TRENDS IN EMPLOYEE BENEFITS

2014 DALLAS/FORT WORTH METROPLEX EMPLOYEE BENEFITS SURVEY REPORTS LOCAL MARKET PRACTICES Written by: Cheryl J. Lopez, Vice President June 1, 2014 Survey Published May 1, 2014 Cheryl Lopez is Vice President at WhitneySmith Company, a full service human resources consulting firm in Fort Worth, Texas. Cheryl provides human resources consulting services to business clients in a variety of industries. Cheryl is certified as a Professional in Human Resources (PHR) through the HR Certification Institute of the Society of Human Resource Management; certified as a Compensation Professional (CCP) through WorldatWork Society of Certified Professionals, licensed as a private investigator in employment matters through the Texas Private Security Bureau of the Texas Department of Public Safety, and has numerous training hours in conflict resolution, negotiation, mediation, and arbitration. Cheryl has a BBA in Banking and Finance from Texas Wesleyan University. TRENDS IN EMPLOYEE BENEFITS Employee benefits have social, legal, and economic ramifications that employers must understand and address to ensure proper administration of their plans and programs. The economic impact of employee benefits is most often apparent in organization operating budgets and annual financial results. On May 1, 2014 WhitneySmith Company (WSC) published the 2014 Dallas/Fort Worth Metroplex Employee Benefits Survey. The survey report provides an abundance of employee benefits data summarized in tabular form that reflects current benefits trends and the financial impact that employee benefits can have on an organization s bottom line. The area of most interest this year for many employers has been health insurance benefits and thus will be given additional coverage and focus in this publication. With the Affordable Care Act regulating this area of benefits, employers are wading their way through the compliance requirements at hand and in the near future. While the majority of survey participants have fully insured plans, there has been

an increase in employers with self-funded plans. Preferred Provider Organizations (PPO) plans are still the most widely offered health insurance plan with High Deductible Health Plans (HDHP) with Health Savings Accounts (HSA) attached coming in second. The following table reflects the prevalence of the health insurance models reported in the WSC survey. HEALTH INSURANCE PLANS OFFERED BY SURVEY PARTICIPANTS Type of Plan Prevalence Preferred Provider (PPO) 71% Health Savings Account (HSA) linked HDHP 35% Point of Service (POS) 16% Health Maintenance (HMO) 6% Exclusive Provider (EPO) 3% Note: Some organizations have multiple plans so percentages represent the total of all plans offered by participants The cost of health insurance is a major concern for employers from large corporations to small business owners. The different types of plans bring with them different levels of cost depending upon the model in which they follow. Based on data in the 2014 WSC survey, the total annual cost per employee in all types of health plans at all coverage levels (i.e., EE only, EE + Spouse, EE +Child, EE +Family) is approximately $8,600 per year. The employer usually pays for some portion of that overall cost and the employee pays the remaining portion. Typically employers pay the biggest portion of the employee only premium (i.e., 75% to 100%) and employees typically pay for most if not all of any dependent premiums. The survey reflects the ongoing trend of rising premiums for health insurance. Usually, if an individual chooses a plan with a high annual deductible, the monthly premiums will be lower. And, if a plan is chosen with a low annual deductible, the monthly premiums will be higher (Bihari). In a comparative analysis of the 2012 and the 2014 WSC surveys, premiums overall have increased approximately 16% between July 2012 and January 2014 for participating D/FW Metroplex employers. These rising premiums reflect the health insurance market place over an 18-month period of time and in conjunction with the passage of the Affordable Care Act. The following tables reflect the average monthly and annual premiums at different coverage levels under HMO, PPO, HSA, and POS plans as reported in the WSC survey. GROSS MONTHLY PREMIUMS PER EMPLOYEE AT DIFFERENT COVERAGE LEVELS Coverage Level HMO PPO HSA POS Employee Only $559 $525 $516 $502 Employee +Spouse $1,495 $1,128 $1,160 $1,230 Employee + Child $1,212 $1,040 $1,034 $1,006 Employee + Family $1,935 $1,506 $1,537 $1,644 2

GROSS ANNUAL PREMIUMS PER EMPLOYEE AT DIFFERENT COVERAGE LEVELS Coverage Level HMO PPO HSA POS Employee Only $6,708 $6,305 $6,192 $6,023 Employee +Spouse $17,945 $13,537 $13,923 $13,923 Employee + Child $14,541 $12,476 $12,413 $12,413 Employee + Family $23,218 $18,069 $18,438 $18,438 Based on the WSC survey, average annual premiums reported for 2014 for individual coverage is approximately $6,300 and for family coverage is approximately $19,800. For comparative purposes, a 2013 survey of employers conducted by Henry J. Kaiser Foundation and the Health Research & Educational Trust show annual premiums reported for individual coverage were approximately $5,900 and for family coverage were approximately $16,400. Between the two surveys (Kaiser and WSC national and local), annual individual and family premiums overall have increased about 17% from 2013 to 2014. This analysis is consistent with the 16% increase previously reported for the 2-year comparative analysis of the local D/FW Metroplex data from the WSC surveys. Employers continually look for ways to reduce an organization s health benefit costs and based on the WSC survey the top three steps employers plan to take in the next plan year to reduce health benefit costs include: 1. Increase employee s share of cost (employers may reduce their portion of the cost sharing for employee and/or dependent coverage) 2. Modify benefits (employers shift costs to the employee and/or retirees through higher deductibles, lower plan co-insurance benefits, etc.) 3. Implement wellness program (healthier employees can help employers lower health care costs, lessen the occurrence of serious illnesses, and improve productivity) HRAs, otherwise known as a Health Reimbursement Arrangements are becoming a common offering by employers. HRAs are often coupled with a HDHP but there is no requirement that they must be (Sammer, Miller). A health reimbursement arrangement is an excellent way to supplement health insurance benefits and allow employees to pay for a wide range of medical expenses not covered by insurance. HRAs are employer funded, tax advantaged employer health benefit plans, used to reimburse employees for out of pocket medical expenses (Lindquist). Based on the WSC survey, HRA employer sponsored contributions range from $2,000 to $4,000 for a plan year. 3

In the WSC survey, dental insurance models are evenly divided between traditional indemnity, DPPO, and DMO plans. Interestingly, the WSC comparative analysis reveals dental premiums have remained static and at many coverage levels premiums have actually decreased slightly. Small employers are not as likely to offer dental insurance benefits as medium to large employers. Cost sharing practices for dental insurance are usually quite similar to cost sharing practices for health insurance where the employer may pay the biggest portion of the employee only premium (i.e., 75% to 100%) and employees typically pay for most if not all of any dependent premiums. Life insurance benefits are typically provided by employers but the level of the benefit varies widely. Small and medium size employers tend to structure life insurance benefits as a flat amount between $20,000 and $100,000 or as a multiple of salary of one to two times annual salary. Large employers typically structure their life insurance benefit payouts as a multiple of salary between one and two times annual salary, no flat amounts. For life insurance plans that are based on a multiple of salary, the maximum benefits ranged from a low of $50,000 to a high of $500,000 with an average cap in excess of $200,000 in the WSC survey. Retirement plans offered by employers vary significantly and the good news is most employers contributed to their employee retirement plans in the last plan year. Defined benefit plans are still offered by a small number of employers and most made healthy contributions last plan year. 401(k) plans are the most prevalent retirement plan offered and employer contributions were slightly less in the last plan year than the previous year at average of 3.7%. The most common company matching formula is 100% of employee contribution up to 3% of salary. Profit sharing, profit sharing with 401(k), 403(b), 457, and 401(a) plans were all reported as retirement plan offerings in the WSC survey. Traditional vacation and sick leave plans are still the most prevalent time off benefit plans but the use of paid time off (PTO) plans that combine time off for vacation, sick leave, and personal time continue to increase in offerings by employers. Employers offering PTO plans usually set benefit accruals below the combined accruals of traditional vacation and sick leave benefits. According to the WSC survey, employees with 5 years of service are eligible for an annual average of 19.8 PTO days whereas in the traditional benefit plans employees with 5 years of service are eligible for an annual average of 15.4 vacation days and 10.5 sick leave days (combined annual total 25.9 days). Although a PTO system may provide employees with fewer total days of paid leave, it gives them more flexibility in how they use their time away from the work. Also, some employers report fewer unscheduled absences with PTO plans and also claim recruiting advantages and increased employee satisfaction with a PTO plan (Warford). 4

Employee benefits are a critical component of employee total compensation. Although employee benefits are considered indirect compensation, the financial and social values attached to them make them equally important as direct compensation for employees. The WSC survey shows how the cost of employee benefits is a substantial part of an employer s overall human resources costs in the table below. COST OF EMPLOYEE BENEFITS AS A PERCENTAGE OF PAYROLL Respondents Not Including Paid Time Off Including Paid Time Off All Participating Employers 21.3% 28.7% Employers are becoming more aware of how employee benefits affect their image in the marketplace, the motivation and retention of employees, the competitiveness of their total compensation programs, and their financial bottom line. Employers are well advised to survey their employees to determine what s important to them in terms of a total benefits package. The prudent employer will balance the desires of its employees, the legal requirements and ramifications of employee benefits, and the financial impact of each component of the total benefits program. Employers may find that some minor tweaking may be needed or could find that a benefits analysis may be helpful in staying up with current employee benefit trends. Sources Bihari, Michael, MD. How to Choose the Best HMO or PPO. About.com. 15 May, 2014. Available: <http://healthinsurance.about.com/od/understandingmanagedcare/a/choosing_best _health_plan.htm> Dallas/Fort Worth Metroplex 2014 Employee Benefits Survey. WhitneySmith Company. 1 May, 2014, pp. 5-55. Print. Henry J. Kaiser Family Foundation, Menlo Park, California, and Health Research & Education Trust, Chicago, Illinois. Employer Health Benefits 2013 Annual Survey. 2013. p. 31. Print. Lindquist, Rick. Health Reimbursement Arrangement (HRA) What is it? ZaneBenefits.com. 28 January, 2012. Available: <http://www.zanebenefits.com/blog/bid/97288/health- Reimbursement-Arrangement-HRA-What-is-it> Sammer, Joanne and Miller, Stephen. Consumer-Driven Decision: Weighing HSAs vs. HRAs. Society for Human Resource Management. 24 April, 2014. Available: <http://www.shrm.org/hrdisciplines/benefits/articles/pages/hsasvshras.aspx> Warford, Marisa. Time-Off Policies: Leave Well Enough Alone or Go PTO? Workforce.com. 11 February, 2014. Available: <http://www.workforce.com/articles/20256-time-offpolicies-leave-well-enough-alone-or-go-pto> 5