Besides colder weather and pumpkin carving, October also brings the beginning of the employee benefits open enrollment season. 

Nearly 40 percent of Washington state employers renew their employee benefit plans on Jan. 1, causing an intense surge in human-relations department activity. In the last quarter of the year, staff members scramble to prepare and distribute employee notices, communicate benefit program changes, and facilitate the enrollment process.  

For many employees, the open enrollment season isn’t a happy occasion as they learn that the cost of their medical plans has gone up—once again. 

According to a national survey of more than 3,000 organizations by Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, rising health care costs continue to be a major business concern for employers in Washington state. In fact, almost half consider it to be among their top operational challenges. The rate at which health care costs have grown in the state is the same as the rest of the country—5 percent since 2015. However, Washington employers, on average, are footing a larger bill than other U.S. companies. 

Median monthly per-employee cost for an employer-sponsored health plan in Washington state is $576, compared with $515 nationally, according to Gallagher’s 2016 Benefits Strategy & Benchmarking Survey.

The share of employers statewide who subsidize 100 percent of their employees’ health premiums is 48 percent, versus. 23 percent nationally, the survey says.

The median annual deductible in an employer-sponsored health plan is $500 in Washington state, compared with $1,500 nationally, according to the survey. 

The underlying reason for this cost disparity is that Washington employers confront tough competition for talent, so they tend to offer more generous benefits. In some of the state’s dominant sectors, such as high tech, engineering, and life sciences, recruiting and retaining highly skilled workers long has been a top business priority that defines organizational success. 

As the economy has improved, other sectors have followed suit. In particular, Eastern Washington employers are feeling the effects of a tightening labor market in multiple industries, including service, retail, manufacturing, and agriculture. In the past three years, talent shortages have put significant pressure on operating budgets, driving up the cost of compensation and benefits.

The continuous rise of health care costs also has put upward pressure on overall benefits spend. Even though Washington State doesn’t top the list of the highest health care spenders in the U.S., better cost management tactics are essential. Local employers make a substantial investment in their employees’ health care and should get the best value in return. 

Like organizations in other states, Washington employers tend to manage benefit cost increases by passing the bill on to their employees. For instance, an increasing number are shifting some of the onus for medical expenses to their employees by reducing plan premium subsidies. Another strategy is to increase deductibles and co-pays. 

Other options exist for organizations that want to preserve a robust benefit offering in the face of increasing cost pressures.

Analysis of survey responses from employers that report below-the-norm health care cost increases, coupled with high employee retention rates, sheds some light on the possibilities. Interestingly, the employers that make up that best-in-class group are less likely to shift health care costs to their employees. 

Instead, they adopt proactive health care cost management tactics far more aggressively, regardless of industry sector. For example, these top performers are more likely than most to introduce wellness and health risk management programs in the workplace and to self-fund their health plans, allowing them to manage their expenses hands-on rather than taking out a blanket insurance policy.

They also often offer a consumer-driven health plan that combines a high-deductible plan with a health savings account, encouraging employees to be more thoughtful in their medical spending.

Best-in-class employers also are early adopters of innovative tactics increasingly offered by the health insurance and provider marketplace in response to cost pressures. 

For example, narrow-network plans cover a limited selection of service providers typically chosen for high quality combined with cost-effective outcomes. Those plans currently are used by 15 percent of those surveyed in Gallagher’s 2016 Benefits Strategy & Benchmarking Survey, with 10 percent planning to implement within the next two years. 

Also, telemedicine offers online and virtual doctor visits. They currently are used by 25 percent of those surveyed, with 10 percent planning to implement such offerings within the next two years.

Cost transparency tools provide health care consumers with information to effectively guide their service provider choices. Such tools currently are used by 36 percent of those surveyed, with 20 percent planning to implement within the next two years.

Plans with reference-based pricing set market-based caps on the amount the plan will cover for certain medical services that tend to have wide price ranges, such as knee and hip replacement surgery. That cost control method currently is used by 7 percent of those surveyed, with 7 percent planning to implement it within the next two years.

Given the complexity of today’s health care market and regulatory environment, implementing such tactics requires advance strategic planning and well-thought-out communications to employees. The required effort is a hurdle to adoption.

Two-thirds of Washington employers said they manage benefits reactively on a year-to-year basis, rather than planning a strategy with targeted outcomes. That is certainly the case for many organizations in Eastern Washington and North Idaho.

When asked to choose between reducing either benefits or cash compensation, 71 percent of employers said they would sacrifice benefits first, but reality proves different. Escalating health care expenses often take a bite out of both cash compensation and employee development dollars for Washington employers. That limits the ability to strategically manage rewards and maintain the optimal balance of talent and productivity.

As wars for talent continue and health care costs keep climbing, investing time and resources in crafting a proactive benefits strategy is a wise alternative to the status quo. 

Charlie Isaacs is the Health & Welfare Consulting Practice Leader with Arthur J. Gallagher & Co.’s Benefits and Human Resources division in Spokane. He can be reached at Charlie_Isaacs@ajg.com.