The evolution of employee benefits programs has had a decisive impact on employers and insurance carriers, and some clear trends are emerging. One relates to the arrival of public exchanges and guaranteed issue; employers have the option of transitioning their dependent coverage strategy, as those dependents can now find coverage on the exchanges. In fact, analysis of data from our bswift client base quantifies the decline in the percentage of employee plus family premiums paid for by employers. They are likely to maintain their funding rates for employee only coverage, while reevaluating the employee equity and recruiting tradeoffs of subsidizing dependent health coverage.
Another trend revealing a shift in thinking about benefits programs is that some employers approximately 14% according to bswift research are considering a defined contribution funding approach as part of their benefits strategies. There are clear advantages to this system: With persistently high health care costs, defined contribution gives CFOs the ability to budget benefits well into the future, and for those involved in benefits administration, it provides a relatively straightforward solution. Defined contribution for health and welfare benefits has received a lot of attention from brokers but, as with most innovations, has been implemented by only a small number of early adopter employers.
bswift has made significant changes to its benefits program. CEO Rich Gallun notes, Weve implemented a comprehensive defined contribution solution this year, where the amount of the contribution is based on the wellness of the employee. Health and welfare benefits remain a key factor in recruiting and retaining employees in a challenging talent market for top technology and service professionals. Defined contribution coupled with wellness incentives represent the optimal path to balance recruiting needs with cost pressures.
From our perspective, the broader choice in plan options and alternatives is an advantage in attracting and holding on to the smart, technology-oriented employees we covet. Gallun explains, Whereas it is unlikely for a mid-sized employer to find multiple carriers to participate in exchanges and offer competitive group rates, our carrier, BCBS of Illinois, was willing to offer us six health plan options including a couple of high-deductible health plans and a limited network plan to help us create a marketplace for our employees.
bswift also encourages an employee value purchasing mindset by allowing any remaining contribution dollars to be used for additional benefits, such as life insurance or additional contributions to a health savings account or flexible spending account.
Lessons learned
We have learned some lessons from this switch to a defined contribution program. One is that a transition from an employer-paid benefit such as dental or life to a pure defined contribution program was not a path to lower benefits costs; bswift and its employees would have had to pay more in premiums to carriers. Therefore, we chose to continue with our employer-paid dental and life benefits. In sum, it may not be cost effective for employers with rich ancillary benefits to move to defined contribution for these products.
With fewer than 15% of benefits executives interested in defined contribution at this time, the shift to defined contribution marketplaces likely will occur in industry waves and not all industries will participate. Previous benefits transitions for example, from defined benefits to defined contribution retirement plans or from indemnity to HMO health plans have taken many more years than originally anticipated. In the coming decade, it is likely that employee benefits will evolve along a similar trajectory away from defined benefits and toward a defined contribution model.
Garlitz is executive director of
