US employers explore overhauls to employee benefits to preserve jobs, budgets

 


COVID-19 has led to the loss of over 1 million lives worldwide (over 245,000 in the U.S. alone). It has also decimated economies and led to global upheaval. For U.S. employers trying to stay afloat, balancing business continuity, safety, and compliance — while attracting and retaining employees — is challenging at best.

Gallagher’s 2020 Benefits Strategy & Benchmarking Survey Report reveals how the pandemic is affecting hiring, employee benefits, and compensation.

Changes that companies are making to their benefits and compensation strategies

Although the pandemic has shifted company priorities, there’s still an understanding that organizational well-being is dependent on employee well-being and engagement. “In the first quarter of 2020, the dominant HR priority was attraction and retention, expecting and preparing to compete in a competitive labor market,” says William F. Ziebell, CEO of the Benefits & HR Consulting Division at Gallagher.

However, he notices two important trends:

  • By the end of Q2, nearly half (45%) of employers planned to reduce workforce hours, and nearly three in 10 planned to implement furloughs (29%) and layoffs (29%).
  • Attention has now turned to business continuity, safety, and compliance.

“Our study also found that leadership concerns about stress, burnout, and declining well-being among employees are evident from plans to expand existing total rewards or add new programs,” Ziebell says.

He points to direct communications, clear HR policies, and leadership transparency as the priorities that companies need to focus on to establish a culture of engagement and opportunity. “This will help when responding to changing employee needs and avoiding ‘pent-up turnover’ when business conditions improve.” In addition, he says that most employers were also focused on improving well-being and communication. “They’re also encouraging the use of paid time off (PTO) and modifying leave policies for greater flexibility.”

The report also reveals how COVID-19 has impacted total rewards decisions for over 8 in 10 employers.

  • The greatest shifts in total rewards planning importance due to COVID-19 are emotional well-being (66%), leave policies (48%), medical benefits (42%), physical well-being (38%), and financial well-being (35%).
  • More than 1 in 4 employers (27%) modified their PTO policy due to COVID-19.
  • Additional research from August showed anticipated additions or expansions (55%) to total rewards in 2021 far surpassed reductions (14%).
    • Top areas for enhancement: emotional well-being (30%), employee communication programs (21%), physical well-being (20%), and financial well-being (19%).

“An unprecedented reliance on employee communication may prompt employers to reassess its operational and organizational value as a strategic asset,” Ziebell says. “Even before COVID-19, employers were connecting with employees through a wider variety of communication technologies as digital platforms, cloud-based solutions and automation had taken on a larger role in talent and organizational management.”

Over the last two years, utilization has increased across tools: Online portals (60%, +17 points), interactive decision support (32%, +7 points), virtual group meetings (22%, +7 points), mobile apps (18%, +8 points)

Another finding is that employers are increasingly looking for ways to add flexibility and choice without adding costs,” Ziebell says.

  • 45% enhanced voluntary benefits (up 5 points over last year and across all employer sizes).
  • 40% three-plus medical plan options (up 5 points over the last two years).
  • A gradual 4-point rise in multiple dental plan options (31%) compared to 2018.

“Despite reduced revenue expectations through 2022, most employers are not reducing healthcare or other benefits,” Ziebell says. The report revealed:

Overall health plan design strategies were strikingly consistent when comparing May and August survey results, which shows that COVID-19 cost pressures have not driven large-scale changes.

  • In fact, the percentage of employers that haven’t reduced these benefits over this three-month period or don’t intend to actually went up, from 86% to 88%.
  • The findings were consistent across all industries.

“Largely we believe this is because, from a healthcare trend perspective, the cost impact of COVID-19 is projected to be neutral or lower than expected.”

Gallagher healthcare analytics projected that COVID-19 would not affect healthcare cost trends for self-funded employers because testing and treatment costs were balanced out by the non-utilization of other healthcare services.

  • Models showed a marginal overall cost decline of -2.2% to -0.6% in multiple scenarios, with an infection rate of 5% or less.
  • An estimated 60%-70% of deferred elective procedures will be avoided entirely, based on past experiences.

While few organizations expect to reduce benefits, Ziebell says employees may be responsible for a greater portion of health insurance costs as nearly 8 of 10 employers (79%) expect to keep the same level of health coverage in 2021, but financial pressures may force increases in employees’ cost-share (e.g., premium contributions, deductibles, etc.) to keep the same level of coverage.

Not all of the changes were driven by COVID-19

“We already saw a few cost-saving trends in STD, leaves, and pharmacy,” Ziebell says.

Short-term disability: Findings from the first four months of 2020 showed an increase in the prevalence of STD benefits (79%), up 5 points from 2019, upticks applied to employers of all sizes. This aligns with the movement away from unlimited sick bank accruals; limiting sick days and restricting the number that qualifies to be taken as STD, or eliminating them, is more effective at managing utilization and costs.

Leaves: Nearly 4 in 10 employers (39%) reported terminating benefits for an extended leave and/or disability upon exhaustion of family medical leave in 2020, which is a marked increase of 14 points since 2016.

Pharmacy: Coinsurance utilization for prescription drug plans is on the rise and maybe further accelerated by COVID (up 5 points over 2019 to 37% overall and up 7 points among large employers to 52%).

Ziebell says that well-being has also grown in importance over the last two years across all dimensions.

This is aligned with the growing application of more comprehensive well-being strategies (25% in 2020; 20% in 2019; 18% in 2018). Seventy-eight percent of internal communicators consider well-being the most important topic to address in response to the pandemic with messaging most focused on mental health (92%), social well-being (65%), and physical well-being (61%).