Employers shift benefits priorities

Gallagher’s 2020 Benefits Strategy & Benchmarking Survey shows how COVID-19 may affect employee benefits in 2021.
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COVID-19 and the economic downturn have forced U.S. employers to examine cuts that were considered unthinkable at the beginning of the year, according to Gallagher’s 2020 Benefits Strategy & Benchmarking Survey.

The study gathered data from 3,921 employers from December 2019 to May 2020, as well as a series of employer pulse surveys conducted between April and July 2020. Together, the data from these reports portrays the effect the pandemic is having on hiring as well as employee benefits and compensation.

“Over the past decade, a tightening labor market led employers to offer a robust holistic rewards strategy to win the war for talent, but the pandemic has forced decision-makers to closely examine their benefits and compensation strategies,” said William Ziebell, CEO, Gallagher’s Benefits & HR Consulting Division. “Employers are reviewing their benefit offerings to make sure they address employees’ evolving needs and, at the same time, fit within their organizations’ budgets.”

Gallagher’s research found a significant number of employers plan salary freezes for management and executives (43%) and nonmanagement personnel (42%) to preserve jobs in 2021. In addition, following the viral outbreak, more than eight in 10 employers (83%) have more strongly emphasized the role of specific benefits within total well-being, including emotional well-being (65%), leave policies (47%), medical benefits (39%) and physical well-being (36%).

The Gallagher report was designed to help employers identify and prioritize a new approach to total well-being, as well as communicate significant changes to 2021 benefit programs during this fall’s open-enrollment period.

Shifting strategy

Given the level of economic uncertainty, Gallagher said employers are examining their benefits and compensation strategies to ensure total well-being — employees’ physical, emotional, career and financial well-being — is supported at cost structures the organization can sustain. This could mean eliminating underutilized benefits, identifying new offerings and cutting unnecessary expenses to optimize the organization’s investment in its people.

Perhaps surprisingly, COVID-19 did not force employers to make midyear adjustments on their coverage. In June, 86% of employers had not reduced health plan benefits and didn’t intend to during the pandemic. Additionally, 79% of organizations expected to continue the same health coverage in 2021. By July, 63% of employers anticipated their health care expenses for 2020 would either align with projections (40%) or be lower (23%), in large part due to avoidance of elective procedures. However, in many parts of the U.S., the pandemic is spreading, and it’s not yet clear whether health insurers will reduce, maintain or even increase premiums heading into 2021.

Survey responses showed the high cost of medical services (67%) and specialty drugs (41%) continued to be the top health care cost-management challenge for employers. These challenges, along with COVID-19-related concerns about increased operating costs and lower revenues, may force many organizations to adjust their 2021 benefits and compensation offerings. Employee cost sharing for medical benefits — which has remained relatively flat in recent years — may include unavoidable increases for many employers in 2021. Likely these would be in the form of increased premiums or greater implementation of high deductible health plans.

Employers also may re-evaluate less commonly used health care tactics in an effort to reduce unnecessary costs, including audits of plan eligibility (18%) and claims (15%), and those that deliver greater value, such as narrow provider networks (14%), designated centers of excellence (10%) and integrated health and disability management programs (9%). In 2020, the overall use of at least one value-based option was 31%, but for large employers, the rate was far higher, at 58%.

Talent management

As employers prepare for next year’s open enrollment, many will review the number and type of health plan offerings and even look to new HR technology to support changing workforce needs, Gallagher found. More than two-thirds (69%) of employers had planned to invest in HR technology platforms by 2022, before the viral outbreak in the U.S. Many of these capabilities are being fast-tracked, with large portions of the workforce working remotely.

Adjusting leave policies, adding voluntary or life insurance options, and emphasizing well-being benefits will continue to give employers latitude to more easily update their compensation and benefits strategy for a custom fit with shifting workforce preferences. In July, 26% of employers had modified their paid time off (PTO) policy, and 16% were contemplating that move as a result of COVID-19. And although currently offered by just 3%, Gallagher said unlimited PTO could be a creative way to support organizational well-being by cutting costs and motivating employees, particularly those who work from home and might be struggling to strike the right work-life balance. Unlimited PTO also eliminates employer’s need to cash out any balance remaining within the PTO period or upon retirement.

Additional flexibility and choice are attraction and retention tools that don’t require much employer expense. Voluntary benefit offerings have increased in recent years, with 45% of employers enhancing these offerings in 2020. Insurance options like critical illness (58%) and hospital indemnity (42%) help guard against the financial strain of medical bills at a time when protecting health has become more complicated.

COVID-19 trends

Many states and regions implemented stay-at-home orders to combat the pandemic; as a result, 77% of organizations implemented extensive work-from-home arrangements. Furthermore, 42% rolled out flex-scheduling options. Findings suggest these offerings are here to stay, with nearly 86% of organizations indicating work from home will continue after the pandemic, and 59% saying flex scheduling will remain an option, as well.

This wave of remote working began as a forced experiment, and the majority of employers found the practice works. In the near term, work-from-home options provide risk management benefits to employee health. In the future, the practice also might help organizations reduce real estate expenses. However, it’s important to note managers need to pay close attention to employee engagement and workplace culture to ensure employees’ career well-being still is being supported and teams remain connected, efficient and productive. This may require virtual development, training and mentoring. Over six in 10 employers offered development training for management or leadership (64%) as well as employees (62%), while 33% provided mentoring programs.

Lenny Brucato, the Michigan-area president for Gallagher’s Benefits and HR Consulting Division Courtesy Gallagher

Lenny Brucato, the Michigan-area president for Gallagher’s Benefits and HR Consulting Division, said organizations will have to figure out what workplace culture really means in terms of benefits.

“When you think about how many companies associated culture with the office experience, whether it was the casual workdays or the foosball table or the amenities they provided to their employees, some of that defined what culture meant. … If they never come back to that office again … they have to find new ways to promote that culture, to drive engagement. The employers that figure that out sooner rather than later are going to be the ones that ultimately win in the new world of talent attraction and retention, because it’s not going to be about physical amenities and space so much as it is going to be messaging,” Brucato said. “It’s going to be about a diverse benefits package. It’s going to be about recognizing the work-life balance needs, creating flexibility and supporting things that are important to their employees and prospective employees.”

Evolving strategies

Prior to the pandemic, just a third of organizations said their communications created tangible results or employee behavior change. In March, leaders in many industries were uncertain their organization could weather the impact of COVID-19, and employers had to take a fresh look at communication approaches and technologies.

Brucato said Gallagher’s Michigan clients found keeping employees in the loop with appropriate messaging and accessible communication methods turned out to be one of the top challenges when organizations made the switch to remote work environments. The Michigan portion of the survey revealed employers prior to COVID-19 were relying on a broad, in-person strategy for communicating information about benefits, compensation and total rewards, with 56% of respondents using live group meetings to do so, and another 38% relying on health fairs — neither of which are now viable options.

“They’re having to pivot to figure out how do we leverage things like recorded webinars and Brainshark, for example, to craft the messaging and get it out to people,” he said. “There’s been a whole new emergence within the technology space of vendors who are providing virtual benefit fairs, where employers can craft a completely custom experience that’s all virtual and branded in their image and has the messaging around benefit enrollment and what (employees) need to know about changes in partnerships that are going to be important as (they) make decisions about their benefits.”

Gallagher found it will be crucial for employers to address any communication gaps ahead of the 2021 open enrollment season, as employee education is now almost completely virtual.

While nearly two-thirds (63%) of employers use employee-initiated feedback and almost half (45%) utilize satisfaction and engagement survey results to measure communication success, these methods don’t always show what is and what isn’t working, Gallagher said. 

Employers are encouraged to take a close look at the data they have at their disposal, such as website analytics or portal visits, to help assess and revise their communication strategies.

“It’s important to not try to predict what you think you know, but really try to get a sense through the use of pulse surveys, employee work groups, focus groups, things of that nature, to get a sense for how people are feeling, what’s important to them, how their worlds have changed and what employers can do to respond to it,” Brucato said.

The full report can be found at ajg.com/us-benchmarking-report-2020.

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