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Health Care Benefits Trends & Implications for 2002

February 7, 2002
Related Topics: Featured Article, Compensation, Benefits

The editors of Workforce have looked into their 2002 crystal ball and identified what they think are the major issues affecting HR management today. Then they examined the impact of these issues on individual HR functions.

What's happening in your company that contradicts or confirms these trends?

Major Trends Affecting Human Resources Management in 2002

Trend #1: Significant HR issues are intertwined with the current economic climate.

The economic climate has significant HR implications, and conversely, some HR issues are affecting the economic climate.

For instance, there is an ongoing labor shortage, obscured, in part by the current - but temporary - economic cycle. This labor shortage will have long-term effects on businesses' ability to compete in the world marketplace. Therefore, HR must manage to that labor shortage, despite contrary evidence.

Trend #2: Tough times require continued cost-cutting beyond layoffs.

It looks as if the 9/11 events may have helped to delay the country's economic recovery. Thus, many companies will continue to look for ways to cut costs.

In 2001, layoffs targeted less-skilled and marginal performers. In many organizations, only key employees are left. Additional staff cuts could hurt current business and hinder future economic recovery.

Companies cannot over estimate the importance of key employees to an organization and the continuing need to retain the best and the brightest.

As a result, HR will need to look at both trimming expenses and fulfilling HR's demand to keep and attract the best employees.

Trend #3: "Re-engineering" - or its next iteration - will become an important way to cut costs.

Since downsizing won't achieve the necessary cost-cuts, companies and HR departments will have to re-engineer their processes and do what they now do faster, cheaper, and smarter.

HR will have two roles:

  • First, it will have to look at its own department and make HR more efficient, more cost effective, and a greater contributor to bottom-line stability.

  • Secondly, HR will work with executive and line management to support their re-engineering efforts.

Trend #4: The pending economic recovery will lag unless there are qualified employees in place to make it happen.

Sustained economic recovery is in the hands of the intellectual capital of an organization - its remaining employees.

Because those employees are vital to long-term corporate success, HR is responsible for maintaining their commitment, well being, skill sets and continued employment.

Therefore, HR will use all of its traditional tools to develop and maintain a competitive workforce.

How These Trends Affect Health Care Benefits

  1. Double-digit Health Care Cost Increases
    A survey of 2,800 employers released at the end of 2001 by William M. Mercer Inc., a New York human resources consulting firm, found employers expect health care costs to rise 12.7% in 2002 – and that’s after an 11.2% increase in 2001.

    These annual, annual double-digit health care cost increases are significantly impacting business costs.

    And with thin profit margins, employers cannot absorb these increases. They are forced to look at cost-holding alternatives or pass the costs along to employees, who are also hard-pressed to handle the increased costs.

  2. Patient’s Bill of Rights
    The "Patient’s Bill of Rights" which was a presidential campaign issue in 1999 is now relegated to yesterday’s news.

    However, its resurgence could compound the health care cost issue. In addition, discussions also included focus on employer liability in health care coverage decisions.

  3. Employers Have to Meet Contradictory Goals
    Despite increased benefits costs, employers will continue to provide a complete benefits package in order to retain and attract top talent.

    The labor shortage is only temporarily at bay. It will re-emerge once the economy recovers, and competitive organizations will still want to be an employer of choice.

    Because employers will continue to try to meet contradictory goals: provide a full-range of benefits and control benefits costs, HR will turn to consultants and benefits providers for solutions.

How These Trends Affect the Demand for Health Care Services

  • Health Care Insurers, Health Care Consultants, and Benefits Communications Companies: HR needs expert help in evaluating the options.

    Companies are looking at alternative insurance options and vendors who can help provide those alternatives and help restructure health care benefits to contain costs and insure the employee population.

    There will be significant activity in this arena in the next 12 to 36 months because employers cannot continue absorb the increases. As they turn to alternatives, they will need assistance in re-educating employees.

  • Prescription Drug Providers: Prescription drug costs are a significant contributor to increased health care costs, which also are exacerbated by an aging workforce.

    Employers will look at ways to address this as a stand-alone issue, either with existing carriers or as a benefits carve out.

  • Benefits Management Systems: To evaluate both health care and pension benefits status and current costs, HR will need internal data from its HRMS.

    In determining and evaluating options, census and cost data will become significant. If systems are inadequate, HR will consider upgrades. And when new options are developed, HR will need systems to support those options.

  • Employee Assistance Programs: After the terrorist attacks of 9/11, many companies turned to their Employee Assistance Programs (EAPs) for help. The value of such help has been greatly publicized in the media.

    Those who do not have EAP coverage are now investigating the options – and those with EAP coverage are reviewing the plans to make sure they are what is needed in a major crisis.

    In addition, as mental health professionals know, the "crisis" is only one intervention point. Many employees, including those not directly involved in 9/11 events, will need to seek counseling to continue to be productive and focused in the workplace.

  • Flexible Benefits Programs: This is not a new issue, but it still requires HR’s attention: a diverse workforce has different benefits requirements.

    Thus, companies will continue to use flexible benefits plans as a way to both control costs and to meet divergent needs. And so there is continued demand for benefits consultants to help design both the programs and the software systems that administer them.

  • Voluntary Benefits: The Baby Boom population has become the "sandwich" generation, dealing with its obligations to its parents, its children, and its own retirement planning Baby Boomers must care for aging parents, so eldercare, will continue to be an important benefit option. Boomers also must fund the college education for their children, so tuition-support plans could be helpful. Finally, Baby Boomers must think about their own futures and will increase the demand for long-term care benefits.

    Although a significant portion of the population, Baby Boomers are not the only employees in the workplace. Gen X and Gen Y have different needs, and inclusion of voluntary benefits reflects those needs.

Source: Margaret Magnus, Publisher, and The Workforce Editors, January 2002.

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