Taking Care of Employees: 5 Trends on Hospital Benefit Plans

Hospitals and health systems are typically viewed as organizations that take care of the ill and, more increasingly, encourage preventive health.

However, hospitals are also employers — and some of the biggest employers at that. In rural areas, hospitals are typically the dominant employer, and it's not uncommon to find a health system with tens of thousands of workers. With that comes large benefit plans for employees, which can be very expensive and a big part of a hospital's financial strategies.

Consulting firm Towers Watson recently completed its "2012 Hospital Industry Benefits Benchmarking Study," which examined the benefit plan provisions of 48 hospitals and health systems across the nation. The median size of a survey respondent was 5,000 to 10,000 employees, while the average size was 20,000 employees.

Two Towers Watson benefit experts — Joey Dizenhouse, senior health and group benefits consultant, and Sally DeFelice, senior retirement benefits consultant — say hospital benefit plans are going through a period of major change right now, just like those in the rest of the sector and in other industries as wll. Here are five benefit plans trends that stood out in the Towers Watson study.

1. Hospitals are interested in steering their employees to their own providers and services. The costs of health benefits represent more than one-third of a hospital's total benefit expenditure for employees, higher than most other industries. As both an employer and provider, hospitals have a distinct advantage over other types of companies: They can direct their employees to use the system's "domestic providers" to save on costs, Mr. Dizenhouse says.

This strategy is growing in popularity for two reasons. Hospitals are able to better manage the health of their employees, and their payments for employee healthcare recycle to their own system instead of going to a competitor. "If employees use domestic providers when possible, the hospital is able to treat employees as patients," Mr. Dizenhouse says. "That has always been key."

2. Community wellness programs are being targeted toward hospital employees. Through outreach and education, hospitals have ramped up their efforts to promote preventive care in their communities. If people regularly see their primary care physician, that may lead to fewer visits in the more expensive hospital inpatient setting.

Mr. Dizenhouse says this focus has been directed toward the general populace in the hospital's market, but these wellness programs are now being repurposed to fit the needs of hospital employees.

"These programs are designed to make people healthier or at least give them information to understand their health," Mr. Dizenhouse says. "These also include health fairs, letting people get their blood drawn to get biometric scores. This is a trend we've seen across many different industries, but in this case of [hospitals], there is an uptick."

3. "Sick banks" are becoming a thing of the past. In Towers Watson's survey, vacation/sick/holiday pay represented up to 36.5 percent of the cost of a hospital's benefit program, far above the general industry average of 28.4 percent. However, hospitals are starting to alter those paid time off programs.

"There is a dramatic shift to move [away] from a very old school way of doing things," Mr. Dizenhouse says. "Employees would earn hours in a bank, and the longer they worked at hospitals, those hours could be used for sick time and still earn full salary. Those plans had challenges."

Now, he says hospitals are transitioning to more common PTO programs where employees receive a set amount of paid vacation, sick and holiday.  

4. Hospitals are rethinking their retirement benefits. When it comes to retirement benefits, it's been fairly clear that hospitals are moving away from defined benefit pension plans and toward defined contribution or account-based plans, like 401(k)s and 403(b)s. Ms. DeFelice says hospitals much more likely to change these plans than they were in the past.

"In recent years, we've seen organizations take a more frequent look at their retirement strategy," Ms. DeFelice says. "Typically, retirement benefits have not changed a lot over time, but now more than ever, there are more changes to benefit design, level of benefits and delivery mechanisms. If [hospitals] haven't evaluated their [employee] retirement benefits in the past two years, they may be overspending on these programs."

5. Hybrid retirement plans are more prominent. While pension and 403(b) plans are the staples of most hospital benefit programs, Ms. DeFelice says hybrid plans, such as cash balance, are making a bigger splash and "are a really great fit for a typical hospital workforce."

In a cash balance plan, the hospital takes the responsibility and risk for managing investments like in a pension plan, but many of the other features resemble a DC plan.

"The hybrid cash balance approach captures the paternalism of DB plans," Ms. DeFelice says. "All contributions come from the employer and are invested purely for retirement, and the plan is managed 100 percent by the employer. This can be a real boon for hospital workers, who typically save less than other types of workers in the labor force, are more averse to financial planning and often have less general business acumen to participate effectively in consumer-oriented, DC-type plans where they bear more individual risk."

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