June 2018 Zachary Chertok Research Analyst Human Capital Management

RR

TOP STRATEGIES TO IMPROVE BENEFITS MANAGEMENT AND EMPLOYEE ENGAGEMENT

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Changing benefits and regulations create massive headaches for even the most seasoned benefits administrators. Making matters worse, the traditional role of benefits administration now includes voluntary benefits at rates never before seen as organizations ramp up employee engagement strategies. Which deployment models will help benefits managers cope and excel?

Why Benefits Management is a Mess

Compared to other countries, the U.S. benefits management landscape is more complex, with moving parts that keep employers and employees on their toes. While employers navigate compliance risks and cost management, employees attempt to optimize benefits selections to best suit their current and extended personal requirements. The growing complexity of the process alienates employees while increasing the amount of effort it takes HR to manage multiple benefits offerings. When combined, these components create a less-than-stable foundation to encourage employer and employee engagement.

Figure 1: Top Pressures in Benefits Administration Topping the list of pressures facing benefits administrators: calls to moderate and reduce costs.

37%30%

23% 20% 17% 17%

48%

24%18%

9% 14%21%

Cost of benefitsadministration

Complexity ofbenefits (number

of offerings)

Manual benefitsmanagement(cost, time,resources)

Manual taxintegration (time,

effort)

Compliance indetermining

eligibility

Managingbenefits

integration withpayroll

% of respondents, n=151, Source: Aberdeen, September 2018

Best-in-Class All Others

The Aberdeen maturity class framework encompasses self-reported data to determine overall company performance. Classified across several key metrics, each survey respondent falls into one of three categories:

Best-in-Class: Top 20% of respondents based on performance

Industry Average: Middle 50% of respondents based on performance

Laggard: Bottom 30% of respondents based on performance

A fourth category, All Others, combines Industry Average.

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For most organizations, cutting costs intuitively translates to simplifying plan complexity, reducing the number of offerings, streamlining eligibility checks to understand better who is eligible for each offering, and minimizing or eliminating any employer cost toward ancillary or voluntary benefits. The second most intense pressure comes from juggling the number of benefits plans offered. Additional complexity exacerbates frustrations for companies that manually manage benefits, payroll systems integration, and tax compliance requirements.

Management Mechanisms: You’ve Got Options

Figure 1 suggests the mechanisms most organizations use to respond to management pressures. While intuitive, not all solutions are equal. Table 1 identifies the top mechanisms organizations use to manage benefits offerings:

Table 1: Top Benefits Management Organizational Resources

Best-in-Class All Others

Plan management (payroll integration) 30% 16% Benefits marketplace 17% 17% Broker partnership 13% 27% Manual management 7% 14%

% of respondents, n=151, Source: Aberdeen, September 2018

In the divisions between standard, ancillary, and voluntary benefits, more than 53% of organizations only offer standard benefits (health insurance and retirement planning); 47% offer voluntary benefits (accident insurance, critical illness coverage, health savings accounts, healthcare 401K, employee assistance programs, and fiscal rewards), and 37% offer ancillary benefits (vision insurance, dental insurance, and life insurance).

Most employers focus on fiscal management to determine plan offerings, which means that the operations team rather than HR deems the plans, group offerings, and additional benefits that are vital to employee health management and productivity as they relate to the overall revenue growth and profitability of the organization.

Based on the responses, plan management is not that simple. By paring down benefits options solely based on cost, management fails to

More than 53% of organizations only offer standard benefits, 47% offer voluntary benefits, and 37% offer ancillary benefits.

Employees at Best-in-Class companies are 35% more likely than those at All Other firms to join and stay with the organization because they feel relevant to the firm.

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individualize plan offerings to meet the stress or health issues their employees face within the workplace.

Ignoring individual issues, it turns out, is a surefire way to destroy any sense of relevance an employee may have toward the organization. While this may seem like an acceptable risk, consider that employees at Best-in-Class companies are 35% more likely than those at All Other firms (54% vs. 40%) to join and stay with an organization due to perceived relevance. The Best-in-Class are also 2.1x more likely than All Others (94% vs. 45%) to find more than 50% of their employees highly engaged and 3.9x more likely (71% vs. 18%) to achieve increased employee tenure.

When cost is the only factor considered, benefits managers and HR tend to isolate the management process from the impact it has on the broader organization. Benefits, like salaries, have a direct impact on both the employee’s perception of and value to the organization. Benefits are part of the corporate-culture-and-engagement formula, which lowers overall, long-term labor costs through reducing turnover and top-talent desertion while optimizing plan offerings matched to internal employee performance metrics. With a broker relationship, the benefits team and HR can spend time scrutinizing performance data to understand employee-cited health and wellness risks, or they can let the market resolve the problem for them.

The next step in the benefits management maturity curve is to reintroduce engagement considerations into the optimization formulas. Beyond payroll-determined plan eligibility and cost simplification, incorporating engagement data leads organizations to consider three other options:

Option 1: Implement a benefits marketplace for an overall comparison of standard, ancillary, and voluntary benefits. This option allows the benefits team and HR to include more plan offerings and relies on the employee to make selections based on their personal eligibility, lifestyle, and optimization planning.

Option 2: Partner with a broker who will negotiate plan offerings based on limited characteristics defined by the benefits team and HR. Under this model, an outside firm interacts with plan providers until the benefits team and HR decide which broker-recommended plans to offer employees.

Option 3: Manage benefits manually, along with all eligibility checks, provider negotiations, and tax / earnings implications.

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Most organizations (34%) favor the marketplace option: It eliminates much of the direct provider negotiation and initiates competition between offerings, which inherently weeds out bad plans and latent resources. Beyond the marketplace, 40% of companies move to a direct broker relationship; however, a mere 13% of the Best-in-Class favor this route. To improve oversight in plan management, broker partnerships let a third party pare down the set of offerings prior to employee presentation, which means the benefits team and HR outsource initial plan selection. Finally, only 21% of organizations continue to manage plans manually, which can lead to issues ranging from inefficiency to increased risk of errors.

Examining Costs and Benefits

Depending on deployment, each benefits administration model creates challenges and improvements. Examining the relationship between benefits administration models and employee engagement reveals a lot about how various models affect the employee experience. The main challenge is to ensure improvements outweigh and potentially resolve challenges. When the benefits management model is impersonal, rigid, or too pre-defined by management, organizations risk an increasing percentage of their workforce considering other employment opportunities. In today’s market, departing top talent can be a death knell for HR departments. Table 2 shows the impact various benefits models have on employee engagement and the correlation to participation in plan management.

Table 2: Benefits Management Models and Employee Engagement

Increased Engagement

Benefits marketplace 3.0x Payroll-determined plan offerings 0.4x Broker partnership 0.3x Manual benefits management 0.2x

% of respondents, n=151, Source: Aberdeen, September 2018

For every 1% increase in likelihood of organizations supporting a benefits marketplace model, they are 3x as likely to realize improved employee engagement through participation and individualized plan management.

40% of companies move to a direct broker relationship; however, a mere 13% of the Best-in-Class favor this route.

Because the marketplace model enables comparison shopping for the plans that best suit individual needs and personal health risks, employees at Best-in-Class companies are 33% more likely than those at All Other firms to participate and pursue voluntary and ancillary benefits.

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By comparison, the same 1% likelihood of support for payroll-determined plan offerings, broker partnerships, and manual benefits management only lead, respectively, to 40%, 30%, and 20% higher likelihoods of improved employee engagement.

To support individual needs, the benefits marketplace model relies on employee participation to select the optimal plan ecosystem. While self-management might seem counterintuitive, over 75% of employees consider healthcare to be a very personal issue where routines should facilitate the experience. Likewise, because the marketplace model enables comparison shopping for plans that best suit individual needs and personal health risks, employees at Best-in-Class companies are 33% more likely than those at All Other firms (53% vs. 40%) to participate and pursue voluntary and ancillary benefits.

As expected, employee engagement percentages subside significantly for the other three benefits-management models. These models pre-determine coverage requirements based on collective data aggregation, standardizing plan offerings that include the most in-demand needs of the entire workforce.

Allowing employees to optimize benefits options to suit their specific requirements is good for the entire organization. While more than 50% of organizations consider benefits administration to be a process problem as opposed to a personal one, top performers are changing benefits-management tactics quickly; operational optimization does not necessarily translate into cost savings. Table 3 shows the overall impact various benefits management models have on operating costs.

Table 3: Benefits Management Models and Operating Costs

Reduced Operating Costs

Benefits marketplace 0.10x Broker partnership -0.28x Payroll-determined plan offerings -0.73x Manual benefits management -2.10x

% of respondents, n=151, Source: Aberdeen, September 2018

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Of the four options, the benefits marketplace is the only model that actively reduces operating costs. The marketplace model introduces both plan and benefits competition, allowing the internal pool of employees to determine which offerings succeed or fail. It is also the only model that does not force a “one-size-fits-all” solution, and it does not promote one plan over favor another. Letting the market determine plan offerings individualizes plan selection while weighing costs against the potential for increased productivity created by offering those options.

While benefits administrators and HR still review the plans, the marketplace model allows them to adjust the mix offered to employees. The benefits team analyzes use and registration information to understand which plans, features, and supplementary options are most popular. This model also allows for the investigation of specialized requirements within the workforce that may require additional coverage. Employees make changes as needed to their plan packages, but employers ensure that preventative health-risk management is extended to the furthest reaches of the workforce. The marketplace provides resources and cost optimization while preserving employee engagement and collective preventative care.

Along these lines, for every 1% increase in likelihood that an organization is to invest in a benefits marketplace model, they are 3x more likely to reduce the time employees spend managing and making benefits changes.

Key Takeaways

Benefits management is a complicated process. Compliance and regulatory changes present additional challenges. High employee turnover pushes employers to pursue simpler administrative options at a rate of 50% year-over-year. Furthermore, this conversion frequency accelerates as companies grow. Managing complexity pushes many organizations into a paradigm: answering calls to reduce costs and streamline management before considering the effect on workforce engagement.

The initial instinct of most organizations is to simplify benefits management through consolidation and standardizing plans, but the net result is employee disengagement, with benefits becoming another reason for top talent to seek greener pastures. The Best-in-Class are recognizing this and responding by exploring solutions to manage benefits complexities better while offering more personalized benefits components.

While HR and benefits administrators still analyze plans, the marketplace model lets them add and restrict plans from the mix offered to employees.

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By expanding plan complexity, the Best-in-Class choose to implement benefits marketplaces that put the selection process into their workforce’s hands. Employers benefit by:

gaining insights into employee plan dependencies, which better recognizes individual health costs and the best elements to add to further preventative measures.

increasing employee engagement catering to individual healthcare needs that exceed the bulk requirements of the workforce.

increasing workplace desirability by individualizing employee experiences.

driving participation in ancillary and voluntary benefits plans that offsets standard benefits with added preventative measures.

reducing operating costs and time spent managing benefits.

Benefits management is a messy process that requires a model capable of accommodating the multi-faceted complexities of personalized healthcare choices. While simple management models resolve operational issues, they fail to acknowledge individual healthcare needs. A benefits marketplace is the only healthcare management model that checks all the boxes — from boosting employee engagement to reducing operating costs.

Related Research

Benefits Management: Separating Benefits from Compensation Is Key to Success; May 2018

Balancing Operating Costs: How the Best-in-Class Manage Health Benefits; December 2018

Internal Compliance and Costs Drive Demand for Benefits Analytics; July 2018

It’s Time to Pull Benefits Out from the Compensation Strategy; May 2018

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About Aberdeen

Since 1988, Aberdeen has published research that helps businesses worldwide to improve their performance. Our analysts derive fact-based, vendor-neutral insights from a proprietary analytical framework, which identifies Best-in-Class organizations from primary research conducted with industry practitioners. The resulting research content is used by hundreds of thousands of business professionals to drive smarter decision-making and improve business strategies. Aberdeen is headquartered in Waltham, Massachusetts, USA.

This document is the result of primary research performed by Aberdeen and represents the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen.

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