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As a worldwide leader in disability benefits for employees, Unum is focused on the evolving trends in the workplace. By collaborating with LIMRA, a renowned employee-benefits research organization, Unum can assess the current state of the benefits marketplace and identify the future trends in workplace benefits, ensuring we have the most innovative products to satisfy the changing industry needs.
Currently there are three critical trends in the workplace that are affecting employee benefits: the rise in healthcare premium costs, the aging of the largest demographic of employees, and increasing diversity among employee populations. These trends are affecting how employers choose and finance their employee benefits. It's crucial that the employee-benefits industry responds by offering the kinds of products and services that employees want and employers can afford.
For the past four years, U.S. companies have consistently identified controlling healthcare costs as their greatest critical challenge. Economists don't foresee a drop in healthcare costs in the near future. By 2020, healthcare expenditures are projected to consume $6 trillion annually; nearly one-third of the nation’s output. (SHRM, &quot;The American Workplace 2005: The Changing Nature of Employee Benefits,&quot; August 24, 2005.)
Escalating healthcare premiums continue to far outpace the rate of inflation, and even surpass the growth of workers' earnings. Economists believe the biggest factor contributing to the cost increase is increased utilization of healthcare benefits.
There are three primary drivers of the increased utilization of healthcare resources. First, the baby-boomer generation is reaching retirement age soon, which will put one-fifth of the entire population older than age 65 in the next couple of decades. Second, the advances in medical treatments are allowing doctors to better medical conditions, which means the chronic diseases that historically caused death in people younger than 65 instead cause disability. Finally, health risk factors that cause many chronic diseases are increasing healthcare costs four-fold.
The top financial concern for nine out of ten U.S. employees is access to affordable health insurance. Many employees who have access to healthcare coverage through their employers are declining to purchase it, citing the high premium costs as the number one reason. (Kaiser Commission on Medicaid and the Uninsured, The Uninsured: A Primer — Key Facts about Americans Without Health Insurance, 2006, p. 7.)
Employers can help employees manage their healthcare costs by implementing disease management and wellness services including health assessment tools, health education programs, and incentives for maintaining healthy lifestyles. Currently larger employers are more likely to offer disease management and wellness services to employees.
The fasting growing segment of workers in the U.S. is the 65-and-older group. In the next decade, the oldest demographic of employees is expected to increase by 73.8%, while the youngest demographic of workers — those age 16-24 — will decrease. The second-fastest growing segment of the employee population is workers 55-64, employees approaching retirement.
Within the next few years, the United States could be facing a workforce shortage of three million workers. If this shortage occurs, the biggest concern for employers is the potential loss of highly skilled workers, especially the most experienced, high-level employees in any organization.
Incenting experienced employees to remain in the workforce beyond their retirement years will be a critical way of handling a workforce shortage. The majority of the baby boomer employee segments intends to remain in the workforce in some capacity for an average of nine years. Creating benefits that give older workers a reason to remain in the workforce will be crucial in encouraging them to work beyond retirement. (Merrill Lynch, “Preparing Your Business for the &quot;New Retirement,&quot; 2006. [cited May 23, 2007]; available from http://askmerrill.ml.com/publish/marketing_centers/articles/bfs_article_BFS072/)
While nearly seven out of 10 employees approaching retirement plan to remain in the workforce, four out of ten retirees are forced to leave their jobs due to health reasons (Employee Benefits Research Institute, “Will more of us be working forever?” The 2006 Retirement Confidence Survey, Issue Brief No. 292, April 2006, p. 4-5.). Helping older workers deal with disabilities and health issues may allow them to remain in their jobs for longer.
For the first time in history, many U.S. organizations now employ members of four distinct generations, each of which brings with it distinct characteristics. [Review characteristics on slide.] Satisfying the workplace needs of such different groups of people is a challenge for employers.
The average American household is no longer the traditional family with married parents and their children. Fewer than one-quarter of households are made up of a married couple with children. In fact, one-third of children live in a non-traditional household — either with an unmarried parent or with neither parent. These modern families need more than traditional workplace benefits packages to satisfy their needs.
The growth rate of several ethnic groups -- fueled by immigration -- adds another layer of diversity to the workforce. The annual growth rate of Hispanics and Asians in the U.S. workforce is expected to be almost three times the overall annual growth rate in the next decade.
Employees increasingly prefer to take control of their own benefits. As defined benefit pension plans have declined in the past two decades, defined contribution plans — especially 401(k)s — have surged. When given a choice, almost eight out of 10 Americans prefer a defined contribution plan. (Wall Street Journal/Harris Interactive Personal Finance Poll, &quot;Vast Majority say the Government Should Take Action to Ensure Americans Have Enough to Live on in Retirement,&quot; September 8, 2006.)
Allowing employees to take more control of their healthcare is a concept that is also gaining in popularity. Two-thirds of employers are considering implementing consumer-driven healthcare plans in order to control the rising costs of healthcare. The theory is that consumers use too many healthcare services because they do not have a financial stake in their healthcare. By exposing them to more of the risk and giving them the appropriate tools — such as access to cost and quality information, wellness and disease management programs, health information and coaching and financial tools — individuals will learn to be a conscientious consumers of healthcare services in the ways that they are with other goods and services.
Offering voluntary benefits at the worksite gives employers another way to curb their benefits costs and give employees the opportunity to choose the benefits they want. Employers can also use voluntary health products to help offset changes made to employees' medical plans.
Employers and employees alike are often attracted to voluntary benefits. Employers like being able to offer benefits that can increase worker satisfaction and attract new workers. Voluntary benefits appear to have satisfied that need, given that 80% of workers perceive voluntary benefits to be extremely valuable or valuable. (AON Consulting, “What’s Hot and What’s Not in Voluntary Benefits,” January 2006.)
A major concern for older workers today is the need for long term care later in life. On average, individuals who are currently reaching retirement age will need long term care for an average of three years. However, most of those individuals won't be prepared to finance that care. One intriguing incentive for older workers to remain in their jobs may be the availability of LTC insurance. ( American Association for Long Term Care Insurance Sales Strategies magazine , June 2006. Vol. 8, No. 1. )
Employees are unclear about the cost and value of their benefits. As employers shift the responsibility for choosing and funding benefits to employees, effective benefits communication will be essential. Generally, consumers aren’t clear on the different types of insurance or financial services that are available, why they may need them or how they fit their personal situations. Employees tend to look to their employers for this kind of information. Unum can provide you and your employees with clear and concise information that will help them make the best possible benefits-buying decisions for themselves and their families.
Employers are continuing to face rising cost pressures in their healthcare benefits, leading them to shift many of those costs onto employees in order to make benefits affordable. However, with an increasingly tight labor market, employers need to provide a benefits package that stands out among their competition so they can attract and retain the best employees available. The high-quality workforce that employers are trying to attract is extremely diversified, and employees within the same business will have vastly different needs based on age, ethnicity, and family composition. Many of these workers need more coverage than they have in the past due to the negative personal savings rate and increased chances of disability or long-term care. As a result, employers must provide a broad portfolio of benefits to employees so they can make the coverage choices they need. Having a variety of voluntary benefit options will allow employees to subsidize their high-deductible medical plans in the ways that make most sense for them: whether it’s accident or cancer insurance to protect their savings against major medical costs; life and disability insurance to protect their incomes for their families; or long term care insurance to protect their retirement income as they age in workforce.
HR Trends And Challenges Presentation
HR Trends and Challenges Benefits for a changing workforce
HR Trends and Challenges research Important trends in the demographic, economic and social landscape of the U.S. are driving change in the workplace — from how businesses recruit and incent workers to how they fund benefits. Unum , in conjunction with LIMRA International , has gathered existing data assessing current trends as they apply to employee benefits.
Overview <ul><li>Rising healthcare costs </li></ul><ul><ul><li>Impact on employers </li></ul></ul><ul><ul><li>Drivers of healthcare cost increases </li></ul></ul><ul><ul><li>Consumer-driven healthcare plans </li></ul></ul><ul><ul><li>Managing employee health </li></ul></ul><ul><li>Aging population </li></ul><ul><ul><li>Predicted workforce shortage </li></ul></ul><ul><ul><li>Keeping aging employees in the workforce </li></ul></ul><ul><ul><li>Shift in retirement benefits </li></ul></ul><ul><ul><li>Need for long term care insurance </li></ul></ul><ul><li>Diversity in the workforce </li></ul><ul><ul><li>Multi-generational employees </li></ul></ul><ul><ul><li>Changing composition of the U.S. household </li></ul></ul><ul><ul><li>Ethnic diversity </li></ul></ul><ul><ul><li>Voluntary benefits </li></ul></ul><ul><ul><li>Work-life balance </li></ul></ul>
The impact of rising healthcare costs on the U.S. workforce
Employers’ greatest challenge For four consecutive years, the top U.S. companies have identified healthcare costs at the top of the list of pressures facing business.
Healthcare premium increases <ul><li>Insurance premiums rose 87% between 2000 and 2006 — more than four times the growth in wages. 1 </li></ul>1 Kaiser Family Foundation, “Healthcare costs: A primer,” August 2006.
Drivers for increased healthcare utilization <ul><li>Aging population </li></ul><ul><li>By 2030, 20% of the population will be 65 or older. 1 </li></ul><ul><li>Advances in medical treatment </li></ul><ul><li>Chronic diseases are more likely to disable an individual than to cause death before the age of 65. 2 </li></ul><ul><li>Health risk factors </li></ul><ul><li>Smoking, obesity, lack of exercise and diabetes increase healthcare costs by 400%. 3 </li></ul>1 Mercer/Marsh, Trends in Health, Productivity and Absence Management Programs: Highlights of the 2006 Mercer/Marsh Survey, September 26, 2006, p. 5. 2 Carion, Mary Beth, “Actions Speak Louder than Trends,” Health Insurance Underwriter, February, 2006, p. 64. 3 Mitchell, Kenneth, “Productive Aging: The New Life Stage,” World at Work Journal, First Quarter, 2006, p. 66.
Impact of healthcare costs on employees <ul><li>Healthcare premiums have been rising five times faster than workers' earnings since 2000 1 , and the percent of workers participating in their employers’ plans has been dropping. 2 </li></ul>1 Kaiser Family Foundation/HRET, Employer Health Benefits: 2005 Annual Survey , 2005, p.5. 2 FRBSF Economic Letter, “Health Insurance Costs and Declining Coverage,” #2006-25, September 29, 2006, p. 2.
Helping employees manage their health According to a 2007 survey, three-quarters of employers who had successfully lowered healthcare costs offer their employees health-risk appraisals and a nurse line. 1 1 Watson Wyatt, “12th Annual National Business Group on Health/Watson Wyatt Survey Report,” 2007.
The aging workforce <ul><li>In the next ten years, the 55-and-older age group is expected to grow at an annual rate of nearly four times that of the overall labor market. 1 </li></ul>1 Merrill Lynch, “Preparing Your Business for the ‘New Retirement’,” 2006. [cited May 23, 2007]; available from http://askmerrill.ml.com/publish/marketing_centers/articles/bfs_article_BFS072/
Workforce projections <ul><li>Approximately 60% of HR executives see signs of a talent shortage already. Nearly 10% more expect it before 2010. 1 </li></ul>1 Horrigan, Michael W. “Employment projections to 2012: concepts and context,” Monthly Labor Review, February 2004. 2 Watson Wyatt Worldwide, “Communication Plays Critical Role in Improving Retention Power of Health Benefits,” press release, February 23, 2005. Labor projections through 2012 2 170 160 150 140 130 120 110 2002 2004 2006 2008 2010 2012 144.9 144.0 165.3 162.3 (in millions) Available workers Labor needed
Preparing for an older workforce In the event of a labor shortage, incenting older workers to stay in the workforce will be critical.
Health issues and the older workforce <ul><li>Once older individuals suffer an injury or illness, they typically recover more slowly than their younger counterparts. 1 </li></ul>1 Mitchell, Ken. Health and productivity in the aging American work force: realities and opportunities, Spring 2005.
A multi-generational workforce <ul><li>Traditionalists (ages 60 to 78) </li></ul><ul><li>Value hard work </li></ul><ul><li>Dedicated </li></ul><ul><li>Team-players </li></ul><ul><li>Baby Boomers (ages 41 to 59) </li></ul><ul><li>Optimistic </li></ul><ul><li>Driven </li></ul><ul><li>Enjoy challenge </li></ul><ul><li>GenXers (ages 28 to 40) </li></ul><ul><li>Value flexibility </li></ul><ul><li>Autonomous </li></ul><ul><li>Technologically savvy </li></ul><ul><li>Gen Y/Nexters (under age 28) </li></ul><ul><li>Confident </li></ul><ul><li>Achievement-oriented </li></ul><ul><li>Like collaboration </li></ul>Source: Ceridian Connection, Generational Competence:TM A New Approach to Human Capital Management , Ceridian, July, 2005. [cited May 23, 2007]; available from http://www.ceridian.com/myceridian/connection/article/archive/0,3263,13072,58763,00.html
The changing household <ul><li>Since 1970: </li></ul><ul><li>The percentage of people who are married with children has dropped from 40% to 23%. 1 </li></ul><ul><li>The number of non-family households has risen from 19% to 32%. 2 </li></ul><ul><li>The incidence of unmarried cohabitation has increased ten-fold — reaching 5.1 million opposite-sex couples. 3 </li></ul>1-2 U.S. Census Bureau, “Families and Living Arrangements in 2003,” pg. 2, Figure 1. [cited April 16, 2007]; available from http://www.census.gov/population/pop-profile/dynamic/FamiliesLA.pdf 3 Group Life Insurance: Factors Affecting Industry Prospects, LIMRA International, 2006, p. 14.
Ethnic diversity <ul><li>The overall annual growth rate of the U.S. workforce over the next decade is projected to be 1% . </li></ul><ul><li>The annual growth rate in the U.S. workforce over the next decade is expected to be 2.9% for Hispanics , and 2.8% for Asians . </li></ul>Source: United States Department of Labor, News Bureau of Labor Statistics, “Foreign-born Workers: Labor Force Characteristics in 2005,” April 14, 2006. [cited April 16, 2007]; available from http://www.bls.gov/news.release/forbrn.toc.htm
A product portfolio for the changing workforce
The shift in retirement benefits Today there are approximately 48,000 insured defined-benefit plans compared to 170,000 plans 20 years ago. 1 1 U.S. Dept of Labor Employee Benefits Security Administration, Private Pension Plan Bulletin Historical Tables, March 2007, Table E1.
Consumer-driven healthcare plan <ul><li>Employers’ thoughts on CDHC </li></ul>Employers moving or looking to move to a full-replacement CDHC Employers planning to offer CDHC as a short-term option before moving to CDHC on a full-replacement basis 2% Employers who had CDHC plans but reverted back to HMO/PPO plans Employers not considering 32% 31% 12% 13% 10% Employers looking at it (not yet offering) 66% of employers are considering CDHC Employers planning to offer CDHC on a slice basis going forward “ 2006 NAHU: ChapterHouse Benefit Buying Trends Study,” ChapterHouse, 2006.
Current voluntary benefits offerings Today, more than half of U.S. employers with ten or more employees offer voluntary worksite benefits. 1 1 LIMRA, The Voluntary Benefits Report Card: The Employer’s Perspective , preliminary findings released March 15, 2007.
Growth in voluntary benefits Sales of group products have declined in the past five years, while sales of voluntary products have increased.
The need for income and asset protection Americans currently have a negative personal savings rate 1 for the first time since the Great Depression. 1 U.S. Department of Commerce, Bureau of Economic Analysis, January 2006. Poll: Will you have saved enough money to pay for your long-term care if the need arises? Wall Street Journal Online/Harris Interactive, “Preparing and Paying for the Cost of Care as We Age,” Personal Finance Poll of U.S. Adults, February, 2006. 33% 24% 31% 41% 33% Not sure 39% 56% 46% 30% 41% No 28% 20% 23% 29% 26% Yes Age 55+ Age 45-54 Age 35-44 Age 18-34 Total
Consumer knowledge of benefits <ul><li>Comprehensive employee education is critical to employees’ effective use of programs, services, and benefits. </li></ul>
The future of employee benefits <ul><li>Healthcare costs continue to rise </li></ul>Employers shift benefits costs onto employees Aging workforce and looming labor shortage Diversity steadily increases in the workforce Americans continue to spend more than they earn Employers must satisfy employees’ broad and diverse needs for effective coverage while managing the costs and complexity of benefits administration.