2014 Bene ts Strategy & Benchmarking Survey ·  · 2015-02-282014 Benefits Strategy & Benchmarking...

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2014 Benefits Strategy & Benchmarking Survey BEST-IN-CLASS BENCHMARKING ANALYSIS

Transcript of 2014 Bene ts Strategy & Benchmarking Survey ·  · 2015-02-282014 Benefits Strategy & Benchmarking...

2014Benefits Strategy & Benchmarking SurveyBEST-IN-CLASS BENCHMARKING ANALYSIS

22014 BENEFITS STRATEGY & BENCHMARKING SURVEYBEST-IN-CLASS BENCHMARKING ANALYSIS

ARTHUR J. GALLAGHER & CO. | AJG.COM

Best-in-Class Benchmarking Analysis

OverviewMany organizations rely on benchmarking data for help in designing effective benefits and compensation programs. Comparing your total rewards offerings and tactics to those of similar companies is an important step, but we encourage employers to dig even deeper. In addition to benchmarking against the mean or the aggregate, gauge where you stack up against “top performers,” or those organizations that have been successful at achieving business objectives you also wish to attain.

To offer such insight, we have developed the “Best-in-Class” approach to benchmarking based on Gallagher’s 2014 Benefits Strategy & Benchmarking Survey of 1,833 organizations across the United States. (For the 2014 Benefits Strategy & Benchmarking Executive Summary, click here.)

Methodology Within our total survey sample of 1,833 organizations, employers were grouped according to specific baselines that are used to gauge performance in three benefit categories: benefits cost and turnover, strategic planning and revenue per employee. Best-in-Class profiles for top performers (top 4–10%) were identified, and then defined for each group. Each profile was analyzed closely to find commonalities and patterns.

The profiles studied in this report are:

• Profile Group 1 – Best-in-Class based on benefits cost and turnover metrics: Midsize employers with a record of achieving healthcare cost trend and employee turnover below the norm (173 organizations).

• Profile Group 2 – Best-in-Class based on the best practice of strategic planning: Employers who have a written total rewards plan with measurable objectives (168 organizations).

• Profile Group 3 – Best-in-Class based on revenue per employee: Top tier of midsize employers with the highest revenue per employee (78 organizations).

ApplicationWhen advising employers on benefits and compensation strategies, Gallagher consultants help them tap into relevant data to conduct a meaningful benchmarking analysis. The specific parameters of the Best-in-Class profiles vary for different industries and types of organizations, but one principle always applies: It is most effective to benchmark against top performers instead of the aggregate of all survey participants.

The top performers in this type of analysis tend to adopt tactics that are common among the minority of employers, yet are forward-looking and help to attain better results. Thus, the Best-in-Class approach to benchmarking is most suited to organizations that are committed to being at the forefront of driving both efficiencies and innovation in total rewards.

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Profile Group 1: Best-in-Class based on benefits cost and turnover metricsProfile Group 1 includes organizations that reported low medical cost increases and low employee turnover. We chose these parameters as a Best-in-Class baseline because controlling benefit costs and retaining employees are two key business objectives for executives today. By isolating a subset of organizations that achieve both of these objectives, we were able to identify certain trends. This analysis focuses specifically on midsize employers (100–5,000 FTEs).

STRATEGIC FOCUS Success at controlling healthcare costs happens by design, and organizations in this group have identified this as a strategic objective. Seventy-six percent (76%) of survey respondents in this group said their main business challenge was controlling benefit costs (as opposed to 67% of all survey participants).

Group 1 companies have a good handle on what their benefit costs are and what drives them, and are taking steps to proactively manage the expense. At the same time, these employers manage to maintain an annual employee turnover rate of 10% or less – below the national level of 13%.* They accomplish this by balancing healthcare cost containment with comprehensive total rewards programs and fostering employee engagement. These conclusions are substantiated by observations about cost awareness, cost management and cost sharing practices at these Best-in-Class companies.

Baseline Parameters:• 10% or less annual employee turnover

• Under 5% annual medical premium increase

• 100–5,000 full-time employees

Total number of organizations in grouping: 173 (~10% of the total national survey sample)

Overall, there is a clear indication that these employers are more diligent at identifying ways to better manage healthcare costs by addressing the root causes, rather than by shifting costs to employees.

*per SHRM Human Capital Benchmarking Database, 2012-2013

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COST AWARENESSThe greatest percentage of organizations in Profile Group 1 spend the same amount on benefits per employee as the national average for all survey participants ($5,000–$7,500 per year). However, since their medical expense growth is more contained, they are able to invest those dollars more meaningfully and offer their employees more comprehensive benefits.

Sustainable management of expenses begins with rigorous measurement. Employers in this group demonstrated that they have a better understanding of their benefit costs:

• About a third (34%) indicated that they expect the cost of their plan to trigger the Cadillac tax in 2018 – a very realistic expectation based on a solid understanding of projected cost increases. This expectation is not shared by most national survey participants; only 21% believe that the Cadillac tax would apply to them.

• In response to the question “What is your benefits expense as a percentage of total compensation?,” the largest portion of this Best-in-Class subset (32%) gauged it to be 20–30%, which is comparable to the overall results of Gallagher’s national survey. However, most respondents across the entire survey (37%) thought it was under 20%, which indicates potential underestimation.

COST MANAGEMENTDistinctive patterns we observed showed that this group of employers, overall, takes a very proactive role in managing their benefit costs:

• Self-funding: More than half (51%) of employers in this group have a self-funded medical plan, in contrast with the survey-wide response of 40%.

• Wellness: Organizations in this group are more likely to offer a wellness program (66%) compared to the survey-wide response (44%).

• Compensation: In addition to actively managing the cost of healthcare benefits, organizations in this group also show diligence in managing direct compensation dollars. Seventy-one percent (71%) say they have established formal salary ranges (versus the survey-wide benchmark of 54%).

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Best-in-Class Profile Group 1

Overall Response

51%

40%

Have self-funded medical plan

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COST SHARINGWhile clearly focused on controlling the growing cost of providing healthcare coverage, Profile Group 1 employers are not accomplishing this by shifting a greater portion of the cost to the employee. They are able to avoid the predominant cost-shifting trend among U.S. organizations and potentially gain a competitive advantage as a result. We found that Group 1’s cost-sharing practices differ significantly from the norm in two areas:

• Contribution strategy: This subset of employers contributes 80% of the cost of the premium for employee-only medical coverage, which is in line with the overall survey response. However, across all of the survey participants, the majority (54%) said they asked their employees to increase their plan contribution at their most recent renewal. Only 32% of this group have done the same.

• In-plan cost sharing: This group is also less likely to shift cost to employees through plan design. At their most recent renewal only 18% of these organizations increased deductibles, whereas 43% of all survey participants made the increase.

Best-in-Class Profile Group 1

Overall Response

66%

44%

Offer wellness program

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Profile Group 2: Best-in-Class based on the best practice of strategic planningMembers of Profile Group 2 answered “Yes” to the question: “Do you have a written total rewards or strategic benefits plan with measurable objectives?” While including all sizes, the majority of organizations in this group are larger than the other Best-in-Class subsets; most have 1,000–5,000 employees.

A formalized total rewards plan has a pervasive effect on the choices made by these companies. Evidence of this effect is shown in our analysis of the approach these companies have taken to healthcare cost management and total rewards.

HEALTHCARE COST MANAGEMENTThe average healthcare benefits cost per employee for Group 2 is in the same range as the overall response of $5,000–$7,500 per year. However, many indicators suggest that these organizations are able to make those dollars go much further. The prevalent tactics employed by this group to manage healthcare cost include:

• Outcomes-based wellness: Organizations in this group are more likely to offer a wellness program (61%) than respondents overall (44%). Their wellness programs are also more likely to include a health coach (42% versus 24% of all participants). Furthermore, these organizations are leading the charge in the emerging trend of offering value-based plans that reward employees for meeting certain health targets (24% versus 11% of all participants).

• Consumer-driven vehicles: The prevalence of Health Savings Accounts (HSAs) is higher in this group: 46% offer them versus 36% of all employers who participated in the survey.

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Baseline Parameter:Answered “Yes” to the question: “Do you have a written total rewards or strategic benefits plan with measurable objectives?”

Total number of organizations in group: 168 (~9% of the total survey sample)

Overall, these employers are significantly more likely to adopt forward-looking tactics to improve their total rewards offering and its administration. While such tactics are currently employed by only a minority of midsize employers, they are effectively helping propel these early adopters forward.

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• Decision support: To help employees be savvy healthcare consumers, Profile Group 2 companies are more apt to place additional tools at their disposal. Forty-nine percent (49%) provide a health plan cost comparison tool (versus 33% of all survey respondents), and 39% give employees access to medical provider cost information (versus 34%).

• Integrated health and disability: These employers are reaching further across the spectrum of healthcare cost management than the norm. Forty percent (40%) of them offer integrated health and disability programs versus the 27% survey-wide benchmark.

• Plan administration: This group shows more diligence in forestalling unnecessary expense by implementing thorough plan administration tactics, including dependent eligibility audits (39% versus 24% of all survey respondents) and formal compliance audit tools (43% versus 24%).

• PPACA preparedness: As evidence of greater emphasis on planning and data-driven decision-making, this group is better prepared to anticipate the cost impact of the Patient Protection and Affordable Care Act. Forty-nine percent (49%) of its members have quantified the potential impact, versus the survey-wide benchmark of 31%.

• Cost shifting: While clearly focused on a strategy for containing healthcare expenses, these organizations are less likely to shift cost to their employees. At their most recent benefits renewal, less than half (45%) increased the employee contribution to medical benefits and only a third (33%) increased deductibles, as opposed to the survey-wide benchmarks of 54% and 43% respectively.

Best-in-Class Profile Group 2

Overall Response

46%

36%

Offer HSA

Offer employees decision support tools

Best-in-Class Profile Group 2 Overall Response

Health Plan Cost Comparison Tool 49% 33%

Access to Medical Provider Cost Information 39% 34%

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TOTAL REWARDSThe survey data shows that the strategic planners represented in Profile Group 2 place a greater emphasis on a well-rounded total rewards offering, rather than focusing on healthcare benefits alone:

• 73% have formal salary ranges (versus 54% of all survey respondents).

• 61% offer tuition assistance (versus 48%).

• 15% match their employees’ charitable contributions (versus 9%).

This group also pays attention to delivering and communicating their rewards programs more proactively, and are more likely to engage technology tools:

• 55% offer online benefits enrollment (versus 38% of all survey respondents).

• 23% have introduced mobile-enabled employee communications (versus 12%).

Best-in-Class Profile Group 2

Overall Response

73%

54%

Have formal salary ranges

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ARTHUR J. GALLAGHER & CO. | AJG.COM

Profile Group 3: Best-in-Class based on revenue per employee Profile Group 3 is defined on the basis of one of the most commonly used productivity metrics: total annual revenue per full-time employee. The sample represents midsize organizations that were in the top 25% of revenue per employee. Specific observations on this group’s strategic focus, healthcare benefits and total rewards spend management are presented below.

STRATEGIC FOCUSGroup 3 participants clearly stated their focus on growing topline revenue when we asked about their main business challenge. Sixty-two percent (62%) of them said it was “revenue and sales growth,” while the typical response (67%) to this question among the entire national survey sample was “controlling benefit costs.” Additionally, based on the observations that follow, this group tends to have a somewhat lower level of investment in total rewards, which likely reflects the drive to contain the cost of operations and thus contribute to the higher revenue per employee.

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Baseline Parameters:• 100–5,000 employees

• $10–$500 million annual revenue

• Top quartile by revenue per employee

Total number of organizations in grouping: 78 (~4.5% of the total national survey sample)

In contrast with the two preceding Best-in-Class profiles, which were focused on proactive benefits and total rewards management, the organizations in this profile are primarily focused on managing expenses. This sometimes results in decisions that help cut costs in the near term, but prevent the employers from developing a sustainable total rewards strategy over the long term.

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HEALTHCARE BENEFITSOverall, employers in Profile Group 3 tend to offer a lower level of coverage than the norm:

• Employee contribution to cost of employee-only coverage is 25% (versus the overall survey response of 20%).

• Among those who offer an HSA, 57% contribute to it (versus 71%).

• Only 15% offer retiree coverage (versus 34%).

• While most offer a wellness program (55% versus the survey-wide benchmark of 44%), this group is less likely to extend their wellness services to spouses (33% versus 47% of all survey respondents).

TOTAL REWARDS SPEND MANAGEMENTInterestingly, Group 3 has a higher average cost of benefits per employee per year (in the $7,500–$10,000 range) than the national average ($5,000–$7,500). This may be caused by a number of factors, including adverse selection resulting from the higher cost of medical plans and the absence of outcomes-driven health risk management programs that require an initial investment.

We also found that the members of this group are less likely than most (45% versus 54% of all survey participants) to have established formal salary ranges. This may indicate a reluctance to front the initial investment in a compensation study in order to obtain a longer-range goal of reducing expenses.

Employee contribution to cost of employee-only coverage

Best-in-Class Profile Group 3

Overall Response

25%

20%

Contribute funds to HSA (among those offering HSAs)

Best-in-Class Profile Group 3

71%Overall Response

57%

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Common themes and patterns among all three profilesSome patterns were consistent and exclusive to the three Best-in-Class profiles:

• Carrier stability: At a recent benefits renewal, 23% of all employers surveyed reported changing medical insurance carriers. The Best-in-Class groups were more likely to stay with the in-force carrier; only 13% (Group 1), 18% (Group 2), and 12% (Group 3) made a change.

• Focus on quality: The Best-in-Class organizations showed a greater interest in medical provider quality metrics. While only 34% of survey participants say they source reports on such metrics, the three Best-in-Class groups reported that 44% (Groups 1 and 3) and 46% (Group 2) source reports.

The most significant conclusions we have drawn from our analysis of these three groupings of companies include:

• Managing the underlying drivers of healthcare costs increases employers’ ability to contain this significant business expense over the long term, rather than merely shifting costs to employees.

• Developing an effective approach to managing total rewards expenditure requires foresight, measurement and a willingness to invest dollars and effort in innovative techniques proven to yield results.

Offer medical provider quality metrics

Best-in-Class: Profile Group 1 44%

46%

44%

34%

Best-in-Class: Profile Group 2

Best-in-Class: Profile Group 3

Overall Response

Profile Group 3: Best-in-Class base

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Baseline side-by-side comparison

Overall Response Profile Group 1* Profile Group 2** Profile Group 3***

BENEFIT CHALLENGES & STRATEGIES

Main business challengeControlling benefit

costs – 67%Controlling benefit

costs – 76%Controlling benefit

costs – 64%Revenue and sales

growth – 62%

Written total rewards plan 10% 10% 100% 3%

Offer value-based benefits plan 11% 12% 24% 12%

Integrated health and disability 27% 28% 40% 36%

Mobile-enabled communications 12% 15% 23% 13%

Formal salary ranges 54% 71% 73% 45%

Online enrollment 38% 39% 55% 32%

BENEFITS COST CONTAINMENT

Increased employee contribution at recent renewal 54% 32% 45% 54%

Increased deductibles at recent renewal 43% 18% 33% 33%

Changed carriers at recent renewal 23% 13% 18% 12%

Dependent eligibility audit 24% 35% 39% 24%

Total average benefits cost per employee per year $5,000–$7,499 $5,000–$7,499 $5,000–$7,499 $7,500–$9,999

Benefits as percentage of total compensation Under 20% (37%) Under 20% (24%) Under 20% (27%) Under 20% (33%)

Compliance audit/tracking tool 24% 24% 43% 29%

HEALTHCARE REFORM

Have quantified the cost of healthcare reform 31% 32% 49% 35%

Anticipate medical plan will trigger Cadillac tax 21% 34% 23% 22%

MEDICAL

Employee contribution to employee-only plan 20% 20% 20% 25%

Self-insured funding arrangement 40% 51% 42% 40%

Offer HSA plan 36% 35% 46% 38%

If HSA offered, percentage of employers contributing to HSA 71% 72% 71% 57%

Retiree coverage 34% 39% 26% 15%

Provider cost information available for employees 34% 35% 39% 29%

Health plan cost comparison tool for employees 33% 38% 49% 26%

Medical provider quality metrics 34% 44% 46% 44%

WELLNESS

Offer wellness program 44% 66% 61% 55%

Spouses eligible to participate in wellness program 47% 48% 50% 33%

Health coach 24% 35% 42% 21%

VOLUNTARY & MISCELLANEOUS

Tuition assistance 48% 58% 61% 50%

Charitable contribution match 9% 9% 15% 8%

*Profile Group 1: Low Turnover and Medical Increases, Midsize EmployersParameters:

• 100–5,000 full-time employees• 10% or less annual employee turnover• Under 5% annual medical premium increase• Total number of organizations: 173 (~10% of the total

survey sample)

**Profile Group 2: Written Total Rewards PlanParameters:

• Answered “Yes” to the question: Do you have a written total rewards or strategic benefits plan with measurable objectives?

• Total number of organizations: 168 (~9% of the total survey sample)

***Profile Group 3: Revenue per EmployeeParameters:

• 100–5,000 employees• $10–$500 million annual revenue• Top quartile by lower band of revenue/lower band of

number of employees• Total number of organizations: 78 (~4.5% of the total

survey sample)

15GBS27060A

Gallagher Benefit Services, Inc.www.ajg.com

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Contact UsContact your Gallagher consultant to request a benchmarking analysis that compares your organization to any or all of the Best-in-Class profile groups. Our team will work with you to craft an appropriate strategy, based on proven top-performing approaches, to help put you ahead of the competition.