Best-in-class analysis shows top-performing companies employ similar tactics for health care cost control, HR management.
Companies heading into the new year short-handed might want to consider how top-performing peers are snagging talent.
Insurance, risk management and consulting firm Arthur J. Gallagher & Co. last month released its annual Best-in-Class Benchmarking Analysis looking at how large and midsize employers in the U.S. are managing benefits costs while recruiting and retaining labor.
“What we’re trying to do is help folks find the right path forward, (with) improved health cost control and attraction and retention,” said Stephanie Bauman, Gallagher area senior vice president and one of the report’s authors.
The data came from Gallagher’s 2017 Benefits Strategy & Benchmarking Survey, which collected benefit and human capital strategy findings from 4,226 organizations of all sizes.
The Business Journal reported on the results of that 300-question survey in September.
The best-in-class analysis shows top-performing large employers (1,000 or more full-time employees) are spending less while boosting employee protection and productivity.
It also reveals best-in-class midsize employers (defined as 100-999 employees) are reining in costs without shifting the burden to employees.
According to Gallagher, both groups have shifted to considering compensation and benefits an investment rather than a cost — and are taking a long-term approach.
Bryan Hirn, Michigan area president for Gallagher’s benefits and HR consulting division, said the best-in-class report — published in two separate documents Nov. 30 — is meant to satisfy the companies that want to know what is going on at the top.
“When we released the original data set … our prospective clients (came) back to us and said, ‘This is great because it tells me norms and averages of competitors, but I want to know what the best companies are doing,’” he said.
In the report, best-in-class employers were defined as those that ranked in the top quartile for controlling health care costs and managing human resources.
Factors for measuring best-in-class companies in the health care cost control category included health plan premium increases at the most recent renewal; health plan premium increases one year prior; health plan premium increases two years prior; and the effectiveness of self-assessed health care cost management strategy.
Considerations in the human resources management category included turnover percentages; success of employee communication efforts; assessment of workforce satisfaction, motivation and commitment; and completion of a workforce engagement survey within the past two years.
Those that scored in the top quartile of both categories were identified as exceptional performers or the “best of the best.”
While Gallagher did not disclose the names of companies that participated, of the 4,226 organizations of all sizes that responded to the survey, 315 large employers responded to the entire set of questions in the two categories and were ranked in this analysis, and 1,192 midsize employers responded and were ranked.
While large employers spend more than midsize employers on benefits, the best in class in the large group leveraged their scale to keep a tighter lid on their financial outlay. Sixty-two percent spent less than $10,000 per eligible employee on benefits, compared to just 42 percent of large employers overall.
Compared to other midsize employers, the best in class were less likely to increase employees’ contributions to health plan premiums (43 percent vs. 57 percent). Instead, the best in class experimented with other ways to manage total health care spending, such as offering fewer plan options — often choosing to self-insure their medical plans and carving out pharmacy benefits.
The best in class for both employer sizes were more likely to view total compensation as an investment in maximizing workforce performance to achieve business outcomes and prioritize objectives that support production and productivity, such as employee health and well-being.
In the large employer group, actions that defined the best of the best included long-term planning and strategy, employee communication and engagement, and promoting employee well-being and accountability.
In the midsize employer group, the best of the best also focused on long-term planning and strategy, as well as measuring progress toward health and wellness goals, actively controlling health care benefit costs and focusing on employee satisfaction and affordability.
Hirn said part of a responsive cost-benefit strategy has to do with abandoning a one-size-fits-all approach.
“For a long time, the thinking was, ‘We will attract and retain the employees we want, and part of that strategy is having a rich benefit plan.’ But rich benefit plans are expensive. Very few, if any, employers will pay the whole freight; they will expect employees to share that,” he said.
“When you’re dealing with a multigenerational workforce with millennials, Generation X and baby boomers who are often empty-nesters, those three groups are very different.”
For instance, he said, younger employees don’t have as many health problems, so a rich benefit plan would be a net negative for them.
“A progressive employer would say, ‘We’re going to offer more than one plan so the employee can determine which they need.’ That way, a person doesn’t have to pay half their paycheck for rich benefits they won’t use,” he said.
To supply more choice, Hirn said many employers are turning to private exchanges that allow them to offer as many as eight or nine plan options with an education platform to help employees decide which plan best fits their needs.
“It will ask you, ‘How old are you? Are you married? How many kids do you have? How much money do you make? What are your health issues? What’s your risk tolerance?’ By answering those questions, you will narrow it down to fewer options,” Hirn said.
Bauman said one intriguing result in the analysis was midsize employers are showing more concern about doing it all.
“Sometimes, when you put costs under control, you have to sacrifice benefits,” she said. “But they weren’t doing that; they were trying to do both.”
She said large and midsize companies are learning to be proactive.
“One of the big themes is a longer-term planning cycle, so they’re not stuck in a reaction cycle,” she said. “(They’re) looking ahead to communication and well-being in a longer-term perspective. They think of employees as an investment rather than a cost.”
In addition to providing more choice, allowing opt-outs and defined contributions, offering retiree benefits and ensuring employees are educated about health plans and wellness strategies, the best of the best companies also focused on social well-being initiatives, such as volunteering.
Hirn said while Gallagher did not split the data into Michigan and West Michigan figures because the sample size was too small, the state is on par with the overall trends.
Heading into 2018, Hirn said it will become even more essential for companies to benchmark their strategies against top performers.
“One of the challenges we have here in Michigan is we have people leaving to go somewhere else. There is a true fight for talent here in Michigan,” he said.
“Organizations will have (to follow) the lead of the best-in-class employers if they’re going to be cutting-edge.”