SEVENTH ANNUAL STUDY OF EMPLOYEE BENEFITS: TODAY & BEYOND SMALL MARKET EMPLOYER SUMMARY Insight into the Next Generation of Employee Benefits The Prudential Insurance Company of America (Prudential) 751 Broad Street, Newark, NJ 0240283-00001-00
This sub-report of our Seventh Annual Study of Employee Benefits: Today & Beyond focuses on how employers with fewer than 1,000 employees differ from one another when it comes to their benefits philosophies. These findings are structured under the same five key themes as in the main report. The small market employers discussed in this summary comprises 78% of the overall weighted sample from the survey, specifically: n 25 49 employees: 27% n 50 99 employees: 20% n 100 499 employees: 18% n 500 999 employees: 13% The employer survey was conducted in July 2012 for Prudential by the Center for Strategy Research, an independent market research firm based in Boston. Seventh Annual Study of Employee Benefits: Today & Beyond I 2
Sharpening the Focus on Benefits Strategy Orientation Toward Employee Benefits The smaller the organization, the less likely the company was to report that senior management considers employee benefits decisions to be strategically important. Almost 60% of employers with 500 999 employees agree with this statement, compared to 42% of employers with 25 49 employees. Employers with more than 100 employees were also more likely to say they offer a wide range of benefits and see it as a competitive advantage for their company. Agree with statement Senior management considers employee benefits decisions to be strategically important to the company. (Top 2 on a 7-point scale.) 58 % 49 % 49 % 42 % 500 999 100 499 50 99 25 49 60 50 3 I Sharpening the Focus on Benefits Strategy Not surprising, employers with more than 500 employees are more likely to report that their benefits strategy is linked to their overall business strategy and financial goals, while those employers with 25 99 employees are slightly more likely to report that the two are not linked at all.
Employee Benefits Objectives and Strategies Across each size segment, controlling health care costs is the number one benefits objective. Those employers in the 50 99 segment were less likely than the others to say that having healthier employees was an important benefits objective. This segment trended lower in rating the importance of most benefits objectives. Larger companies (500+) were more likely to say that retention and productivity are more important than the smaller companies (under 500). Importance of benefits objectives by company size (Top 2 of 7-point scale. Top 5 objectives shown.) Controlling health care related costs 72 % 76 % 63 % 68 % Retaining employees 54 % 58 % 58 % 67 % Having healthier employees 57 % 64 % 49 % 59 % Increasing employee productivity 54 % 49 % 55 % 64 % Reducing benefits administration costs 55 % 51 % 54 % 62 % 500 999 100 499 50 99 25 49 Sharpening the Focus on Benefits Strategy I 4
Employers with more than 100 employees rated expanding the use of wellness, preventative, and work/life balance initiatives as their top benefits strategy, which supports their focus on both controlling health care related costs and having healthier employees. This group is also more focused on improving the overall effectiveness of benefits communications and rated it as the second most important benefits strategy. Employers with fewer than 100 employees tended to place a higher level of importance on cost sharing asking employees to bear a greater portion of the costs of benefits and rated that as their top benefits strategy. This also ties back to controlling health care related costs. Those with more than 500 employees also rated tailoring communication and enrollment for the various employee segments higher than the other smaller size segments. Importance of benefits strategies by company size (Top 2 of 7-point scale. Top 3 strategies shown.) Expanding the use of wellness, preventative, and work/life balance initiatives 23 % 32 % 36 % 43 % Improving the overall effectiveness of benefits communications 29 % 28 % 37 % 34 % Cost-sharing asking employees to bear a greater portion of the costs of benefits 34 % 33 % 31 % 36 % 500 999 100 499 50 99 25 49 Because those employers in the 50 99 segment did not put great importance on having healthier employees when it came to their objectives, they are also not focused on expanding the use of wellness, preventative, and work/life balance initiatives as a benefits strategy. 5 I Sharpening the Focus on Benefits Strategy
Health Care Reform: The Waiting Is Over Areas of Anticipated Impact by Health Care Reform Across all size segments, employers believe that employee benefits funding will be impacted the most as the Affordable Care Act of 2010 gets implemented, with larger companies seeing a higher level of impact than smaller companies. Employers with fewer than 50 employees are less likely to report that employee benefits communications or greater consumerism by employees will be affected than all other size groups. Percent of employers saying these areas will be tremendously or moderately impacted by company size 500 999 100 499 50 99 25 49 Employee benefits funding 67% Employee benefits service and support 59% Employee benefits communications 57% The number of employee benefits offered 55% Greater consumerism by employees 51% Employee benefits funding 61% The number of employee benefits offered 58% Employee benefits service and support 57% Employee benefits communications 53% Greater consumerism by employees 48% Employee benefits funding 59% Employee benefits service and support 58% The number of employee benefits offered 54% Greater consumerism by employees 51% Employee benefits communications 49% Employee benefits funding 53% The number of employee benefits offered 49% Employee benefits service and support 48% Greater consumerism by employees 41% Employee benefits communications 38% Health Care Reform: The Waiting Is Over I 6
Status of Health Care Reform Changes in Relation to Peers As seen in the overall results, most employers in these segments see themselves as being on par with their peers when it comes to making the necessary changes to adapt health care reform. Those in the 25 49 size segment were slightly more likely to say they didn t know. 25 49 50 99 9 % 5 % 10 % 14 % 23 % 28 % 53 % 58 % Leading my peers Lagging On par with my peers Don t know Leading my peers Lagging On par with my peers Don t know 100 499 500 999 2 % 4 % 25 % 15 % 30 % 7 % 58 % 59 % Leading my peers Lagging On par with my peers Don t know Leading my peers Lagging On par with my peers Don t know Company size is not a significant driver of which actions employers are taking. When it comes to things like switching or consolidating carriers or third-party administrators (TPAs), the majority is either not considering or just starting to think about it but not doing anything currently. The only area that shows some level of activity is the area of scaling back benefits offerings. About 27% of employers with more than 500 employees are currently adopting and implementing this tactic and about one-fifth of all other sizes are as well. 7 I Health Care Reform: The Waiting Is Over
The actions around health care exchanges may be worth noting since about a third of all employers said they are not considering participating in them, while those employers in the 100 999 groups are more likely to say they are considering it. The smaller companies are more likely to say they don t know, which could be due to a lack of dedicated resources to dealing with health care reform and its implications. Adoption of Health Care Exchanges by Company Size 25 49 50 99 20 % 16 % 33 % 4 % 32 % 3 % 5 % 11 % 39 % 37 % No actions and not considering it No actions but considering Adopting and implementing Post-implementation Don t know No actions and not considering it No actions but considering Adopting and implementing Post-implementation Don t know 100 499 500 999 4 % 11 % 4 % 5 % 11 % 33 % 14 % 34 % 41 % 43 % No actions and not considering it No actions but considering Adopting and implementing Post-implementation Don t know No actions and not considering it No actions but considering Adopting and implementing Post-implementation Don t know Health Care Reform: The Waiting Is Over I 8
Wellness Programs Gain Attention Awareness regarding wellness programs has been increasing as employers manage their benefits program costs, in particular those related to health care. Larger companies are more likely to have a focus on wellness programs, which supports the benefits objectives and strategies findings discussed earlier. These employers are more likely to report being in the adoption or implementation stage, with about 15% saying they are post-implementation and are using this as a way to manage costs. Smaller companies are not focusing on health and wellness initiatives this year as much as the larger companies. Three in 10 employers with fewer than 100 employees said they are not considering increasing the use of wellness programs as a way to manage benefits costs. Those employers were also more likely than those with more than 100 employees to say they were taking no actions and not considering adopting certain health and wellness initiatives. Adoption of Health and Wellness Initiatives by Company Size Expanding the range of education programs for employees on health and wellness 500 999 8 % 36 % 40 % 14 % 2 % 100 499 18 % 31 % 37 % 11 % 3 % 50 99 28 % 39 % 22 % 9 % 2 % 25 49 29 % 45 % 18 % 6 % 2 % No actions, not considering No actions, considering Adopting and implementing Post-implementation Don t know/not applicable 9 I Wellness Programs Gain Attention
Increasing the range of incentives and penalties to motivate healthy behaviors 500 999 19 % 37 % 34 % 10 % 0 % 100 499 22 % 38 % 28 % 8 % 4 % 50 99 34 % 35 % 20 % 8 % 3 % 25 49 40 % 35 % 18 % 5 % 2 % Providing employees access to health and other benefit options based on health behavior 500 999 17 % 36 % 32 % 13 % 2 % 100 499 18 % 42 % 26 % 10 % 4 % 50 99 30 % 35 % 24 % 9 % 2 % 25 49 36 % 40 % 19 % 4 % 1 % No actions, not considering No actions, considering Adopting and implementing Connecting wellness programs to disability programs by analyzing root causes of disability incidence 500 999 100 499 50 99 25 49 26 % 42 % 22 % 7 % 24 % 39 % 22 % 9 % 45 % 26 % 18 % 7 % 46 % 33 % 14 % 3 % No actions, not considering No actions, considering Adopting and implementing Post-implementation Don t know/not applicable 6 % 3 % 4 % 4 % This also resonates in other areas with employers with fewer than 100 employees. They are also more likely to say they are not considering coordinating or integrating parts of their medical, pharmacy, disability, and workers compensation plans as a way to manage benefits program costs. Wellness Programs Gain Attention I 10
The State of Voluntary Benefits 3 in 10 500 999 Voluntary benefits are not a new idea to most large companies, but as the size of the company gets smaller, they are less likely to offer as many or any at all. However, the needle may begin to move soon. Employers are saying that they are considering providing more voluntary benefits as a way to manage costs, or they are already in the process of adopting this tactic. This is also in line with employers believing that employee benefits funding will be the most impacted area with the health care reform implications. Those companies considering or already implementing more voluntary benefits as a way to manage costs. employers with fewer than 100 employees report still offering medical insurance to their employees at no cost. 100 499 50 99 25 49 32 % 24 % 38 % 27 % 34 % 18 % 37 % 17 % Considering Implementing Forty-six percent of employers with 100 499 employees and 55% of employers with 500 999 employees said that offering new voluntary benefits to their employees is a priority over the next two years. 11 I The State of Voluntary Benefits
Voluntary Satisfaction and Advantages Those who are offering voluntary benefits as part of their plan are seeing some positive outcomes, but there is some room for improvement. Agree offering voluntary benefits has had a positive impact on your employees satisfaction with your benefits program (Top 2 of 7-point scale.) 35 % 41 % 44 % 38 % 500 999 100 499 50 99 25 49 Agree voluntary benefits are important to maintaining a competitive benefits program (Top 2 of 7-point scale.) 38 % 46 % 39 % 35 % 500 999 100 499 50 99 25 49 When asked to rate the overall effectiveness of their current benefits communications in helping employees make the right choices, the majority of employers across all size segments tended to rate themselves as a 5 or lower on a 7-point scale, showing an opportunity in this area. They also rated employee satisfaction with their benefits offerings in the same way 5 or lower. The State of Voluntary Benefits I 12
Voluntary Communications There are no major differences in the top most commonly used communication vehicles to drive participation among these employers. Most employers say they have used group or one-on-one meetings and email communications with moderate or great success. There is a difference when you get mail received at work and mail received at home. Employers with more than 100 employees are more likely to say they have used mail at work with moderate or great success, while those with fewer than 100 employees were more likely to say they have not used it at all. Employers with more than 500 employees were more likely to say they have used mail at home with moderate to great success compared to the other segments. Mail received at work, by company size 500 999 100 499 38 % 19 % 37 % 6 % 44 % 14 % 33 % 9 % 50 99 52 % 11 % 29 % 8 % 25 49 67 % 14 % 15 % 4 % Have not used Have used with moderate success Have used with little or no success Have used with great success Mail received at home, by company size 500 999 100 499 26 % 19 % 43 % 12 % 54 % 19 % 22 % 5 % 50 99 55 % 13 % 25 % 7 % 25 49 68 % 12 % 17 % 3 % Have not used Have used with moderate success Have used with little or no success Have used with great success Online presentations, videos, webinars, and internal social media sites are starting to be used more frequently for benefits communications and education and have some moderate levels of success. These are likely to be used in the larger companies, but appear to be catching on more and more. 13 I The State of Voluntary Benefits
Tapping the Potential of Technology Employers are using administrative platforms more than they are using enrollment platforms when it comes to managing their employee benefits plans. Employers with fewer than 50 employees are less likely to be using either. Use administrative platform 44 % 51 % 62 % 70 % Use enrollment platform 42 % 36 % 61 % 56 % 500 999 100 499 50 99 25 49 About a third of all employers using an administrative platform find it to be very effective and about 40% of those using an enrollment platform find it to be very effective. Tapping the Potential of Technology I 14
Administration Platforms The smaller the company, the more likely they were to report using an administration platform provided by a carrier. Employers with more than 500 employees were more spread out among carriers, TPAs, and in-house systems. 500 999 39 % 28 % 32 % 4 % 100 499 44 % 29 % 31 % 1 % 50 99 45 % 31 % 22 % 4 % 25 49 51 % 27 % 25 % 4 % Carrier platform In-House platform Third-party administrator platform Don t know Provider(s) of administrative platforms (may add up to more than 100%), Base those saying they utilize an administrative platform Most employers in each of these segments said their administrative platforms are integrated for both their employer paid and voluntary products to be managed together. Of those employers who said their platforms are not integrated for both employer paid and voluntary products, most feel that administration would be easier if they were, but a good amount also believe that there would not be any change. Enrollment Platforms As with administrative platforms, the smaller the company, the more likely they were to report using an enrollment platform provided by a carrier. Employers with more than 500 employees were, again, more spread out among carriers, TPAs, and in-house systems. 500 999 35 % 29 % 34 % 4 % 100 499 48 % 30 % 25 % 0 % 50 99 51 % 35 % 18 % 0 % 25 49 57 % 20 % 16 % 9 % Carrier platform In-House platform Third-party administrator platform Don t know Provider(s) of enrollment platform (may add up to more than 100%), Base those saying they utilize an enrollment platform 15
Most employers in each of these segments said their enrollment platforms are integrated for both their employer paid and voluntary products to be managed together. Employers with fewer than 50 employees were slightly less likely to say their platform is integrated for all products. Of those employers who said their platforms are not integrated for both employer paid and voluntary products, about half feel that administration would be easier if they were, but about a third also believe that there would not be any change. Integrated Platform Options Half or more of the employers in each size segment report that if a carrier were to offer the same integrated platform as a TPA, they would choose the carrier platform. Integrated carrier platform 56 % 58 % 55 % 50 % Integrated third-party administrator platform 31 % 26 % 23 % 19 % Don t know 13 % 16 % 22 % 31 % 500 999 100 499 50 99 25 49 The majority of those employers that said they would choose the carrier s integrated platform, also said they would move all or most of their benefits to that platform. 16
Bring Your Challenges Prudential has been underwriting group insurance plans since 1916. Today our Group Insurance business is the nation s second-largest group life carrier, with almost 13,000 group life, 5,800 long-term disability, and 4,200 short-term disability clients insuring more than 20 million employees and their families. 1 At Prudential Group Insurance, we understand the challenges employers face delivering cost-effective, competitive benefits. We offer a full range of company-paid and voluntary coverages, including group life, long-term and short-term group disability, corporate- and trust-owned life insurance, and retiree solutions. Contact your Prudential representative or visit www.prudential.com/gi for more information. 17 I Seventh Annual Study of Employee Benefits: Today & Beyond
1 LIMRA, 2011 Annual Surveys of US Group Life and Group Disability Insurance. Group Insurance coverage is issued by The Prudential Insurance Company of America, 751 Broad Street, Newark, NJ 07102. 2013 Prudential, the Prudential logo, the Rock symbol, and Bring Your Challenges are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. 0240283-00001-00