Plans Tailored To Meet Rising Benefit Expenses
GRAND RAPIDS — David Smith is president of The Employers Association, a nonprofit organization devoted to supporting human resources. In addition to consulting and training, a major part of TEA’s work is research and analysis of local trends in human resources, including employee benefits.
Smith said that TEA has 575 members, each with an average of 75 to 90 employees. About 55 percent of them are manufacturers. That’s a major change from 18 years ago when Smith first joined the staff and virtually all the members were in manufacturing.
Smith identified several major trends in employee benefits in West Michigan: “More vacation time off, sharing costs for benefits and wellness, to encapsulate what's happening in West Michigan.”
Smith recently discussed benefits trends with the Business Journal.
Q: What are a few of the items people can expect in benefits packages today?
Smith: With the younger generation coming in right now, one of the huge benefits is time off. In health care, we're having a transition from a total safety net to an emergency stop gap to make sure you don't lose everything if you're sick, but you're going to contribute something if you're sick. Vision is a program being offered a lot now. It is relatively inexpensive, and as the work force gets older, more people need glasses. Dental is being offered a lot. It’s typically being offered with relatively low ceilings and maximums on it.
Q: Why is wellness such a buzz word in benefits?
Smith: Wellness programs are what we see being offered more by companies this year. We have a lot of HR roundtables, and one of the questions I asked in preparation for this is “What's happening with benefits?” About 80 percent said wellness programs, health tracking, trying smoking cessation to decrease costs for insurance and employee co-pay on insurance, lifestyle changes to decrease premium costs on insurance. The biggest single change that's being applied universally is around health care, because it is so costly.
A healthy employee is going to be there more often. But it is indirectly benefiting an employer because there are potentially less claims, which, long-term, is going to impact the bottom line. Short-term, a wellness program doesn't help an employer that much. They don't get huge discounts. But it’s looking at healthier employees in the long-term medical use costs.
The negative on that is consumerism. OK, so I become healthy and well, and then what's in it for me? Why should I choose the cheaper doctor instead of the most expensive one if I'm going to have heart surgery, and what’s in it for me if I do that? You need quality measurements so people can really see outcomes if they are going to have their own choice.
Q: Are employers thinking outside the box?
Smith: Some of the other things that came up were massage therapy or stress management, paying for smoking cessation — that has, again, to do with wellness.
They are moving to health or medical reimbursement accounts, which I've advocated for a long time. The reimbursement accounts will keep people whole. If you use insurance, we’re going to help offset the cost of the higher deductible, but we're not going to pay up front for it like a health savings account. They're raising deductibles, saying “It was a $500 deductible; you now have a $2,000 deductible, but we're going to reimburse you for some of that extra cost, so when you use it, you're going to come out whole.”
Flex spending accounts — many employers implemented them probably five to 10 years ago. We seem to have another round of smaller employers implementing flex.
Increasing 401(k) matches — the typical match in the area is usually 25 cents per dollar, usually up to about 5 percent of income. What we’re seeing is, more companies are moving to 50 cents on the dollar and maybe moving the max up to 7 percent of income. It’s costing them more, but only if the employee contributes more, and a lot of employees aren’t going to contribute more. It’s costly but not early as costly as a defined benefit plan that you would have specified payments and liabilities if the market went down that the company would have to pay for. They are disappearing. It’s a dying breed. The plan is being discontinued, funds are being redistributed to the employees that had funds in them, and typically, then they start a 401(k) or some other defined plan. They are being rolled back to eliminate that unfunded liability issue that could break a company.
Q: How are younger workers impacting benefits?
Smith: They are more technology-oriented. There are a couple of companies here in town — there again are not a lot of them — that will pay for mortgages for three months while you go to Europe to do your job online from Europe so you can get exposed to different cultures and different environments. You’re still doing your job, but you're doing it remotely.
That's dealing with the different generation. Gen X, Gen Y, they come in, they say, “I want my time off, I want my freedom, I want to do it my way.” To encourage them to do it their way toward the common goal, they're really adapting the workplace to fit that person. (An Ottawa County company) had a concierge service where they will actually have employees’ cars washed, pick up cleaning, drop it off. It’s an employee benefit but it also allows the employee more time on the job. There's two or three in the area that provide a lawn service. Again, it’s a great benefit, but when the employee’s not mowing the lawn, they've got him coming to work more.
Q: How are companies responding to expectations for time away from work?
Smith: Many companies are looking at time off as a personal time-off bank, as opposed to holiday and sick time: “We’ll just give a lump of time and you can use it any way you want.” It gives the employee free choice. You might have your traditional core of eight to 10 holidays within that bank, then maybe you'll have five sick days, have two or three personal holidays; you may have two or three weeks of vacation. So your pot might be three weeks plus eight holidays. People want their time off. People want time with their families to refresh and recharge. West Michigan is pretty cognizant of that because we are pretty paternalistic.
Q: Have we topped out in terms of benefit offerings here in West Michigan?
Smith: Flexibility is a key, but you still have to look at the bottom line, what you need to get the job done. It's great to give them benefits, but my ultimate purpose here is not just to be nice to my employees. I still have to get a job done.
What we’re seeing on our surveys, if you’re looking at an individual employee, typically, on average, that employee is paying 20 to 25 percent of their premium; typically, family in family coverage employees are going to pay 60 to 80 percent of the premium, so the big numbers are coming from that kind of sharing. It isn’t because employers don't want to provide benefits, but when you are looking at family premium costs of $1,100, $1,200 a month, an employer can't pay that and be competitive. When we’re looking at eight and 12 percent average increases in premiums over the last five to seven years, that money's got to come from someplace.
Most of the plan design changes have been those that can be made without significantly impacting coverage. … But at some point in time, all the changes are going to be made, and most of them have been made now. So you have to shift it to the employee. The alternative is, you don't provide anything at all.
If you are looking at getting a 1 or 2 percent pay increase, but paying 12 percent more n health premiums, that's costly for employers. They’re giving employees less in pay increases. Pay increases are driven by what the company can afford.
In the Grand Rapids area, 15 or 16 years ago, the cost of benefits — health care, retirement — was probably about a third: If someone was making $10 an hour, it was $3.30 or so in benefit costs. Now that costs us between 30 and 40 percent. All the costs are going up, and a lot of employees don’t see that.
There is a trend nationally that companies are starting to cut back on their benefits and not offer anything. That may drive things to a certain payer system that employers may ultimately pay for anyway. That's a national trend; it really hasn’t hit West Michigan yet. Benefit costs are so high, they’re making organizations very non-competitive in the global market.