Employer Decision Making Regarding Health Insurance. Corporate Context for Benefit Decisions


  1. Decision processes reflect company structures, cultures, and priorities. The companies represented on the panel use different processes for establishing a compensation philosophy, modifying benefit designs, or evaluating new benefit initiatives. Worker input into the process varies depending to a large extent on the degree of unionization, but most companies are monitoring employee interests and satisfaction systematically, including both regular and special surveys and tracking responses to employee complaints related to benefits. A company’s general compensation philosophy is based on direction from executive management and on company culture and tradition, subject to industry and local market considerations and constraints. This philosophy may be modified if new priorities emerge in terms of recruiting in new talent pools or broader strategic aims shift the focus of recruitment or retention. Human resource units typically play a role in this repositioning. In terms of health care coverage, employee benefit managers may identify new benefits or benefit modifications and make proposals related to them. They conduct cost benefit, cost offset, or payback analyses to accompany their recommendations. A number of the participating companies have a senior management team that reviews and approves such proposals. Small companies may have a less formal and participatory process, in part because they have few specialized benefit personnel. Decisions are more likely made by the chief financial and/or chief executive officer. Consultants, as noted below, may play a role in the process as well either as a source of ideas, data for costing or comparing scenarios, or external review. Health benefits decision processes are seen as similar to other decisions, such as pension programs, that affect nearly all workers.

  2. Merger and acquisition activity has important implications for health benefits. Several of the participating companies commented on the relationship between merger and acquisition activity and health benefits because it has become an issue of considerable attention for them. Mergers represent growth and consolidation for some companies, as well as diversification for some others. From a benefits standpoint, employers that acquire companies with different benefit packages, products, or premium contribution strategies have to determine the extent to which these benefits will be maintained separately or blended into those of the acquiring firm. When a company diversifies into another industry, it must appraise whether the benefit structure of the new industry is different enough to justify not consolidating benefits. In some instances, the differences in benefits may be maintained permanently, as in the case of a highly diversified corporation with very different workforces across a portfolio of subsidiaries. Moving to uniform benefits could adversely affect profitability of the sub-units, or even raise doubts about the feasibility of the acquisition in the first place. In other cases, not standardizing benefits may impede integration efforts, and undermine expected synergies associated with a merger or acquisition. Companies that are highly active in mergers and acquisitions may devise a specific benefits strategy that is used by the teams charged with evaluating and implementing mergers or acquisitions.

  3. Use of consultants, brokers, and agents is significant, albeit varied across companies. The participants discussed the roles played by benefits consultants and insurance brokers and agents. Large firms use benefits consulting firms to varying degrees and for a variety of purposes. Downsizing of benefits personnel units has forced a number of firms to rely on outside consultants for tasks that they are unable or unwilling to hire permanent staff to handle. Consultants also play useful roles in technical areas like actuarial services, simulation models to assess options, or in providing companies with data for use in evaluating or benchmarking of a company’s benefits experience. Some employers use them to help with design or assessment of new initiatives, but others are under pressure to control spending on outside consultants and use them very sparingly. Smaller employers are more likely to rely quite extensively on brokers and/or agents to aid them in designing benefits programs; soliciting proposals and bids; negotiating with bidders; and building in performance guarantees with contractors. In this capacity, the brokers provide manpower and expertise that is not available within the company. Some of the panel participants cautioned about whether the value of broker services may be overstated and/or overpriced.