the-power-of-two-employee-benefits-formula-getting-harder-to-sustain

For North Bay employers, employee benefits are at an inflection point.

For decades, the formula has been relatively simple: offer health insurance, dental and vision, contribute toward the premium, add a retirement plan and hope the package is competitive enough to attract and retain employees.

That formula is becoming harder to sustain.

Over the next 10 years, I believe employee benefits will change more dramatically than they have in the past several decades. Rising health care costs, technology, changing employee expectations, housing costs and a tight labor market will force employers to rethink not only what they offer, but how they offer it.

The first and biggest challenge will remain health insurance.

Employers are already dealing with annual increases that are increasingly difficult to absorb. Health care costs continue to be driven by hospital prices, prescription drugs, specialty medications and increasing utilization. Passing those increases along to employees isn’t a sustainable long-term strategy.

That means more employers will look for alternatives.

Over the next decade, we will likely see greater adoption of self-funded and level-funded plans, alternative provider networks, direct contracting and other approaches designed to give employers greater control over the cost of care.

The question will shift from, “How much is our health insurance increasing?” to, “What are we actually getting for what we’re spending?”

That will be a healthy change.

Benefits will become more personalized

The workforce of 2036 won’t have a single definition of a good benefits program.

A young employee may value student-loan assistance or additional cash compensation. A parent may prioritize health insurance and dependent-care benefits. An older employee may place greater value on retirement planning and financial security.

Yet the traditional benefits model asks all of them to choose from essentially the same program. That will change.

Defined-contribution approaches and individual reimbursement arrangements are likely to become more common, giving employers greater control over their budgets while allowing employees more choice.

This doesn’t mean traditional group health insurance disappears. It means the definition of an employer-sponsored benefit becomes much broader.

Technology will change the employee experience

Open enrollment today can still involve lengthy PDFs, confusing plan comparisons and employees trying to determine which option makes sense for them or their family.

Ten years from now, that experience should look very different.

Employees will increasingly use technology and artificial intelligence to compare plans, understand costs, evaluate providers and make benefits decisions based on their individual circumstances.

For employers, this presents a tremendous opportunity. But technology alone won’t solve the problem.

Technology will make benefits easier to understand, not simply more complicated in a digital format.

Workforce challenges will make benefits more important

For employers in Sonoma, Napa, Marin and Solano, benefits are competing with more than other companies’ benefits programs.

They are competing with the cost of living.

Housing, transportation and childcare make it increasingly difficult for employees to live and work in the communities where many North Bay businesses operate.

For a winery, restaurant, nonprofit, manufacturer or professional-services firm, the question will increasingly be: What can we offer that makes someone want to work and stay here?

That could mean health insurance, but it could also mean retirement contributions, paid leave, child-care assistance, transportation benefits, financial wellness programs or greater flexibility.

There won’t be one answer.

Benefits will become a business strategy

Perhaps the biggest change over the next decade will be how employers think about benefits.

Benefits have traditionally been viewed as an expense. Increasingly, they will be viewed as a strategic investment.

Employers will have better data and better tools to measure what they are spending, how employees are using their benefits and whether those benefits are producing value.

The employers that understand that data will have an advantage.

They won’t necessarily be the companies offering the richest benefits. They’ll be the companies offering the right benefits program to their workforce while maintaining control over their costs.

I don’t know exactly what employee benefits will look like in 2036, but I am confident they won’t look like they do today.

The North Bay employers that thrive will be the ones willing to challenge the traditional model, embrace new approaches and continually ask two questions:

1. What does our workforce need?

2. How can we deliver it in a way our business can afford?

The next decade of employee benefits will be less about buying insurance and more about designing a workforce strategy.

For North Bay employers, that conversation starts now.

Andrew McNeil ([email protected], 707-992-3789) is a senior employee benefits adviser at Patriot Growth Insurance Services LLC.

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