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During World War II, government wage and price controls prompted employers to beef up relatively new health care benefits packages as a means of luring workers during the severe labor shortage.

And the race was on.

At a time of a temporarily shrinking economy and other challenges, benefits managers must balance the competing goals of spending the fewest dollars on those perks that will bring the biggest bang in the overall goal of maintaining a stable and motivated workforce.

Boomers staring into the frightening abyss of retirement hear a constant drumbeat of gloom and doom scenarios surrounding the twin buttresses of Social Security and Medicare. They wonder what the future holds.

At the same time, entering and mid-career employees have grown up in a different world of new technologies and values. They face the same basic fears, only they're magnified because Medicare and Social Security are said to face implosion just when they are supposed to be able to benefit from them.

Into this breach step the benefits brokers, who must translate the pressures placed on benefits managers from employees and senior management, as well as new legal and societal trends, into workable programs offered by innumerable insurance carriers. The brokers highlighted in the following pages have, in our opinion, met the challenge and then some.

Lenny Sanicola, practice leader at the Scottsdale, Ariz.-based WorldatWork policy study group, says that communication remains the key to successfully navigating the changing nature of employee benefits programs and helping them fit the new generations of workers.

"It is one thing to say, 'Mr. or Ms. Employee, you are now responsible for this or that choice,' but it is another thing to say, 'I am going to give you the tools and resources to do that effectively,' " he says.

Effective communication, however, does not come without cost, some benefits managers say.

Elizabeth Clarke, risk manager for the city of St. John's in Newfoundland, notes that, while flexible benefits have been around for a while, coordinating them with five different employee groups and their collective agreements has proven to be quite a challenge.

"A flex benefits program requires a high regular educational component along with regular open enrollment periods by the sponsor," she says. "Given that we have only one employee responsible for all benefits functions for the city (1,200 employees and 500 pensioners), the resources are currently not there to institute such a program."

RETIREMENT

Recent surveys indicate that current employees have more fears about a comfortable retirement than ever before, while at the same time rely on their job to provide for that increasingly shaky proposition.

The percentage of workers who are very confident about comfortably retiring dropped from 27 percent in 2007 to 18 percent in 2008, according to the 18th annual Retirement Confidence Survey conducted by the Washington D.C.- based Employee Benefit Research Institute.

EBRI President Dallas Salisbury says it was the sharpest reduction in retirement confidence in the nearly two decades the survey has been conducted.

"If there is a silver lining, it is that Americans finally may be waking up to the realities of being able to afford retirement," he says.

The survey indicated confidence shrank among all levels of employees, but was particularly acute among younger workers with lower incomes.

In addition, confidence about sustaining a comfortable lifestyle among those already retired dropped to 29 percent from 41 percent last year.

Sanicola says the demographics of the workforce remain key to developing a successful retirement program.

"The older people are more used to the pension plans of our grandparents or parents, and those are going away," he says.

"So from a retirement perspective, what can I do for these folks? Do I increase the match in their 401(k) plan, or do I have an additional savings vehicle for them?"

Whatever the employer does, it will serve as the bedrock of a retirement program, according to MetLife's Sixth Annual Employee Benefits Trends Study.

According to the study, 52 percent of working Americans are now obtaining the majority of their financial and retirement products through the workplace, up six points from just a year ago.

The survey indicates that employers underestimate how important benefits are in an employee's decision to stay with a company.

"By better understanding what ways benefits drive employee loyalty in an increasingly diverse workplace, employers have an untapped opportunity to maximize the effectiveness of their benefits plans," says Ronald Leopold, vice president of MetLife Institutional Business.

DISABILITY

In the disability realm, integration remains the key, whether it means melding occupational and nonoccupational illness leaves or, within the past few years, adding the recently legislated right of family medical absences.

Sanicola recalls his days as a benefits manager for Doubletree Hotels, when he did not have all that much interface with his risk management counterpart.

"We never talked," he says.

But with the advent of light-duty and other return-to-work programs that can be applied to both workers' compensation and other short-term disability leaves, all that is changing.

"The silos have started to break down, and what you are seeing now is a more holistic approach," he says. "The issue becomes how quickly we can get this person back to work and how we can keep he or she engaged when off site."

The Family and Medical Leave Act, signed into law by President Clinton in 1993, ushered in a new slew of rights for employees seeking job protection when family emergencies require time off from work.

Kevin Krzeminski, senior vice president and general manager for Liberty Mutual's group markets, says employers are increasingly looking to outsource FMLA administration due to the complexity involved in melding federal and state rules, along with coordinating short-term disability leaves.

"Oftentimes, many short-term disability leaves can run concurrently with family medical leaves, and so employers look to us to run the programs in the best way possible," Krzeminski says.

John Fortin, national practice leader for Willis Employee Benefits Practice, says employers are looking to get at the root cause of all absences, whether they be for occupational or non-occupational disability, sickness or medical leave.

"They are seeking ways to integrate absenteeism, disability and medical claims to manage all of these programs. So when the person does go out, the employer can track and better reach out to that person to get them healthy and on the job and productive," he says.

Coordinating long-term disability employee benefits with those offered by Social Security has turned into something of a hot topic lately.

Earlier this year, a group of whistle-blowers filed suit in U.S. District Court in Boston against a group of insurance companies, including Unum and Cigna, claiming they are forcing many people to apply for federal benefits even when they are unlikely to qualify for them.

Typical private-sector long-term disability claims involve periods away from work of about six months, while Social Security deals with periods much longer and includes claims of impairments so severe that they could lead to death.

Both companies deny any wrongdoing and say it is in the best interests for all long-term disability claimants to file with Social Security.

While not commenting on the merits of the suit, Krzeminski agrees that it was important for disability claimants to file right away for Social Security benefits.

"One of the reasons is that it is not an easy process to be approved for Social Security," he says.

In other trends, employees are taking more responsibility for their short- and long-term disability insurance needs.

Terry Smith, a principal with Mercer's disability and absence management consulting group, says plan sponsors today are offering employees the opportunity to buy disability coverage with after-tax dollars.

"We are seeing more and more 'base plus buy up' plan designs, which empower employees to determine how much income protection coverage they can need and afford."

In addition, more employers are offering short-term disability benefits on a voluntary (or work-site) basis, in which the employee covers the cost. The most prominent player in the field today is Aflac.

According to LIMRA International spokesman Ron Neyer, while 44 percent of employers with 10 or more employees offered STD benefits in 2006, up two points from 2002, 39 percent were employer paid, compared with 45 percent for 2002.

New premiums for the 26 participants in the LIMRA's U.S. Worksite Sales Survey totaled $361 million last year, which represented a 14 percent increase from 2006. LIMRA is a worldwide network of 850 financial services companies that helps members build businesses and improve performance.

HEALTH

According to the MetLife survey, health benefits ranked No. 2 right behind wages as motivating factors in employee loyalty and retention, far ahead of retirement and other benefits. Costs, of course, remain the prime challenge as they continue to rise.

"Although in the last two years, they seemed to have leveled out to about the high single-digit increases," says Sanicola.

Tom Lerche, practice leader at Aon Consulting Healthcare, says that for the past 10 years, many employers have looked toward benefits buy-downs and increasing employee premiums as way of managing costs.

"But I think those tactics have pretty much run their course because every time you lower the benefit, it reduces the value of the benefit to recruit and retain employees," he says.

In its recently published 2008 Benefit and Talent Survey, Aon Consulting reported that the median annual contribution for family healthcare coverage rose to $3,120, up 15 percent from 2007, and is edging closer to a family's monthly average income.

Thus, rising costs for both employers and families have put a new emphasis on wellness and health promotion in the effort to provide healthcare benefits more affordable to both sides of the equation.

"They don't save money overnight, but when they do work, assuming the employee is fully engaged, they lower healthcare costs, reduce absence, disability costs and what we call presenteeism, and overall they improve productivity and energy," Lerche says.

Fortin agrees that, when it comes to improving healthcare benefits, the three main concerns today are "wellness, wellness and wellness."

But he says the programs are still in their infancy, noting that according to the Willis Wellness Survey, 91 percent of organizations are committed to improving wellness, but only 23 percent have comprehensive wellness programs.

"Many employers are in the throes of deciding whether they should proceed with a wellness program. Some want to proceed, but are not sure how," Fortin says.

He says those employers on the fence could take heart from some clients reporting costs falling to 40 percent below benchmark levels and annual medical premium increases falling under 4 percent.

Lerche says that more and more employees are receiving preventative care under both wellness programs and the so-called consumer driven health plans, which provide monetary inducements to employees to cut their health costs.

"Many employers are looking to upgrade the benefit because they realize the power of prevention," he says.

As for the prevalence of the consumer-based plans, which provide features such as health savings accounts and employee reimbursement mechanisms, Lerche says, "They are very much in the vogue."

"We have some employers who are true believers and are now offering CDH plans to all their employees," he says.

Others offer the plans as one option, while many are "skeptical and don't think it is the right way to go, and are not planning on offering it all."

CDH advocates can look at recent EBRI statistics as the ultimate good news-bad news joke. On the one hand, enrollment rose 100 percent in 2007 from the previous year. On the other, the new figure represents only 2 percent of the population.

But overall, EBRI figures debunk the myth of vanishing employment healthcare benefits, showing that the percentage of small employers offering health benefits in 2007 was about the same as it was in 1996, though it expanded later in the last decade to 2000 before declining through 2005.

Other evidence, however, indicates that some employers may be cutting back traditional plans.

Gil Lowerre, president of Eastbridge Consulting Group, says that the double-digit growth of employee-paid supplemental health plans indicates some strapped employers are using these plans for their core employees, as opposed to merely the seasonal or temporary workers who traditionally took advantage of them.

"There is no doubt that there is some movement by some employers who cannot afford a traditional health plan anymore," Lowerre says.

With the rising costs of drugs and development of new specialty medicines that can provide seemingly miraculous results but at huge costs, employers are looking for a way to provide the benefit without breaking the bank.

Fortin says that pharmacy benefits managers have been able to negotiate far better contracts than in the past.

"We are pinning the pharmacy benefits managers down on not just what discounts they are going to give, but guaranteeing what the total cost of drugs will be next year," Fortin says. "That is huge because a 1,000 life group could save $100,000 by a better contract with its PBM."

Two New York Times articles last month gave some indication of the new challenges in providing affordable drug benefits.

Some employers are now looking to percentage-based co-pays for the more expensive drugs, as opposed to the traditional flat rate, as a way of coping with these new specialty medicines. But the effect can suddenly turn a monthly payment under $40 to one rising to three or even four figures overnight.

Another New York Times story highlighted the trend of PBMs acting as exclusive distributors of some new drugs, thus calling into question their traditional role as honest brokers in curbing employer medicine costs.

The most prominently mentioned company in the article, Express Scripts, declined the opportunity to respond to the Times story to Risk & Insurance®.

DENTAL

Sanicola of WorldatWork says that dental costs have remained fairly stable, rising just about 5 percent over the years, especially when compared to medical.

"You don't see too much of a reduction in covered items," he says, adding that preferred provider organization dental plans remain the most prevalent.

Lerche notes that the overall wellness movement has extended to the dental realm.

"The large trend in dental benefits right now is diagnosing diseases through dental exams," he says. "Up to 32 diseases can be diagnosed by dentists during a simple check."

Kansas City, Mo.-based risk consultant Sharon Earlenbaugh of the Thomas McGee agency says that the 100-80-50 formula--representing the percentages for exams-cleanings, regular cavity fillings and major root canal-crown work--has remained fairly constant over the years.

Last month, Assurant Employee Benefits introduced what it says is a first-of-its-kind program that allows family members more flexibility in using their total pooled dental benefits dollars so that, if one member needed more work than others, it could be accomplished without much red tape.

Despite EBRI's claims, more recent data indicate the shrinking economy is taking its toll on benefits with United Health reporting disappointing first quarter earnings late in April from fewer businesses and employees signing up for health plans.

While a loosening job market may in one sense ease the pressure on benefits managers in keeping employees in their jobs, it does add other costs in areas such as short-term disability and workers' compensation as employees feel the stress of the times they live in, according to the Liberty experts.

And of course, those counting on the equity in their home as a retirement nest egg may have to make some adjustments if current trends continue, all the while making the job of both the benefits managers and their brokers all the more challenging.

STEVE TUCKEY has written on insurance issues for a decade for several national media outlets.

June 1, 2008

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