2015 Metro DC Survey of Benefit Strategies and Trends. Presented by Lockton Companies Published April Sponsored By:

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1 2015 Metro DC Survey of Benefit Strategies and Trends Presented by Lockton Companies Published April 2015 Sponsored By: L O C K T O N C O M P A N I E S

2 2015 Metro DC Survey of Benefit Strategies and Trends FIND OUT ABOUT EMPLOYER BENEFIT STRATEGIES AND TRENDS IN THE WASHINGTON, DC METROPOLITAN AREA Report Contents P.10 Corporate Benefits Philosophy and Engagement P.14 Health Care Reform Strategy P.26 Wellness P.32 Employee Cost Sharing $ P.36 P.18 Cost Management Strategies P.22 Benefit Communications P.23 Consumerism/High Deductible Healthcare Plans Voluntary Benefits P.37 Retirement P.39 Executive Benefits and Perquisites 2

3 Presented by Lockton Companies The following report provides an analysis of the results from the 2015 DC Metro Survey of Benefit Strategies and Trends. This survey was launched in January All local employers were invited to participate in this survey. The survey included questions related to the benefit plans offered to employees located in the Washington, DC metropolitan area. To provide the most accurate data possible, data was cleaned and reviewed. Responses were rounded to the nearest percentage. Results represent more than 126 employers with operations in the Washington, DC metro area. This report is published by Lockton Companies. All content is for informational purposes only and is in no way to be construed as legal advice or otherwise. Questions? Contact Chris Bartnik at No portion of this publication may be reproduced or distributed in print or electronic format without the written permission of Lockton Companies. 3

4 2015 Metro DC Survey of Benefit Strategies and Trends RESPONDENT PROFILE 126 participants responded to the inaugural Metro DC Survey of Benefit Strategies and Trends. Location 86 percent of the respondents are headquartered in the Washington, DC metro area. 55 percent of respondents reported that the majority of their employees are located in the Washington, DC metro area. 8 percent have a majority of employees located in another location. 37 percent reported that their employees are spread across multiple locations. Industry Key local industries are represented: Not-for-Profit (19 percent) Information Technology (15 percent) Services (14 percent) 30% 25% 25% 20% 19% 15% 15% 14% 10% 6% 5% 0% 1% 1% 3% 2% 2% 1% 2% 4% 3% 0% 1% 1% 4

5 Presented by Lockton Companies Employer Size The majority of respondents (58 percent) are middle-market employers ranging in size from 100 to 999 employees. There is also strong representation (22 percent) of upper-middle-market clients ranging from 1,000 to 4,999 employees. 25% 23% 23% 22% 20% 15% 10% 5% 4% 6% 12% 10% 0% RESPONSE When asked if their organization was a Government Contractor, 47 percent of respondents said, Yes. NO 53 % 47 % YES 5

6 2015 Metro DC Survey of Benefit Strategies and Trends OBSERVATIONS Small- and middle-market employers lag their larger counterparts in developing multiyear strategic plans to manage benefit plans and healthcare costs. 68 percent of employers responded that Health Care Reform significantly increased or somewhat increased the need to implement a multiyear healthcare cost management strategy. The presence of a well-developed multiyear strategy to manage healthcare plans and costs varies by employer size. Larger employers (greater than 5,000 employees) are most likely to have a well-developed strategy (67 percent). Figures reduce dramatically for smaller employers (7 percent for employers with less than 250 employees, 18 percent for employers with 250 to 999 employees, and 29 percent for employers with 1,000 to 4,999 employees). One third to one half of the employers with less than 5,000 employees responded that their strategy is partially developed. Likelihood to Have a Well-Developed Strategy by Employer Size 80% 70% 67% 60% 50% 40% 30% 20% 10% 7% 18% 29% 0% Less than to 999 1,000 to 4,999 5,000 or more 6

7 Presented by Lockton Companies Local employers believe that Health Care Reform is increasing their healthcare costs and the administrative burden associated with managing an employer sponsored healthcare plan. Five years after being signed into law, local organizations believe that Health Care Reform has noticeably impacted several aspects of their employer sponsored benefit plans. Respondents identify the following areas as those most impacted (Increased Significantly or Increased Somewhat) by the legislation. The top choices include reliance on external business partners (84 percent), cost of their healthcare plans (79 percent), administrative burden (79 percent), and the need to implement a multiyear strategy to manage healthcare costs (68 percent). Top Areas Impacted by Health Care Reform 90% 80% 70% 84% 79% 79% 68% 60% 50% 40% 30% 20% 10% 0% Reliance on external business partners Cost of their healthcare plans Administrative burden Need to implement a multi-year strategy to manage healthcare costs 7

8 2015 Metro DC Survey of Benefit Strategies and Trends Local employers still rely heavily on cost-shifting tactics to manage their annual healthcare plan rate increases. 79 percent of survey respondents reported a final January 1, 2015, (or last renewal) rate increase of 10 percent or less after implementing plan changes. Plan savings generated from cost shifting through employee (59 percent) and dependent (59 percent) payroll contributions and increased deductibles (33 percent)/out-of-pocket maximums (27 percent) were the most prevalent tactics utilized by survey respondents. Most Prevalent Cost Shifting Tactics Utilized 59 % 59 % 33 % 27 % Increased Employee Payroll Contributions Increased Dependent Payroll Contributions Increased Deductibles Increased Out-Of-Pocket Maximums There is a lot of discussion about Private Exchanges, but adoption is low and it may take several years for there to be meaningful market penetration. Only 2 percent of respondents utilize a Private Exchange as part of their current benefit strategy. 19 percent of respondents evaluated this option for January 1, 2015 and decided not to implement one at this time. Looking forward, only 9 percent of respondents said they were Very Likely or Likely to implement a Private Exchange in the next one to three years. Given the limited adoption and understanding of Private Exchanges, respondents provided little differentiation when identifying from a list of the key attributes that might be important in making the decision to implement a Private Exchange or in selecting an exchange partner. Respondents did report a level of concern with the objectivity of advice (72 percent Very Concerned or Concerned) and transparency of fees (74 percent Very Concerned or Concerned) associated with Broker and Carrier owned Private Exchange models. Level of Concern 72 percent of respondents reported being very concerned or concerned with the objectivity of advice when evaluating a broker or carrier owned exchange. 74 percent of respondents reported being very concerned or concerned about the transparency of fees associated with broker and carrier owned private exchange models. 75 percent of respondents reported being very concerned or concerned about committing to a multi-year arrangement when implementing a broker or carrier owned private exchange. 8

9 Presented by Lockton Companies Local employers are not leveraging Social Media as part of their employee benefit communication strategies. The majority of respondents (73 percent), regardless of size and key local industry, believe they do a Very Effective or Effective job of communicating their benefit plans. However, most communication strategies only target employees (71 percent) and traditional benefit communication mediums are still the most prevalent during open enrollment and year round. These include enrollment meetings (88 percent), enrollment guides (85 percent), webinars (73 percent), and annual enrollment fairs (50 percent). Social media (Facebook, Twitter, Blog, and Podcasts) is not widely used and is not currently under consideration by the overwhelming majority of respondents. Most Prevalent Benefit Communication Strategies 88% Enrollment meetings 85% Enrollment guides 73% Webinars 50% Enrollment fairs Workplace wellness programs are growing in prevalence, but the majority of local employers with a program are still in the early adopter phase. 48 percent of local employers report having a workplace wellness program. The majority of the current programs are considered Entry- (30 percent) and Morale- (45 percent) based, which is consistent with early adopters. In order to impact long term healthcare costs, employers will need to continue along the population health management spectrum and implement programs focused on outcome based and health related metrics. ENTRY & MORALE The most common types of wellness programs. 9

10 2015 Metro DC Survey of Benefit Strategies and Trends 1 Corporate Benefit Philosophy Multiyear Strategic Planning One of the first steps toward benefit plan management and healthcare cost containment is the development of a multiyear strategic plan. Respondents were asked to describe their progress toward the development of their multiyear strategic plan. Larger employers were more likely to have a well-developed multiyear strategic plan (67 percent of 5,000 or more, 29 percent of 1,000 to 4,999, 18 percent of 250 to 999, and 7 percent of the less than 250). The largest percentage of respondents in key local industries responded that they have partly developed their multiyear strategic plan (44 percent of Government Contractors, 37 percent of Information Technology, 63 percent of Legal, and 58 percent of Not-for-Profit). Development of Multiyear Strategy, All Respondents 21 % 18 % 18 % 2 % Well developed Partly developed Just starting Don't have one Don't know 40 % 10

11 Presented by Lockton Companies Employment Value Proposition Respondents were asked about the role of employee benefits in their employment value proposition. 56 percent of respondents reported offering benefits to make them the employer of choice. 42 percent offer benefits, but do not strive to be the richest in the market. Only 2 percent reported offering benefits because they were necessary to be competitive in the local marketplace. Key local industries vary on the importance of benefits in their value proposition. Not-for- Profits (75 percent), Legal (63 percent), and Services (56 percent) are more focused on offering benefits to be an employer of choice. Q. How would your organization and leadership describe the role of employee benefits as part of your employment value proposition? 80% 75% 70% 60% 50% 40% 53% 47% 63% 37% 56% 44% 52% 45% 30% 20% 10% 0% 25% Make us an employer of choice We offer them but don't strive to be the richest 11

12 2015 Metro DC Survey of Benefit Strategies and Trends Management Philosophy Respondents were asked to provide insight into their organization s management philosophy regarding the effectiveness of population health management strategies and their impact on healthcare cost containment. They provided the following responses: RESPONSES Middle market (250-1,000 employees) and large employers (more than 1,000) are more likely to Totally Agree or Somewhat Agree that investments in strategies to promote health and wellness will control long-term costs. The majority of all employers believe that employees should have financial accountability for lifestyle choices that impact their health status. 12

13 Presented by Lockton Companies Decision Making Factors Cost related issues remain the most important factors for survey respondents of all sizes and industries when making employee benefit plan decisions. Respondents were asked to rate the impact the following factors had on their organization when making benefit plan decisions (on a scale of 1 to 10). Cost related issues associated with Total Costs, Cost Impact on the Organization, and Cost Impact to Employees remain the most important factors for respondents. Larger employers (5,000 or more employees) were more likely to consider global marketplace related factors in the decision making process. All Respondents Less than to 999 1,000 to 4,999 5,000 or more Annual cost increase Cost impact to the organization Cost impact to employees Flexibility/Choice for our employees Feedback from employees Educating employees on the amount you spend to provide healthcare benefits Engaging employees and/or their dependents to improve their health status Specific actions of local competitors Specific actions of global competitors Trends in the local marketplace Trends in the global marketplace Health Care Reform requirements Overall competitiveness with key/industry competitors Overall competitiveness with the global marketplace

14 2015 Metro DC Survey of Benefit Strategies and Trends 2 Health Care Reform Business Impact Respondents rated the impact that several aspects of Health Care Reform legislation have had on their organization. The majority of respondents identified the following as areas most impacted by the implementation of Health Care Reform (increased significantly or increased somewhat) Administrative burden (79 percent), Cost of healthcare plans (79 percent), Need to implement a Multiyear strategic plan (68 percent), Focus on wellness strategies (54 percent), and Reliance on external business partners (84 percent). Employers with more than 5,000 employees were more likely to see increased involvement from their C-suite in healthcare decision making (59 percent). The reported impact of Health Care Reform requirements varied based on employer size. The administrative burden and increase in healthcare costs were reported as key issues for employers of all sizes. RANK Less than to 999 1,000 to 4,999 5,000 and over 1 Reliance on external business partners (88 percent) Administrative burden (91 percent) Need to implement a multiyear strategic plan (89 percent) Need to implement a multiyear strategic plan (92 percent) 2 Cost of our healthcare plans (74 percent) Reliance on external business partners (82 percent) Administrative burden (89 percent) Cost of our healthcare plans (91 percent) 3 Administrative burden (60 percent) Cost of our healthcare plans (78 percent) Reliance on external business partners (86 percent) Administrative burden (83 percent) 4 Need to implement a multiyear strategic plan (46 percent) Need to implement a multiyear strategic plan (71 percent) Cost of our healthcare plans (83 percent) Focus on employee wellness strategies (83 percent) 14

15 Presented by Lockton Companies Cadillac Tax The impact of the Cadillac Tax is not a major concern for respondents at this time. Only 23 percent are very concerned, while 39 percent are somewhat concerned. The potential of incurring the Cadillac Tax in 2018 had minimal impact on the January 1, 2015, renewal cycle. Only 11 percent of respondents reported that the potential tax had a large influence on their renewal decisions and 35 percent reported that the tax had some influence. 11 of respondents reported that the potential tax had a large influence on their renewal decisions. 35 of respondents reported that the tax had some influence. The likelihood that the Cadillac Tax impacted January 1, 2015, plan decisions increased based on employer size. 25 percent of respondents with 5,000 or more employees said the Cadillac Tax had a large influence on their decisions. 5 % 25 % 11 % 14 % Less than than to to ,000 to 4,999 1,000 to 4,999 5,000 or more 5,000 or more As respondents look to manage the impact of the Cadillac Tax in the future, the following program changes are most likely to be considered. 21% Implement strategies to address spousal eligibility 21% 21% Restructure coverage tiers to align with tax threshold figures (single, family, etc.) Limit the number of plan options available to our participants 25% Limit FSA, HSA, and/or HRA account contributions, which count toward the threshold 26% Focus on wellness initiatives 33% Reduce the actuarial value of our plans 15

16 2015 Metro DC Survey of Benefit Strategies and Trends Healthcare Delivery New Healthcare Delivery Options are being created as a result of the passage of Health Care Reform. The market is focused on more cost effective and efficient ways to provide care to plan participants. Respondents provide the following information regarding the prevalence of Telemedicine, Restricted/Alternative Provider Networks, and Accountable Care Organizations (ACOs). 14% 12% 10% 8% 6% 4% 8% 13% Already part of our benefit strategy Implemented for this renewal A relatively small percentage of employers currently incorporate these delivery options as part of their benefit strategy. 2% 0% Telemedicine 2% 2% 2% Restricted or Alternative Network 0% Accountable Care Organization (ACO) It is anticipated that these solutions will become more prevalent over the next few years. Respondents provided the following information regarding their plans to implement or consider these options in future plan years. At this time, Larger employers (5,000 or more employees) appear most likely to adopt these solutions. 12% 12% 30% 25% 25% 20% 18% 17% 15% 14% 14% 14% 10% 8% Less than to 999 1,000 to 4,999 5,000 or more 5% 5% 5% 5% 0% Telemedicine Restricted or Alternative Network Accountable Care Organization (ACO) 16

17 Presented by Lockton Companies Private Exchanges Private Exchanges are one of the most discussed topics in employer sponsored benefits. Many believe the combination of a Private Exchange and a Defined Contribution approach to cost sharing will be the norm in a few years. Based on survey responses, these projections appear to be a bit optimistic. Only 2 percent (three employers) responded that they utilize a Private Exchange as part of the current benefit strategy. All three of these respondents have more than 250 employees. 19 percent of respondents evaluated a Private Exchange solution for January 1, 2015, and decided not to implement at that time. Only 9 percent of respondents reported they are Very Likely or Likely to implement a Private Exchange in the next one to three years. 31 percent of respondents stated that they were Unsure. Respondents with 250 to 999 employees (14 percent) and those with 1,000 to 4,999 employees (11 percent) appear more likely to pursue a Private Exchange solution. 17

18 2015 Metro DC Survey of Benefit Strategies and Trends $ 3 Cost Management Strategies Respondents provided information on their January 1, 2015 (or last) healthcare cost renewal increase after plan design changes. They also identified the cost shifting, plan management, and employee engagement strategies employed during the last renewal cycle. Rate Increases and Plan Funding More than 79 percent of respondents reported a rate increase of 10% or less for the January 1, 2015, (or most recent) renewal cycle. Respondents with self-funded plans were more likely to report a renewal increase less than or equal to 10%. For respondents who only offer a self-funded or an insured healthcare plan, 89 percent of self-funded plans had cost increases equal to or less than 10 percent compared to 73 percent of insured plans. Less than to 999 1,000 to 4,999 5,000 or more 0% 14% 14% 21% 0% 1% to 5% 19% 34% 29% 75% 6% to 10% 43% 27% 36% 17% 11% to 15% 12% 20% 11% 0% 15% to 20% 10% 2% 4% 8% Greater than 20% 2% 2% 0% 0% 18

19 Presented by Lockton Companies Respondents were asked to identify their current and potential use of cost shifting, plan management, and employee engagement strategies to manage healthcare cost increases. Cost Shifting All respondents, regardless of size and industry, selected increasing individual and dependent payroll contributions as the most utilized cost management strategy. Strategy Implemented For This Renewal Evaluated For This Renewal But Not Implemented Plans To Implement or Consider In Future All Resp < ,000-4,999 >5,000 All Resp < ,000-4,999 >5,000 All Resp < ,000-4,999 >5,000 # of Respondents Absorbed rate increase 17% 24% 14% 11% 25% 21% 26% 20% 14% 17% 1% 2% 0% 0% 0% Increased employee payroll contributions 59% 52% 66% 50% 75% 3% 2% 2% 7% 0% 3% 5% 2% 0% 8% Increased dependent payroll contributions 59% 48% 66% 61% 67% 6% 12% 2% 4% 8% 6% 7% 7% 0% 17% Increased plan deductibles 33% 21% 39% 43% 25% 10% 17% 5% 7% 17% 13% 14% 9% 18% 17% Increased office visit copayment 21% 17% 20% 29% 17% 15% 19% 11% 11% 25% 10% 7% 9% 11% 17% Increased out-of-pocket maximums 27% 19% 25% 39% 33% 11% 12% 11% 11% 8% 10% 7% 11% 11% 17% Increased or added copays for specific services (CAT scans, MRI, etc.) 8% 5% 5% 18% 8% 10% 14% 11% 4% 8% 9% 12% 5% 11% 8% Increased emergency room copayment 19% 21% 16% 21% 17% 12% 10% 14% 11% 17% 10% 10% 9% 11% 17% Added pharmacy deductible 7% 5% 2% 21% 0% 13% 17% 14% 7% 17% 9% 12% 5% 11% 8% Increased pharmacy copayments 21% 14% 23% 29% 25% 13% 14% 14% 7% 17% 8% 10% 5% 11% 8% 19

20 2015 Metro DC Survey of Benefit Strategies and Trends Plan Management Small (less than 250 employees) and Middle Market (250 to 999 employees) employers focused on reviewing the market for a new vendor or administrator and reviewing a move from fully insured to self-funding their healthcare plan. Many respondents evaluated these options for January 1, 2015 but elected not to move forward. Their responses indicate that they will continue to consider these options for future plan years. Implemented For This Renewal Evaluated For This Renewal But Not Implemented Plans To Implement Or Consider In Future All Resp < ,000-4,999 >5,000 All Resp < ,000-4,999 >5,000 All Resp < ,000-4,999 >5,000 # of Respondents Select a new carrier or administrator 10% 10% 9% 11% 8% 23% 40% 23% 7% 0% 8% 0% 9% 14% 17% Change from insured to self-insured 6% 2% 7% 11% 0% 10% 10% 14% 11% 0% 12% 12% 16% 7% 8% Change from self-insured to insured 1% 0% 2% 0% 0% 6% 5% 9% 4% 0% 2% 0% 5% 0% 8% Carve-out pharmacy 7% 2% 5% 14% 17% 7% 5% 9% 11% 0% 7% 2% 16% 0% 8% Bundle ancillary lines with healthcare vendor 3% 7% 2% 0% 0% 8% 7% 11% 7% 0% 9% 7% 9% 7% 17% Terminate plan and use Public Exchange (SHOP) 0% 0% 0% 0% 0% 4% 2% 7% 4% 0% 3% 2% 5% 4% 0% Terminate plan and encourage use of Public Exchange for individual coverage 0% 0% 0% 0% 0% 2% 2% 5% 0% 0% 3% 2% 5% 4% 0% 20

21 Presented by Lockton Companies Employee Engagement Respondents identified Wellness Programs, both entry and advanced options, and Consumer Driven Healthcare plans (CDHP) as an option as the most common strategies for consideration in future plan years. Implemented For This Renewal Evaluated For This Renewal But Not Implemented Plans To Implement Or Consider In Future All Resp < ,000-4,999 >5,000 All Resp < ,000-4,999 >5,000 All Resp < ,000-4,999 >5,000 # of Respondents Wellness plan without financial incentives 2% 3% 3% 0% 9% 7% 10% 5% 7% 8% 20% 29% 20% 14% 0% Wellness plan tied to payroll contributions 4% 0% 2% 11% 8% 10% 5% 14% 11% 8% 21% 17% 18% 29% 25% Wellness plan tied to HRA or HSA contributions 3% 0% 2% 7% 8% 3% 2% 2% 4% 8% 21% 14% 16% 36% 33% CDHP as an option 10% 7% 10% 21% 0% 5% 5% 10% 0% 0% 15% 17% 16% 14% 8% Full replacement CDHP 2% 2% 0% 4% 0% 2% 2% 2% 0% 8% 14% 7% 18% 25% 0% 21

22 2015 Metro DC Survey of Benefit Strategies and Trends 4 Benefits Communications Most respondents believe that their benefit communication strategy is very effective (11 percent) or effective (62 percent). Although respondents appear confident in the effectiveness of their current approach, there are opportunities to improve the current status quo. Most respondents target benefit communications to employees only (71 percent). 29 percent target employees and dependents. Most respondent communication is centered on the onboarding process (82 percent) and open enrollment (76 percent). Several emphasize the value of their benefit plan during the hiring/recruiting process (77 percent). Only 43 percent of respondents communicate year round. Most respondents utilize traditional employee benefit communications mediums. These include enrollment meetings (88 percent), enrollment guides (85 percent), webinars (73 percent), and annual enrollment fairs (50 percent). Social media (Facebook, Twitter, Blog, and Podcasts) is not widely used and is not currently under consideration by the overwhelming majority of respondents. The majority of respondents pointed to more targeted communications (68 percent), different/ varied mediums (62 percent), and more frequent communications (56 percent) as the best options to improve their communications strategy. 68 % 62 % 56 % More Targeted Varied More Frequent Communications Mediums Communications 22

23 Presented by Lockton Companies 5 Consumerism/High Deductible Health Plans Consumer Driven/High Deductible (CDHP) plans are a key part of the local benefit landscape as 60 percent of respondents offer this plan as part of their benefit strategy. Availability of a CDHP options does vary somewhat by employer size and industry. CDHPs Offered, By Size 90% 80% 82% 83% 70% 60% 64% 64% 50% 40% 30% 20% 36% 36% 18% 17% Yes No 10% 0% Less than to 999 1,000 to 4,999 5,000 or more CDHPs Offered, By Industry 100% 90% 88% 80% 74% 70% 67% 67% 65% 60% 50% Yes 40% 33% 33% 35% No 30% 26% 20% 10% 13% 0% Information Technology Legal Not-for-Profit Services Other 23

24 2015 Metro DC Survey of Benefit Strategies and Trends The majority of the respondents (83 percent) offer a CDHP alongside traditional healthcare plan options. These employers typically (73 percent) use their contribution strategy to steer participation towards the CDHP as the low cost plan. This type of contribution approach is consistent across all size employers. Most respondents that offer a CDHP alongside traditional plans do not appear prepared to move to a full replacement approach over the next one to three years. Employers Who Offer a CDHP Potential to Move to a Full Replacement CDHP Strategy, By Employer Size Less than to 999 1,000 to 4,999 5,000 or more Very likely 0% 9% 11% 0% Likely 21% 13% 22% 0% Not sure 29% 30% 33% 13% Unlikely 36% 39% 22% 25% Not at all likely 14% 9% 11% 63% 24

25 Presented by Lockton Companies Health Savings Accounts (HSA) are the most common accumulation account paired with the CDHP plans offered in the local marketplace. The prevalence of employer contributions to HSAs varies by employer size. Employers With Less than 250 Employees Employers With 250 to 999 Employees 53% YES Employer contributes to HSA 79% YES Employer contributes to HSA Employers With 1,000 to 4,999 Employees Employers With 5,000 or More Employees 87% YES Employer contributes to HSA 90% YES Employer contributes to HSA 25

26 2015 Metro DC Survey of Benefit Strategies and Trends 6 Wellness 48 percent of employers surveyed have a workplace wellness program. Very few have made the move toward progressive or outcomes-based programs, with 75 percent focusing on entry or morale-based programs. Workplace Wellness Programs Offered, All Respondents Entry 30% Morale-Based 45% Advanced Participation 18% Progress/Outcomes-Based/Data integration 3% Key Consideration Morale-based programs help develop a culture of health and lay the groundwork to build a successful wellness program. However, they do little to impact employee s taking action to manage their health. 26

27 Presented by Lockton Companies Wellness programs and strategies are a recent focus for many organizations, with an increased interest due to Health Care Reform. 53 percent have launched their wellness program in the past three years, most notably large employers (100 percent). 41 percent of respondents (increased significantly) and 13 percent of respondents (increased somewhat) directly related their focus on wellness to the passage of Health Care Reform. Number of Years Since Wellness Program Launch by Employer Size All Respondents Less than to 999 1,000 to 4,999 5,000 or more 1 to 3 years 52% 63% 37% 47% 100% 4 to 7 years 22% 14% 41% 26% 0% 7 to 10 years 75% 0% 11% 16% 0% >10 years 2% 0% 4% 0% 0% PARTICIPATION 47 % of employers offer their wellness programs to spouses and/or dependents 27

28 2015 Metro DC Survey of Benefit Strategies and Trends Respondents with a wellness program were asked to identify the incentive structure they use to engage plan participants. The most common incentive structure is a point based system (35 percent) tied to the completion of specific activities. 32 percent of employers choose linking the wellness plan to contributions to an HRA or HSA account as compared to 17 percent who offer a premium differential. HRA or HSA Contributions as Incentive Structure, All Respondents 45% 42% 40% 35% 30% 35% 32% 25% 20% 17% 15% 10% 8% 5% 3% 0% Premium Differential if Specific Criteria Not Met Points Earned for Healthy Activities Employer Contribution to HRA or HSA Premium Holiday Eligibility to None of Above Participate in a Higher Tier Plan 28

29 Presented by Lockton Companies Points based systems were the most common incentive structure and can be designed to offer a number of activities to appeal to all plan participants. Respondents selected from the following list to identify the activities most commonly included in their points based wellness program. Health Risk Assessment 100% Fitness Activities Biometrics Screening Online Training/Learning 76% 76% 81% Annual Physical Health Coaching 62% 62% Athletic Event Flu Shot Smoking Cessation Course 48% 52% 52% Use Fitness Tracking Device Dental Cleaning Financial Advisor Annual Eye Exam Athletic League Participation 33% 33% 33% 29% 24% CPR Training 14% The top three heath actions that are incentivized for all types of wellness program incentive structures are: Health Assessment Biometric Screening Annual Physical 29

30 2015 Metro DC Survey of Benefit Strategies and Trends A majority of respondents with a wellness program measure their program s success, with the most common metrics being employee satisfaction (40 percent) and participation (58 percent). 25 percent of employers are tracking their plan participant s improvement in health status/quality of life 25 percent are measuring whether wellness programs lower their plan costs Success of Wellness Program Measurement, by Employer Size All Respondents Less than to 999 1,000 to 4,999 5,000 or more Participation rates of employees (and dependents) 58% 71% 52% 68% 43% Employee satisfaction with the plan 40% 57% 37% 42% 29% Increased employee/ organizational morale 28% 57% 26% 16% 43% Financial (lower plan costs) 25% 14% 15% 42% 29% Improvement in plan participants quality of life/ health status 25% 29% 22% 32% 14% Do not measure our plan 33% 14% 41% 26% 43% On-site clinics are not a common element in local market wellness strategies. Only 8 percent of employers have an on-site clinic. 30

31 Presented by Lockton Companies More than 60 percent of employers rely on their carriers to manage and report on their data to understand the cost drivers in their health plans. Only 8 percent use a third-party claims analytics database which identify health risks, offer recommendations for wellness and outcomes interventions, and provide a scorecard on population health status. Managing and Reporting Data Trends, All Respondents 13 % Rely on carriers reporting 13 % Third party claims database Not a focus at this time 8 % Based on size, we do not receive this information 63 % 31

32 2015 Metro DC Survey of Benefit Strategies and Trends 7 Employee Cost Sharing Contribution Strategy The majority of respondents (75 percent) utilize a flat percentage approach to determine the amount employees contribute to participate in their healthcare plans. This practice is most common regardless of employer industry or size. Under this approach, the employer and employee pay the same percentage split (i.e. 75 percent employer/25 percent employee) for each healthcare plan available regardless of the value of the plan. 16 percent of respondents utilize a Core Plan with a Buy-up approach. Under this approach, the employer pays a set amount for every plan offered and the participant pays the dollar for dollar difference to buy up to richer (actuarial value based) plan options. For many employers, this may be the first step toward a Defined Contribution strategy. Only 5 percent of respondents are looking at implementing or considering this option for future plan years. Prevalence of Cost Sharing Strategies, All Respondents 80% 70% 72% 60% 50% 40% 30% 20% 16% 17% 10% 6% 2% 5% 2% 11% 5% 0% Flat Percentage Core Plan With a Buy-Up Credit for Opt- Out Waiver of Coverage Spousal Surcharge Require Spouse to Take Coverage at Their Employer Smoker Surcharge for Employees Smoker Surcharge for Spouses Salary Based Contributions Defined Contribution 32

33 Presented by Lockton Companies Spousal Contribution Strategies Health Care Reform requires that employers offer coverage to fulltime employees and their dependents. Spouses are excluded from this requirement. As a result, many employers are evaluating cost sharing strategies related to spousal participation. 6 percent of respondents require a contribution surcharge for spouses who elect their coverage when coverage is available through the spouse s employer. An additional 2 percent implemented this strategy for January 1, 2015 (or last renewal), while 13 percent evaluated the strategy and elected not to implement at this time. 14 percent plan to implement a spousal surcharge in the future. A more restrictive approach is to make spouses ineligible for coverage if it is available from their employer. Only 2 percent of respondents utilize this approach. 17 percent plan to implement or it is under consideration for future plan years. 33

34 2015 Metro DC Survey of Benefit Strategies and Trends Smoker vs. Nonsmoker Rates The adoption of smoker and nonsmoker rates is limited. 5 % 13 % 2 % 15 % Require an employee smoker surcharge Plan to implement an employee smoker surcharge in the future Require a spousal smoker surcharge Plan to implement a spousal smoker surcharge in the future Salary-Based Contributions 11 percent of respondents utilize a salary-based contribution strategy and 10 percent plan to implement or consider for future plan years. The greatest adoption of this approach is in: 1,000 to 4,999 Employer Market 21 Law Firms 88 34

35 Presented by Lockton Companies Defined Contribution Defined Contribution strategies have received a significant amount of attention and are considered a key element of Private Exchanges. Only 5 percent of respondents utilize a Defined Contribution approach with an additional 1 percent of respondents implementing this solution for January 1, 2015 (or last renewal). 27 percent of respondents are planning to implement or consider this option for future plan years. As noted, the core plan with a buy-up approach is a first step toward this type of strategy and can be accomplished without making the move to a Private Exchange model. 35

36 2015 Metro DC Survey of Benefit Strategies and Trends 8 Voluntary Benefits Contribution Strategy Voluntary benefits are often identified as traditional plans (supplemental life, supplemental disability, etc.) or worksite plans (cancer insurance, accident insurance, auto insurance, etc.). There is increased discussion regarding the value of worksite plans to assist with the higher out-of-pocket costs associated with high deductible health plans. While there may be a stigma associated with these worksite products, most traditional carriers now offer them as part of their portfolio and are looking at them as key areas for revenue growth. Traditional plans are very common in the local marketplace across all industries and employer size. With regard to worksite plans, Accident Insurance (44 percent) and Critical Illness Insurance (36 percent) are the most commonly offered. The availability of these products and other worksite plans varies by employer size. Voluntary Benefits Offered by Employer Size 60% 50% 50% 43% 43% 43% 40% 36% 30% 31% 29% 26% 32% 33% 33% Accident Insurance Cancer Insurance Hospital Indemnity Insurance Critical Illness Insurance 20% 18% 10% 14% 10% 8% 0% 0% < ,000-4,999 5,000 or > 36

37 Presented by Lockton Companies 9 Retirement Plan Strategy 64 percent of all respondents reported including a review of their Defined Contribution plan design and costs as part of their annual benefit strategy process. 31 percent of these respondents weigh the financial trade-offs of their annual spend between the healthcare and retirement plan programs. Only 7 percent of these respondents survey employees to determine if they might trade a dollar of healthcare benefit for a dollar of retirement benefit. Plan Administration Respondents provided the following responses regarding the administration of their Defined Contribution plan(s). 8 percent use creative plan features to align company contributions to their human capital strategy. Q. Does your organization measure the retirement readiness of your plan participants? 35 percent measure the retirement readiness of their plan participants. Larger employers are more likely to focus on this plan metric. 54 percent of respondents utilize automatic enrollment for new hires. % 58 Less than % 250 to % 37 % 1,000 to 4,999 5,000 or more 29 percent utilize an automatic annual contribution step-up provision. 73 percent offer participants access to target date funds. 33 percent offer participants a self-directed brokerage option. 37

38 2015 Metro DC Survey of Benefit Strategies and Trends Financial Planning A majority of employers offer some level of financial planning benefit to their Defined Contribution plan participants. 52 of respondents offer access to a face-to-face meeting with an advisor through their Defined Contribution partner. While 21 percent offer these meetings through a third-party vendor. $ 40 of respondents offer financial training courses through their Defined Contribution partner. While 19 percent utilize a third-party vendor. 38

39 Presented by Lockton Companies 10 Executive Benefits and Perquisites The following table contains a summary of the prevalence of these offerings in the local marketplace. Executive Benefits and Perquisites Offered, All Respondents Bonus Life Insurance Plans (Section 162 Plan) 3% Car or Car Allowance 30% Financial Counseling/Tax Preparation 13% Supplemental Life Insurance 24% Country Club 3% Executive Medical Plans (PPACA Compliant Options) 3% Nonqualified Deferred Compensation Plans 30% Executive Physicals 14% 39

40 Our Mission To be the worldwide value and service leader in insurance brokerage, employee benefits, and risk management Our Goal To be the best place to do business and to work rev. 03/17/ Lockton, Inc. All rights reserved. s:\wp\graphics\washington dc office\2015\metro dc survey of benefit strategies and trends\survey trends.indd\#5770