The big benefit squeeze
Companies are paring costs by clamping down on healthcare
Jobs may be coming back, but companies are still playing it close to the vest when it comes to employee benefits. Many firms are holding the line on base salaries and relying more on incentive compensation and bonuses, which can be varied year to year. Signing bonuses have also become rarer. But with the economy improving, overall base pay may rise about 3.5 percent this year, the same as last year, while bonuses could grow at a higher rate, says Craig Rowley, a compensation expert at consulting firm Hay Group. Cost cutting has also caused many firms to de-emphasize or abolish traditional employer-funded pensions in favor of 401(k) savings plans, where employees contribute to their retirement themselves and assume the investment risk, although firms often chip in a share.
But it is medical care that has firms running for cover. The annual premium faced by major companies for family medical coverage averaged $10,400 in 2004, according to the Hay Group. That's double the amount 10 years ago. Overall premiums are rising about 10 percent this year. General Motors says healthcare accounted for $1,525 of the cost of each vehicle it made in 2004.
That's why healthcare is the benefit where many workers are feeling the pinch these days. Many employees are paying a larger share of premiums, especially those in upper-level positions. At Chicago-based Exelon, which owns Peco Energy in Pennsylvania and ComEd in Illinois, for example, senior-level staff members used to pay 20 percent of their healthcare premiums. Today, that contribution can go as high as 40 percent. Fewer firms pick up the entire premium anymore, and many employees are shelling more out of pocket because of higher deductibles and copayments. A once common $5 charge for prescriptions, for example, is now typically $10.
More companies are also cracking down on benefit abuse by performing tougher reviews of eligibility. Ford, for example, has cut 60,000 ineligible dependents from its program since audits began several years ago. In addition to fraud, there's often worker confusion about who qualifies for coverage after a divorce, when children move out, or when relatives share a home, says Michael Watson, a consultant with Budco of Highland Park, Mich., which has done audits for Delta Air Lines, UPS, and others.
Employees are also finding that their private lives may be under scrutiny, as companies encourage healthful lifestyles to reduce sick leave, raise productivity, and cut medical costs. "Just as companies justify preventive maintenance on machines to reduce breakdowns, they are now applying that idea to employees," says Dallas labor law attorney Rogge Dunn.
Kicking bad habits. In a move that raised the eyebrows of civil libertarians, Weyco, an Okemos, Mich., firm that manages healthcare benefits, pruned or reformed about two dozen smokers on its staff last year by requiring them to enter a quit-smoking program.
But most firms take a softer approach. Mortgage lender Freddie Mac in McLean, Va., encourages its workers to visit its onsite clinic for free blood pressure or cholesterol checks, physicals, and other routine matters. Florida Power & Light will award gym bags, iPods, and other prizes to workers who commit to swimming or other exercise and health programs. And at AstraZeneca in Wilmington, Del., yogurt-covered raisins and other nutrition-conscious snacks have mostly replaced the Snickers bars and Milky Ways in the drug firm's vending machines.
If a gentle nudge doesn't work, dollars and cents often will. Ohio-based Worthington Industries began charging its employees $25 to $50 a month for health insurance last year, but employees of the steel products maker who agree to undergo an annual health assessment and work to address any problems are exempted.
Employers are also offering perks that often cost them little or nothing. Among them are favorable group fees and convenient payroll deductions so employees can fund long-term-care insurance and college savings plans. And at Worthington Industries, a cut begun in 1961 is still welcome: in-house haircuts--$4 on company time.
This story appears in the March 21, 2005 print edition of U.S. News & World Report.