more expensive and risk sharing more pervasive, employers must also look to non-health insurance products to deliver value in their benefits package. Indemnity products that provide protection for specified illnesses, hospitalization and accidents deliver affordable protection when combined with high-deductible health insurance. But in a world of employee benefits illiteracy, these products should be presented in a bundle of offerings customized to the individual employee through innovative decision support tools.
Benefits that were previously thought of as ancillary, supplemental or elective are now core to the overall value proposition of the total rewards strategy. Amazon has taught multiple generations to understand the concept of shopping by viewing what "people like you also bought." Whether assisted by trained benefits counselors or delivered in a self-service environment, open enrollment has transformed into the shopping season for benefits. Employers must merchandise, advertise and provide point-of-sale support for their benefits programs in the same way retailers communicate with customers. Because most employers and their HR information systems (HRIS) were not built with this use in mind, businesses must turn to specialized benefits-delivery businesses to fill this void.
In a world of full employment, leading employers cannot risk having employees miss the total rewards message. The stakes are too high. No longer can employers underinvest in benefits delivery during open enrollment and hope their employees get the message. This also means employers must be more intentional about their benefits strategy.
Employers should ask themselves if their diverse employee population will actually create nutritious and appealing "meals" based upon the ingredients they put on the shelf. Does the benefits program reflect what employees need, what employees want, or both? Benefits strategy can no longer be the annual reaction to health-care inflation. In order to balance employee retention, compliance and cost containment, employers need a multiyear strategy with a complementary multiyear approach to the delivery of that strategy.
The PPACA provides the single greatest opportunity in our lifetime to rethink how we allocate compensation to benefits. Based upon our work with hundreds of clients, we know that this rethinking often results in more complex and nuanced strategies that require a fresh approach toward benefits delivery. The paradox of benefits delivery is that employees often times don't understand or appreciate their benefits, yet they also don't want to spend any time on this vitally important transaction. A total rewards focus on employees' overall financial health makes this more difficult. But as my father always said, "If the ship misses the harbor, rarely is it the harbor's fault."Â
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