Employer Decision Making Regarding Health Insurance. Benefit Philosophy and Structure


  1. Many companies are undertaking fundamental reviews of the role and structure of their employee benefits, including health care coverage. Employers are re-examining the impact of their benefits on employee recruitment and retention. Benefits philosophies in general are seen as becoming less paternalistic and more sensitive to marketplace competition. This shift has led many companies to challenge how to apportion total compensation between wage and non-wage benefits to align compensation with corporate performance goals. This realignment also reflects the extent to which companies are themselves changing in terms of business lines, mergers and acquisitions, and workforce composition. The need to differentiate benefits relevant to recruitment from those related to retention is becoming more apparent as many employers see growing variability between new hires and their long-term workforces. Cultural and generational differences between younger and older workers also bring these concerns into sharper focus. Because worker interests in benefits change over time, employers are finding they have to adjust their programs to respond to this evolution in employee “careabouts.” Company views in almost all instances are much broader than health care coverage, as health benefits are seen as just one additional consideration to weigh in apportioning the compensation dollar.

  2. Customization of benefits is taking on added importance in the current labor shortage. Participants noted that they feel a growing need to introduce more flexibility into their benefit packages to respond to a broadening spectrum of worker and prospective worker wants. The current labor shortage across the entire skill range of workers highlights the need to customize what can be offered to workers in order for companies to meet their manpower requirements. While employers still have to be attentive to both local and industry benchmarks, they may be able to achieve some competitive advantage by different configurations of benefits or benefits that are explicitly targeted to a specific labor pool critical to them (e.g. tuition reimbursement for companies seeking college age workers). The dichotomy between new workers who value benefit portability or cash-oriented compensation vs. older workers interested in long-term disability or retirement illustrates the challenge that employers face in customization. Health care coverage is one area where these concerns are particularly evident. Employers that once were strongly committed to promoting the pooling of employees’ interests in health benefits are finding that such a philosophy may constrain them from customizing the options employees are seeking. In some cases this may mean more health coverage product options from which employees can choose. But it can also mean allowing workers to trade off health benefits for other benefits or even cash compensation. Some employers worry that giving employees more control over and responsibility for where their benefits dollars will go may ultimately raise new concerns about uniformity and equity.

  3. Relative importance of health benefits varies greatly across employers and employees. The participants emphasized that health insurance is not the most important consideration for their companies; and that they consider it literally to be a “fringe” benefit. It was when health care costs soared that many of their companies had to devote considerable resources to this area to try to regain control. They made this point to underscore that health benefits compete for attention and resources with several other human resource concerns pertinent to their companies’ success. Moreover, the salience of health benefits for individual workers also varies greatly, with it being of little concerns to the “immortals” — young, healthy workers — who rarely even inquire about the nature of the health benefits at the time of hiring, other than to ask if it is available. Obviously, health benefits become more significant for workers who have health problems or those who become long term employees and increase the likelihood that they will use these benefits. This variation in importance necessitates customization and tradeoffs among benefit options. “Access to care” is seen as what employees in general want; but how they choose to obtain such access varies across many dimensions. Participants did not see health insurance as playing a significant role as a recruitment device or even motivator, but it can be a source of employee dissatisfaction. In fact, the major metrics for monitoring health benefits typically have been “costs and complaints.” Changes in health benefits and plans are relatively uneventful if they do not represent significant disruptions in provider relationships or additional cost participation.

  4. Educating, informing and supporting workers is becoming more important. The trend toward customization and benefit flexibility has converged with such socio-demographic trends such as greater workforce diversity to make worker communication a much more significant task for employers. As companies move toward promoting more worker responsibility for individualizing benefits including cashing out some of them, the consequences of employee decisions will become more momentous. Electronic communication advances have helped in this area, but employers struggle with ensuring that their employees understand the range of choices and rationales for the options they are making available to workers. For companies in industries and/or locations where there are large numbers of workers with limited education or with ethnical and linguistic diversity, simply preparing and disseminating information is becoming more costly and complex to achieve. The problem is exacerbated as many companies downsize benefits staff to streamline administrative operations. The problem can be especially troublesome in health benefits given the complicated range of options being made available, and the difficulties in understanding some of the complexities of managed care products. Promoting greater cost consciousness through cost sharing with workers was seen as an important feature for successfully managing health benefits costs. Companies are also trying to create more awareness among their employees of the extent of company contribution for their health benefit costs.