Employee benefits: taking a long-term view: dealing with rising costs, companies can continue to offer medical benefits, while managing the financial tradeoffs and implications for cost-saving strategies that haven't been fully utilized, in conjunction with using long-term panning.

• Author: Turnen, John
• Position: Health Care

In the midst of an anemic economic recovery, financial executives are evaluating every budget item closely, and employee benefits are no exception. As the cost of employee medical insurance continues to increase, companies are making tough financial tradeoffs as they try to control costs with minimum disruption to the business.

According to a survey of 156 financial executives, conducted from Feb. 25 to May 31, the vast majority of companies--in order to manage over the past five years--have increased employee cost-sharing, co-pays and/or deductibles, while many have shifted to a high deductible plan. The report, Trends & Tradeoffs in Employee Medical Benefits, was produced as a result of the study conducted by Corporate Synergies Group LLC and Financial Executives Research Foundation.

Furthermore, 38 percent of the respondent companies in the survey have made the tough decision to actually reduce health benefits, such as coverage levels, while just 9 percent have reduced non-medical benefits. But, most surprisingly, one-fifth of companies have reduced or eliminated salary increases and/or bonuses in order to continue offering employee medical benefits.

These numbers suggest that an important component of employee benefits decisions--most commonly made by the executive team, board of directors, human resources department or a senior financial executive--is weighing necessary tradeoffs in an effort to maintain profitability and appropriate levels of staffing.

Options are typically evaluated on how the cuts might affect the company's competitiveness in the marketplace, attraction and retention of employees and workplace morale.

Yet it's also clear that these decisions are hitting employees hard; increased health care costs, coupled with limited raises and bonuses, have essentially reduced employees' take-home pay. And in an economy where wallets are thinner than usual, it's important for company management to understand how their decisions impact their workers--and how, in turn, employee productivity and retention may be affected.

While 60 percent of financial executives say that they have seen their employees switch to higher deductible plans and 16 percent say they have seen a drop in overall coverage as a result of increased cost-sharing over the last five years, one-quarter report that they haven't seen any specific action as a result. This may indicate that many employees have simply accepted responsibility for more of their medical...