The Argument for Employee Benefits

beneFITS-smallEvery year, the cost of benefits goes up. Rules and regulations governing their administration grow more complicated. And then there’s the Affordable Care Act… It’s enough to make an employer wonder whether to stop offering benefits and face the ACA’s penalties next year. But doing so could put your firm at a disadvantage…here’s why.

Employees Want Benefits

In survey after survey, employees rank benefits as one of the most important factors in their job satisfaction. They also affect your ability to recruit and retain talented employees. EBRI, the Employee Benefits Research Institute, says, “… one-quarter (25 percent) of employees report they have accepted, quit, or changed jobs because of the benefits, other than salary or wage level, that an employer offered or failed to offer.” (EBRI Notes, November 2013, Vol. 34, No. 11. www.ebri.org)

Aflac’s 2013 WorkForces Report says, “Workers who are extremely or very satisfied with their benefits program are three times more likely to stay with their employer, compared to those workers who are dissatisfied with their benefits program. Moreover, 69 percent of workers who are not satisfied with their current benefits package indicated that by improving their benefits package, their employer could entice them to stay.”

Employees Like Their Benefits

In a survey by EBRI, a majority of workers described the U.S. healthcare system as poor or fair (21 percent and 34 percent, respectively). EBRI says their “dissatisfaction with the health care system appears to be focused primarily on cost.” While the healthcare system as a whole earns poor grades, most workers with health insurance like their health plan, with half (51 percent) either extremely or very satisfied.

Benefits Have Tax Advantages

Proponents of removing employers from the benefits business say doing so would allow them to pay higher salaries. However, this would make both employers and employees lose important tax advantages. Employers can deduct the cost of providing qualified benefits (which include health, dental, life, disability and retirement plans) as a business expense, while employees receive the value of these benefits tax-free. Providing a portion of compensation in the form of benefits also allows the employer to reduce payroll tax obligations.

Benefits Affect Health, Productivity

Cost causes 25 percent of uninsured adults to go without needed healthcare each year, and 22 percent to go without needed prescription drugs, reports the Kaiser Family Foundation. Having medical insurance removes some of the barriers to receiving health services when needed, which could prevent minor conditions from worsening and reduce reliance on emergency care.

People who have health and dental insurance are generally healthier than those who lack it. Health and financial problems (which can often stem from health problems) also affect employee productivity. In surveys for the Aflac 2013 WorkForces Report, 37 percent of workers attributed their inability to work to financial or health problems. The U.S. Centers for Disease Control estimates employers’ cost of lost productivity due to personal and family health problems at $1,685 per employee per year, totaling $225.8 billion annually.

Healthcare Reform Causes Confusion

What about healthcare reform? Couldn’t you just give employees a set dollar amount and let them shop for their own coverage on an exchange?

Although the health insurance exchanges were supposed to level the playing field between individual and group insurance purchasers, the fact remains that coverage on the group market is generally less expensive— much less expensive if your organization self insures or has a grandfathered plan. Individuals also typically have much less leverage over providers and have fewer information resources on quality and effectiveness than buyers of group plans do.

Further, putting the coverage decision making process directly in employees’ hands could leave you with confused employees. Aside from technical problems with the exchanges, selecting a health plan can be a daunting process. It requires individuals to estimate their health costs for the upcoming year, then review plans to see which will cover their expected costs most effectively, when balancing premiums, deductibles and out-of-pocket costs.

A recently released study of individuals selecting health plans on the state and federal insurance exchanges found the majority make poor financial choices. When asked to make the most cost-effective choice, “…respondents perform at near chance levels and show a significant bias, overweighting out-of-pocket expenses and deductibles.” Although study subjects did not realize they were making poor decisions, those decisions will cost them and taxpayers approximately $10 billion per year. Simply changing choice architecture to provide calculation aids and a “smart” default can encourage insurance buyers to make better financial decisions.* In a group setting, employers perform this function by providing a selection of pre-screened plans and plan education to their employees.

A good benefit program can help your employees stay healthier, both physically and financially. We can help you evaluate your benefits program to ensure you are getting the best value for your budget. You can also enhance your benefits package at no cost by offering voluntary benefits. For more information, please contact us.

*Can Consumers Make Affordable Care Affordable? The Value of Choice Architecture, Eric J. Johnson et al, U of Penn, Inst for Law & Econ Research Paper No. 13-28; Columbia Business School Research Paper No. 13-56, July 9, 2013.

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