SOUTHFIELD, Mich., March 16, 2006 (PRIMEZONE) -- The reduction or elimination of vision and dental insurance plans, introduction of Health Savings Accounts (HSA), reconfiguration of defined benefit pension plans and new employee-funded retirement savings vehicles such as the Roth 401 (k) recently announced by General Motors are signs of an increasing shift that finds traditional corporate employees participating in plans that require greater personal responsibility in terms of cost and benefit elections.
According to Ed Murphy, Consulting Manager for Employee Benefits at Midwest-based Plante & Moran, PLLC, as employers increasingly redefine their benefit strategies, employees have an ever increasing financial stake in their benefit choices.
"We're seeing a consistent movement in the corporate workforce with more of the benefit cost burden being shifted to the employee," explains Murphy. "Ultimately, employees will be required to take on greater management oversight for their own health and welfare and retirement plans."
The challenge for business is to provide employees with the knowledge and tools to make good risk management decisions.
"We suggest that there is an inverse relationship between purchasing control and employee skills; as employer control over buying decisions declines, employee skills and purchasing "know-how" must increase," says Murphy. "This applies to determining the need for benefits, selecting the type and level of benefits, selecting vendors, and evaluating cost and risk acceptance/transfer. It's a fairly complex process and one that requires an education strategy by employers."
Murphy offers health care as an area where an employee's education and decision-making ability is going to be critical in the future. For example:
"If a young, healthy single woman is given a choice by her employer between a comprehensive medical plan that costs her $400 a month versus $200 for a catastrophic plan, her first inclination may be to opt for the lesser cost," says Murphy. "This is where skill development is so important, understanding that catastrophic plans may have extremely large long-term financial consequences. Insurance carriers totally understand the value of risk, that's generally why premiums for some plans look more attractive -- it's a risk shift. By contrast, employees do not have the same skills as insurers and may venture into an area where they can ill afford the transfer of risk to themselves."
Murphy says this phenomenon is especially true when it comes to benefits like life and long term disability insurance because people often view them as benefits that will never be needed personally or by their beneficiaries. However, because the cost of self-insuring the risk by not purchasing the benefit can result in negative financial consequences, the risk is typically best suited for insurance carriers.
Murphy further notes that traditional benefits will all be subject to scrutiny in this scenario, and warns that benefits like vision and dental care will be the first to come under fire because they are more easily financed by employees and, by design, limit the maximum financial exposure to the employee, making the cost responsibility more easily absorbed by the employee. Moreover, as costs of health benefits continue to escalate at near double digit rates; more and more cost shifting will occur.
"Cost shifting is but a single cost management strategy approach for employers to ease the corporate financial pain and it is not the most cost effective long-term strategy. Corporations can't effectively cost shift their way out of medical inflation. However, while temporarily painful to employees, transferring costs is a necessary part of a broader strategy to educate employees on the best ways to access and purchase health care," believes Murphy.
Murphy concludes that society as a whole is too insulated from the true cost of health care, with limited knowledge of how to buy, where to buy, or how much to buy. This has driven employee behavior to simply give providers the proverbial "gold card" and buy it all without regard to cost or effectiveness.
"Until we achieve a high degree of quality and price transparency, we will continue to be faced with double digit health care inflation. A multi-disciplined approach focused on consumer and provider education together with quality and price transparency is the best way to drive market wide improvements. Without it, employees will remain generally poor purchasers and the market as a whole suffers. Education, personal responsibility and accountability will help keep companies financially strong, afford job stability and income continuation. This far outweighs the unilateral strategy of simply cost shifting," affirms Murphy.
Plante & Moran is one of the country's leading accounting and business advisory firms providing clients with financial, human capital, operations, strategy, technology, and family wealth management services. With approximately 1,500 staff members, the firm has offices throughout Michigan, Ohio, and Illinois, and in Nashville, Tennessee and Shanghai, China. Plante & Moran has been recognized by a number of organizations, including FORTUNE magazine, as one of the country's best places to work.