Employers across America face unprecedented challenges in providing competitive employee benefits while still controlling costs. Public-sector employers face additional obstacles from revenue shortfalls and increased public scrutiny of government spending. Yet employers, both public and private, have access to many proven solutions that can help them control and even reduce costs while continuing to offer a strong benefits package.

That’s one of the key findings in a new white paper released last week by Colonial Life, which explains the reasons for growing cost pressures and the effectiveness of multiple strategies to contain employee health benefits costs.

The cost of family health care coverage has doubled in the last decade, increasing 9% in 2011 over the previous year. At the same time, state and local governments are facing significant financial stress from the most recent recession: Their revenues declined 22% from 2008 to 2009.

“In today’s economy, most people realize changes in benefits programs are inevitable,” says Pat McCullough, assistant vice president and public sector practice leader at Colonial Life. “But many employers, especially those in the public sector, aren’t taking advantage of the opportunities available to them. They’re more likely to be able to continue offering competitive programs if they find ways to make them more cost-effective.”

Top five cost-control strategies

The paper suggests five strategies to be effective in controlling costs:

1. Wellness initiatives. Wellness initiatives were among the top cost-control strategies implemented by employers in a recent survey of government financial officers. Nearly 80% of survey respondents have added wellness initiatives to their benefits program, and 90% of those recommend them to others; nearly two-thirds recommend them strongly. Employers appear to be eager for even more wellness information and options, according to a new study of nearly 800 benefits decision-makers conducted by EBN’s parent company SourceMedia for Colonial Life and Unum. Survey respondents said they wished their benefits brokers “were more proactive in the area of wellness.”

2. Pretaxing benefits/Section 125 participation. Seventy-seven percent of employers in the government financial officers survey say they offer pretax benefit plans, and 86% of those recommend this option. In fact, at 73% highly recommended, it was the most enthusiastically endorsed strategy of the survey options, and only 3% were unlikely to recommend it.

3. Benefits communication and education. Employers can transfer the cost of benefits plan communication to their benefits suppliers and can outsource an enrollment system and open enrollment management rather than maintaining these responsibilities in-house. Although this shift in benefits communication and enrollment responsibilities is well-recommended by those using it, it’s not yet widely implemented. The SourceMedia study pointed out one possible reason for the relatively low usage of these strategies: too few benefits brokers, consultants and carriers are offering this kind of support. Only about 60% of survey respondents were even somewhat satisfied with the employee education and enrollment support provided by their benefits partners.

4. Voluntary benefits. Another underutilized solution to the benefits cost problem is to move non-core benefits to employee-paid voluntary benefits. This strategy is another example of a change that fewer public sector employers have yet to implement, but those who do give it very high marks. Only about a third of employers in the government financial officers study said they have moved noncore benefits to employee-paid voluntary coverage. However, 87% of those employers recommended this strategy, and 70% recommended it strongly. In the SourceMedia study, 71% of employers who don’t offer voluntary benefits said their employees aren’t interested in them. In addition to missing the potential cost savings of employee-paid benefits, these employers may be disconnected from actual employee preferences. For instance, another recent study showed a majority of employees believe they’re more likely to find benefits to meet their needs in voluntary plans and appreciate the workplace as a convenient and time-saving place to purchase them.

5. Dependent verification. Providing insurance coverage for dependents who are no longer eligible drives up benefits costs for employers. Health plan audits can reveal a significant number of ineligible participants, including dependents who are over age or who aren’t a blood relative or a spouse, or former employees who haven’t been removed from the plan. The potential cost savings offered by dependent verification can be considerable, and the service is sometimes available at no cost to the employer.

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