2018 Colorado Employer Benefits Survey Report · Results indicate the estimated average will be 2.5...

2018 Colorado Employer Benefits Survey Report

April 16, 2018

L O C K T O N C O M P A N I E S


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INTRODUCTION AND PURPOSE

In January 2018, Lockton Companies conducted its annual Colorado Employer Benefits Survey. The firm

invited 285 employers throughout the state of Colorado to provide information specific to their

employee benefit offerings. The employers surveyed were selected based on their size, industry and

visibility in the community. This survey was designed to provide a representative cross section of the

Colorado market; it was not intended to be a scientific sample.

The purpose of the survey was to identify the following:

❖ Business issues affecting benefit program management.

❖ The rate increase that Colorado employers will receive for medical insurance for the 2018 plan

year and how that compares to other published surveys.

❖ Employers’ greatest concerns regarding their benefits program and cost mitigation strategies.

❖ Key elements of benefit plan management including use of consumer-driven healthcare

strategies, wellness programs, employee engagement, and worksite (voluntary) benefits.

EXECUTIVE SUMMARY

The results of the 2018 Colorado Employer Benefits Survey identified several notable trends in the

Colorado market. In some respects, the Colorado trends continue to be modestly divergent from what is

being reported on a national level.

1. Colorado employers reported that their average increase before plan design changes was 7.7

percent. However, their final rate increase after plan changes was reduced to 5.8 percent.

Benefits continue to outpace merit increases and therefore continue to reduce employees’ take-

home pay.

2. The increasing cost of health insurance continues to be employers’ greatest concern regarding

their benefits program. Employers have ranked this as their top concern for the previous 14

years. Additional top concerns:

a. Employee satisfaction related to benefits and the impact on the attraction and retention of employees.

b. Health plan and provider quality.

c. Compliance with federal reporting requirements.


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Interestingly, there was also a significant portion of respondents who indicated no concern

with quality, reflecting the variation in how employers use their benefits programs.

3. The shortage of qualified workers is the greatest concern for employers (40 percent of

respondents). Increasing healthcare costs was the second greatest concern (37 percent of

respondents). In the 2017 survey, the economy was the top concern followed by increasing

healthcare costs.

4. The average annual salary increase was 2.5 percent, which mirrored the average increase in last

year’s survey. Both SHRM and World at Work forecasted average salary increases of 3 percent

across the United States.

5. The labor climate requires competitive wages but has produced a reemergence of benefits as a

primary total rewards tool. Respondents placed roughly equal importance on both

compensation and benefits.

6. A majority of employers (59 percent), a modest increase from last year, offer benefits with the

intent to be in line with market norms rather than be above benchmark. A significant, though

smaller, number of employers use benefits to strategically position the organization as an

employer of choice (39 percent). Only 2 percent of employers say they offer benefits out of

necessity.

7. We see an increased focus from employers in developing a multiyear plan to managing their

benefits program with 70 percent indicating a well or partly developed strategy. Employers also

overwhelmingly indicated (95 percent) that an executive outside of HR is actively involved in

setting the benefits strategy.

8. To achieve a reduced level of increase, employers reported deploying numerous approaches

that included both cost management strategies and cost shifting strategies that effectively asked

employees to share in the cost in different ways. Top cost management strategies included

changing insurers/vendors, implementing or encouraging employee migration to HDHPs,

telemedicine, narrow networks and consumerism tools. Cost shifting strategies included

increasing the employee and family contributions, increasing deductibles, increasing employee

out-of-pocket expense for prescription drugs and reducing benefits.

9. Employers identified the prescription drug costs as the most significant factor affecting plan

rate increases. After prescription drug costs, rising hospital costs and higher member

utilization were identified as significant cost drivers.


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10. Last year, for the first time in the 17-year history of this survey, the number of employers (47.7

percent) offering a self-funded plan outpaced the number of employers (35.5 percent) offering

fully insured plans. This year’s survey continued the trend of migration to self-funded plans (50

percent), which include plans that offer some form of risk sharing, compared to fully-insured

plans (31 percent), with the remaining 19 percent offering a combination of both self-funded

and fully-insured plans. This is significant because it indicates employers are willing to embrace

self-funding as a means of managing their costs more intentionally rather than ceding this

responsibility solely to carriers. According to the Kaiser Family Foundation survey, 60 percent

of employers nationally offer self-funded plans.

11. Employers offering POS / PPO plans in 2018 remained constant with the 2017 survey (91

percent). High deductible health plan (HDHP) plan offerings also remained constant with the

2017 results. HDHP plans are offered by nearly half of employers. When segmenting

employers into organizations with more or less than 500 employees the survey finds no

material difference between employer segments offering HDHPs.

12. For employers not currently offering some form of consumer-directed health plan (CDHP), 20

percent of respondents reported that they are likely or very likely to consider the addition of a

CDHP offering within the next one to three years.

13. Nearly 63 percent of employers surveyed currently offer, or are considering offering, a wellness

program. Respondents reported existing wellness programs include entry programs (10.3

percent), participation programs (41.0 percent) and outcomes-based programs (11.6 percent).

Those that are more progressive in their wellness programs indicated greater financial and

health results.

14. While most employers acknowledge the need for employee engagement both to support

promoting the value of benefits offered and to promote consumerism, most employers focus

communications around hiring and open-enrollment processes. Two-thirds of employers do

not customize their communications. Significant gaps remain in:

♦ Communicating benefits spend to employees.

♦ Including dependents in communications.

♦ Targeting specific communications topics.

♦ Tailoring to generational preferences.

♦ Using multiple communications modalities.


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The findings above and in the remainder of this report clearly indicate cost pressures are driving

employer decisions. Once again, the Colorado market is experiencing higher rate increases when

compared to national surveys. Colorado employers are seeing an average increase, before plan changes, of

7.7 percent which is 1.3 - 1.7 percent higher than national surveys. From a net increase perspective (after

plan changes), Colorado is slightly more than 1 percent higher than national averages with a 5.8 percent

net premium increase. In order to achieve a similar net premium increase compared to the national

average, Colorado employers are put in the position of having to continue to make dramatic reductions in

benefits and increases to monthly employee contributions.

The material increases in self-funding, premium cost shifting and pervasiveness of HDHPs being offered

by employers, and willingness to consider progressive benefits strategies (e.g., narrow networks,

pharmacy management) are all evidence of an ongoing struggle with cost. While cost is a major concern

to employers in this survey, almost 55 percent of them recognize benefits programs as a key to attracting

and retaining talent as well as making their organization an employer of choice. Another 43 percent of

employers recognize the importance of offering competitive benefits in order to compete for talent.


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2018 SURVEY RESULTS

TYPES OF RESPONDENTS

The chart below reflects the survey respondents’ industries. Approximately 62 percent of respondents were in the following six industries:

❖ Healthcare – 17 percent

❖ Government – 12 percent

❖ Education – 10 percent

❖ Construction – 9 percent

❖ Non-Profit – 8 percent

❖ Hospitality – 6 percent

Overall, industry representation is well distributed across sectors and reflects Colorado’s business diversity.

Chart 1

The following table reflects the number of survey respondents categorized by company size (in terms of

benefit-eligible employees).

16.7%

12.8%

11.5%

10.3%

9.0%

7.7%

6.4%

3.9%

3.9%

2.6%2.6%

2.6% 2.6%

Employer Industries

Healthcare

Other

Government

Education

Construction

Non-profit

Dining/entertainment/resort

Services

Technology

Aviation/transportation

Energy/oil/gas/electric/utility

Mining

Real estate


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Table 1

EMPLOYER SIZE

Number of Benefit-Eligible Employees Percent of Responses

10,000+ 6%

1,500—9,999 24%

1,000—1,499 8%

500—999 13%

300—499 17%

101—299 26%

<100 6%

Since Colorado is a “mid-market” state with relatively few large corporate headquarters, survey respondents align with the mix of employer sizes we traditionally see in this market. The primary bias is the low representation of small businesses in this survey. However, since this sector tends to be heavily regulated and less prone to actively manage its benefits program, the bias for this survey is appropriate. The data in Chart 2 reflects the approximate geographic location of the survey respondents.

Chart 2


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This survey reflects typical employee size and industry for Colorado employers. The Kaiser Family

Foundation, Hewitt, Segal, Mercer and others also conduct annual surveys of employers on a national

level and do not reflect dynamics specific to the competitive and healthcare markets in Colorado.

BUSINESS ENVIRONMENT

While the focus of the survey is employee benefit programs managed by employers with a Colorado

presence, it is important to understand certain elements of the business environment that affect benefits.

When employers were asked to indicate their top two concerns about the external forces affecting their

business profitability in 2018, the responses were:

♦ Shortage of qualified workers – 40 percent

♦ Healthcare cost increases – 37 percent

♦ Politics/regulatory environment – 34 percent

♦ Recruiting for top talent – 24 percent

♦ Economy – 23 percent

The top four issues impact employee benefit programs directly and in turn affect organizations’

operations. As survey results will indicate, the tight labor market (with 2.9 percent unemployment) has

elevated the role benefits plays in recruitment and retention. It has also reduced the amount of cost-

shifting employers pass along to employees.

TOTAL REWARDS & BENEFITS POSITIONING

An organization’s total rewards focus determines where it puts emphasis in its recruitment and retention

efforts. While all total rewards elements surveyed held material importance across respondents,

compensation and benefits were equal in being the areas with greatest importance.

The Lockton survey asked employers to indicate what their merit pay increase factor will be for 2018.

Results indicate the estimated average will be 2.5 percent, which is in line with the 2017 survey results.

Both SHRM and World at Work forecasted average salary increases of 3 percent across the United States.

However, we expect that employee benefits increases and cost-shifting will have a 0.5 - 0.7 percent

impact on the overall merit increase, or 20 - 30 percent dilution of 2.5 percent. This requires maintaining

competitive benefits to support a total rewards value proposition.

While the majority of employers (59 percent) offer benefits with the intent to be in line with market

norms, 39 percent of employers use benefits to strategically position the organization as an employer of

choice.


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The survey shows employers are increasing their focus on developing multiyear plans to managing

benefits programs, with 70 percent indicating a well- or partly developed strategy. As validation of the

increased importance of employee benefits, employers also overwhelmingly indicated (95 percent) that an

executive is actively involved in setting the benefits strategy.

COLORADO EMPLOYER CONCERNS

Table 2 illustrates employers’ concerns with managing their medical plans from 2005 to 2017. They are

listed in order of greatest concern (1) to least concern (6).

This year, as well as in the past 12 years, employers’ greatest concern regarding their benefit program was

insurance rate increases (88 percent). For the ninth year, employers’ second highest concern was

compliance with federal healthcare reform and state legislation. The current political climate regarding

healthcare reform will create additional uncertainty for employers in 2018, particularly as the current

administration continues to modify health reform through a series of regulatory and administrative

actions. Employee attraction and retention was employers’ third highest concern.

Table 2

COLORADO EMPLOYER CONCERNS

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Plan/cost increases 1 1 1 1 1 1 1 1 1 1 1 1 1

Compliance with federal/state legislation

6 5* 5 5 2 2 2 2 2 2 2 2 2

Employee attraction/retention

3 2 4 4 4 5 4 3 3 3 3 3 3

Provider quality 2 3 2 2 3 4 3 5 4 4 4 4 4

Health plan quality 4 4 3 3 5 3 5 4 5 5 5 5 5

Managing HIPAA privacy and security

5 5* 6 6 6 6 6 6 6 6 6 6 6

* Same scores

AVERAGE RATE INCREASES

The survey asked Colorado employers how much of a rate increase they received for their medical plan

for the 2017 plan year before making plan design changes. Chart 3 shows that for the 2017 plan year, the

average Colorado employer received a rate increase of 7.7 percent, which is consistent with the 2016 plan

year. The survey asked employers what the final rate of increase was after they made plan changes. The

reported average increase was 5.8 percent, which is approximately 1.1 percent higher compared to last

year.


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Chart 3

A breakdown of renewal increases, broken down by employer size, can be found below in Table 3.

A breakdown of renewal increases, broken down by funding type can be found below in Table 4.

Renewal Renewal

Employer Size Initial Final Funding Type Initial Final

2-99 9.7% 2.8% FI 9.6% 7.3%

100-299 11.2% 6.3% FI (Participating) 7.9% 7.5%

300-499 10.8% 6.5% SF 5.2% 3.3%

500-999 9.4% 7.9% Combination 8.2% 6.0%

1,000-1,499 7.0% 4.4 % Aggregate 7.7% 5.8%

1,500-9,999 5.6% 3.2 %

10,000+ 8.5% 7.5 %

Aggregate 7.7% 5.8 %

It should be noted that to achieve this level of cost reduction, employers reported deploying numerous

mitigation approaches that broadly fell into two categories: cost management strategies and cost-shifting.

These strategies effectively asked employees to share in additional cost in different ways. The specific

strategies used are described in Tables 5 and 6 below. It should be noted, 28 percent of respondents

implemented no cost management strategies and 33 percent implemented no cost-shifting strategies.

0%

2%

4%

6%

8%

10%

12%

14%

16%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

12.0%

13.5%12.9%

13.7%

11.8%

14.4%

9.4%

7.4%

10.9%

8.0%8.0% 7.1% 7.7%

Health Insurance Plan Cost PercentageRate Increase Before Plan Design Changes

Table 3 Table 4


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COST INFLATION FACTORS

Colorado employers were asked to rank the factors that contribute most to increases in their medical plan

costs. Table 5 reflects the factors in order of impact from 1 to 10, with 1 being the highest impact.

Consistent with the previous 11 years, prescription drug costs and rising hospital costs are among the top

two drivers. Higher utilization, an aging population and healthcare reform round out the top five

inflationary factors. Overall, the cost of healthcare delivery ranks as the perceived dominant cost driver

while insurance-related factors (insurer profits, cost shifting, legal liability, technology) are ranked lower.

Table 5

MEDICAL PLAN COST INCREASE FACTORS

* Not asked in previous surveys

COST MITIGATION STRATEGIES

As healthcare costs continue to rise, employers are considering additional ways to mitigate increasing plan

costs. Employers were asked to indicate which cost mitigation strategies they intend to use in 2018.

Respondents could choose more than one answer. The top responses are captured in Tables 6 and 7.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Prescription drug costs

1 2 3 2 3 1 2 2 1 1 1 1

Rising hospital costs

2 3 1 1 1 3 1 1 2 3 2 2

Higher utilization

3 1 2 3 5 5 3 5 4 4 3 3

Aging population

5 4 6 5 3 7 4 4 5 5 4 4

Healthcare reform

* * * 8 2 8 5 3 3 2 5 5

Insurer profits * * * * * 10 8 9 7 7 6 7

Physician charges

4 5 4 4 7 2 6 7 6 6 7 6

Technology * * 7 7 8 4 10 10 10 10 8 10

Medicare/ Medicaid cost shifting

7 7 8 9 9 9 7 6 8 8

9 8

Legal liability 6 6 5 6 6 6 9 8 9 9 10 9


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Table 6

COST MANAGEMENT STRATEGIES

Response

No cost management strategies have been implemented 28 percent

Other (varies) 26 percent

Change insurance companies/vendors (e.g., go out to bid, change TPA, change stop-loss vendor, etc.)

19 percent

Implement HDHP/encourage migration to HDHP 18 percent

Implement a telemedicine vendor 17 percent

Implement a narrow network (i.e., a smaller number of providers) 14 percent

Implement consumerism tools (e.g., cost transparency, decision-support, advocacy) 14 percent

Bundle ancillary coverage(s) (e.g., dental, vision, life, disability, etc.) 9 percent

Change funding from fully-insured to self-insured 8 percent

Carve out pharmacy benefits to a third-party vendor or pharmacy benefits manager 8 percent

While cost management strategies still lag cost shifting strategies (Table 7), the prevalence of this

approach has notably increased over last year as shown by tactics like narrow networking and pharmacy

carve-outs.

Table 7

COST SHIFTING STRATEGIES

As plan premiums continue to increase, many employers continue to shift costs as the primary way to

manage rate increases with higher premium contributions being the first method used. The 2018 survey

results indicate that 51 percent of employers will increase employee premium contributions for family

coverage, which is lower than the 55 percent reported in 2017. The number of employers who will

increase premium contributions for single coverage was 45 percent, down from 51 percent in 2017. The

survey also shows the persistent trend to lean more heavily on family coverage than single coverage. The

percentage of employers that will not cost shift further more than doubled from 15 percent in 2017 to 33

percent in 2018. Employer concerns regarding a shortage of qualified workers may be a contributing

factor for the decrease in passing costs directly to employees through premium contributions or

materially altering current cost shifting strategies.

Response

Increase employee premium contributions for family coverage 51 percent

Increase employee premium contributions for single coverage 45 percent

No change in cost shifting 33 percent

Increase deductibles 18 percent

Increase the amount employees pay for prescription drug coverage 13 percent

Increase employee maximum out-of-pocket expense 15 percent

Tobacco Surcharge 8 percent


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MEDICAL PLAN FUNDING

Lockton survey results show 50 percent of Colorado employers reported offering self-funded plans in

2017, which is modest increase compared to the 48 percent in 2016. It should be noted that a new form

of funding called risk sharing arrangements under a fully insured platform was introduced. Because this

funding method does require the employer to take on risk it was included in the self-funded category.

When considering this definition, the number of employers offering self-funded plans is at the highest

level in the 18 year history of the survey. In addition, the number of employers offering both fully insured

and self-funded plans continues to increase.

The data in Chart 4 reflects the changes in medical plan funding from 2005 to 2017.

Chart 4

PLAN TYPES

The Lockton survey results indicate that the number of employers offering HMO plans in 2017 (31

percent) remained constant with 2016 (31 percent). The number of employers offering HMOs in 2017 is

the third lowest percentage since 2004. This is primarily attributable to Kaiser Permanente’s strength in

the front range.

*2017 was the first year for ‘Fully Insured (risk sharing)’ as an available answer


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Of the organizations surveyed, 44 percent offered some form of CDHP alongside traditional options. As

reference, CDHPs are defined for the questions in this survey as qualified HDHPs and other high

deductible plans that are paired with a savings account (an HSA or HRA).

For those organizations offering CDHPs to their employees, approximately 41 percent utilize a

contribution strategy to incentive the selection of the CDHP versus traditional plan options. HSAs are

the overwhelming pairing among those employers offering CDHPs. Nearly 54 percent employers offer

HSAs compared to 4 percent of employers who offer HRAs. The remaining 42 percent of employers

offer both HSAs and HRAs. This represents a material increase compared to last year where only 10

percent of employers offered both HSAs and HRAs.

Chart 5 shows the type of benefit plans offered from 2003 to 2017.

Chart 5

CONSUMERISM

Consumerism continues to play a vital role in employer benefits programs. The material increases in HDHP

offerings and other account-based plans (i.e., plans coupled with an HRA or HSA) in the last 10 years has

been steady. In 2007, 16 percent of employers offered HDHPs compared to this year’s survey which shows

57 percent of employers offering HDHPs.


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In addition to plan options, 60 percent of employers are adopting and promoting transparency tools with

their employees. However, that still leaves 40 percent of employers that are not active in using such tools.

Overall, 32 percent of employers intend to use a greater push toward consumerism as part of their cost

mitigation strategies.

WELLNESS

Wellness programs have generally faded as a cost mitigation strategy. While such programs remain

common, with 63 percent of employers offering them, only 12 percent of respondents have implemented

an outcomes-based program (i.e., linked to producing measurable changes in health). The programs have

become more focused on enhancing culture at the employer through promoting health and wellbeing.

Self-reported impact of wellness programs varies greatly; more progressive wellness programs showed

correlation with greater financial and health improvement results.

EMPLOYEE ENGAGEMENT

Given the constant rise in benefits costs, employers find that engaging employees is increasingly important

in supporting total rewards efforts and highlighting the value of their benefit program. This is particularly

relevant since employers must engage in the workplace with five unique generations, each with its own

needs and preferences. Survey results of current engagement efforts revealed strengths as well as

opportunities for improvement.

❖ 77 percent of employers promote the value of benefits during hiring or on-boarding.

❖ Once employees are hired, 50 percent of employers limit benefits communication to the open

enrollment process while the other 50 percent provide year-round communications.

❖ 8 percent of employers target communications to specific employee segments.

❖ 18 percent of employers share annual participant benefit cost data; 47 percent share no cost data

with participants, which is particularly concerning given the constant pressure of cost escalation.

❖ 78 percent of employers target communications to employees, leaving dependents unaddressed.

Many employers recognize the value of more meaningful communication strategies.

❖ 51 percent would like to increase the frequency of communications.

❖ 67 percent would find value in more targeted topics.

❖ 39 percent believe that targeting specific employee segments would increase effectiveness.

❖ 41 percent feel expanding mediums for communication would improve their current strategy.


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OTHER BENEFITS OFFERED (WORKSITE)

Employers were asked about the role of worksite insurance products (critical illness, accident, hospital

indemnity) as a part of their benefits strategy. These benefits allow greater tailoring of a benefits package

to the specific needs of each individual. The survey shows 35 percent of employers are using the worksite

products to assist employees in mitigating the financial impact of higher deductibles as well as to promote

greater employee engagement.

Roughly half of those surveyed have not discussed or considered worksite insurance products as a part of

their overall strategy. The 75 percent of employers who have researched and evaluated worksite product

offerings chose to incorporate the worksite products into their benefits strategy.


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WHO IS LOCKTON?

Our Philosophy – “We Live Service!®”

❖ World’s largest privately-owned, independent insurance broker.

❖ Ninth largest insurance brokerage firm in the world.

❖ Established in 1966 in Kansas City, Missouri.

❖ $1.4 billion in annual revenue (worldwide).

❖ 66 offices worldwide on five continents.

❖ 6,500+ Associates and 48,000 clients worldwide.

❖ In Denver since 1979:

400+ Associates ( 110 in employee benefits consulting practice: health/welfare plans, retirement

plans and executive benefits).

END NOTES

Benefit Management & Design, Inc. conducted this survey from 2000 to 2004. Lockton Companies,

which purchased Benefit Management & Design, Inc. in 2005, has continued to conduct the survey.

Lockton’s Denver office is one of Colorado’s largest insurance brokers.

This survey is not a scientific survey with confidence factors or appropriate sample sizes. It is, however, a

representation of employer attitudes regarding medical insurance.

The 2018 Colorado Employer Benefits Survey was sent to 285 employers and 78 responded. This

represents a response rate of 27.4 percent.

Please contact Brock Squire, [email protected] or (303) 414-6276, if you have questions about

this survey report.

mailto:[email protected]

Our Mission

To be the worldwide value and service leader in insurance brokerage, employee benefits, and risk management

Our Goal

To be the best place to do business and to work

www.lockton.com

© 2018 Lockton, Inc. All rights reserved. Images © 2015 iStock. All rights reserved.

8110 E. Union Ave., Suite 700 Denver, CO 80237

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