Benefits Landscape Shifting to a More Employee-Driven Model

May 3, 2011 ( - Among plan sponsors surveyed in Prudential’s Fifth Annual Study of Employee Benefits: Today & Beyond, 71% say their overall benefits cost per employee increased this year compared to last year, reporting an average increase of 12%.

Plan sponsors have accelerated cutbacks in their benefits contributions and options, and some are taking away benefits altogether. Only about two in five (43%) plan sponsors “strongly agree” that their company offers its employees a wide range of benefits currently, compared to 52% in 2007. Only one-third (33%) “strongly agree” that their company pays all or most of the costs of employee benefits, down from 39% in 2007.  

Plan sponsors have been gradually giving more and more financial and decision-making responsibility to their employees. Cost-sharing, which was the lowest-rated benefits strategy in 2007, is now near the top of the list and has grown the most in importance (+15 percentage points) over the three-year period. Plan sponsors also rate “giving more financial responsibility to employees through high deductible health plans, health savings accounts (HSAs), etc.” much higher in importance than they did in 2007 (34% vs. 21%, respectively).  

Smaller companies (< 500 employees) place greater importance on “giving more financial responsibility to employees” as a benefits strategy than do large companies (5,000+ employees) – 42% vs. 30%.  

More than half (54%) of plan sponsors say they are “sharing more of the cost of contributory benefits with employees,” compared to 38% in 2007, and 51% indicate that they are “implementing consumer-directed health plans” (CDHPs) to some extent this year, compared to 34% in 2007. Larger companies with 10,000+ employees (64%) tend to be “cost-sharing” more than smaller companies with 50–99 employees (49%) and those with 100–499 employees (54%). Public companies are more likely to be implementing CDHPs than private companies (57% vs. 49%).  

The study also found that intermediaries are recommending cost-shifting strategies to their clients. Nearly three-quarters of brokers/consultants surveyed (70%) say they are recommending, to some extent, that their clients implement consumer-directed health plans. More than two-thirds (68%) indicate they are recommending that their clients share more of the cost of contributory benefits with employees.

Economy, Health Care Drive Landscape Shift  

Prudential’s Fifth Annual Study of Employee Benefits: Today & Beyond found both the economy and new health care legislation are influencing the shift to a more employee-driven benefits model.  

Nearly half of plan sponsors surveyed (47%) say that recent economic conditions have had a considerable impact on their company's employee benefits strategy; another 33% say their benefits strategy has been "moderately" impacted by the down economy. Firms that were most negatively impacted by the economy are the most likely to have made adjustments to their employee benefits strategy (72% say the economy had a "high" impact on their benefits strategy vs. 38% for all other plan sponsors).   

Those who have been most negatively affected by the economy seem to be moving more quickly to the new employee-driven model. They are more likely to say cost-sharing is a “highly important” strategy, compared to others. They are also less likely than others to rate “increasing employee education/advice” as a highly important benefits strategy.  

While no one knows for sure what the long-term impact of health care reform will be, employers expect that the greatest impact of the law will be on how benefits are funded and how much companies contribute to benefits (about 40% saying “high impact”), followed by the number of benefits offered (36%). Additionally, nearly one-third expect employee benefits service and support to be greatly impacted, as well as the shift of employee benefits to consumerism/employees.  

Companies that expect health care reform to have a significant impact on employee benefits (high degree of impact on at least three of seven items rated) are even more likely to shift to an employee-driven benefits model. For example, they are more likely than other plan sponsors to say that “giving more financial responsibility to employees via CDHPs” is their top employee benefits strategy (40% v. 31%). They are also more likely to rate cost-sharing as a “highly important” strategy (38% v. 31%).  

Plan sponsors expect that all of today’s key strategies will be even more important in 2015; however, those related to cost-sharing and giving more financial responsibility to employees are rated at the top of the list and are expected to grow the most in importance over the five-year period. About half of plan sponsors expect cost-sharing and/or giving employees more responsibility to be “highly important” by the year 2015.

The Role of Voluntary Benefits  

As benefits costs continue to rise, options decrease and employees take on greater financial/decision-making responsibility; voluntary benefits (or those offered through the workplace and paid 100% by the employee) may increasingly meet the needs of plan sponsors and their employees, according to Prudential’s Fifth Annual Study of Employee Benefits: Today & Beyond.  

Currently, 86% of plan sponsors surveyed offer their employees at least one voluntary benefit. Nearly half (44%) offer three to five voluntary benefits, and nearly a quarter (23%) report offering one to two voluntary benefits. Among plan sponsors who offer voluntary benefits, two in five (42%) expect employee participation in voluntary benefits to increase due to the economy.   

Consistent with that, about two in five brokers/consultants (39%) anticipate that employers’ demand for voluntary benefits will increase greatly in the next five years. Among plan sponsors who are providing a wider array of voluntary benefits, just 19% say the strategy has been “highly successful” in achieving desired cost savings. Prudential said this number may be low because only about half (55%) have measurable cost-savings goals in place for this program.  

Currently, about half of plan sponsors surveyed (49%) cite increasing worker productivity as a “highly important” benefits objective. Productivity-focused strategies include wellness initiatives, absence management, and benefits integration, among others.  

The study found that “expanding the use of wellness, preventative and work/life balance initiatives” is among the most important; nearly four in 10 (38%) plan sponsors say this strategy is “highly important” to their company. Almost half of plan sponsors (45%) say they are “providing accommodations to assist employees in returning to work following a leave of absence, serious illness, or disability.” Another 40% are “coordinating/integrating part of their medical, pharmacy, disability, and workers’ compensation plans to some extent.”  

Plan sponsor results are based on a national online survey of 1,358 employee benefits decision-makers. Respondents include business executives, business owners, human resources professionals, and financial management professionals. The survey sample covers all industries, including government, and is nationally representative of all U.S. businesses with at least 50 full-time, benefits-eligible employees.