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The worst decade of productivity since the Napoleonic era has caused wages to flatline, but the time for inactivity has long passed. Employers must urgently review their entire benefits offering and ensure it is fit for purpose, if they want to avoid their Waterloo. For too long, many have been reluctant to touch legacy benefits, putting the legal and consultation processes required to change in the ‘too hard to touch’ category.
Article by Jamie Barnes, Healthcare & Employee Benefits Regional Consulting Leader – Mercer Marsh Benefits
The last time we witnessed this low growth was the ten years following 1812, when Napoleon was invading Russia. The result is that despite nearly full employment, pay growth remains stubbornly stuck. It’s now anticipated that the average pay packet will be £24.50 a week lower, in inflation-adjusted terms, in 2022 than when the financial crisis started in 20071. Research into what employees most value found that benefits rank high in all factors impacting how employees feel about their employer2. After salary and opportunities for professional development, the majority of employees ranked the benefits on offer as the third-most important thing, ahead of the nature of their role, colleagues they work with, convenience of commuting to and from work and the culture of the company. A third of employees (29 percent) would ask about the benefits on offer in their first interview. So it’s a shame that benefits are at risk of becoming just as stuck as salaries when it comes to rewarding and motivating employees.
“After salary and opportunities for professional development, the majority of employees ranked the benefits on offer as the third-most important thing, ahead of the nature of their role, colleagues they work with, convenience of commuting to and from work and the culture of the company”
Pressure on the NHS, an ageing workforce becoming more susceptible to sickness while still employed, and the increasing range and cost of medical treatments have combined to drive up medical benefit costs. Five years ago, it cost £20-£30k to obtain the latest cancer treatments; now that’s risen to £50k-£60k, with many cancer claims significantly exceeding £100k annually. With new investment in stem cell treatments and the huge cost of bringing new medical innovations to market anticipated to drive up costs further, we’re not far away from £500k claims becoming common. This means employers must do something to mitigate these costs in order to be able to continue to offer benefits such as private medical insurance (PMI), which remains the most highly valued benefit, with a third of people making a claim last year. At the same time, the cost of protection benefits is also soaring. Although people are living for longer, causing life insurance payouts to fall, improved mortality rates are yet to be reflected in a softening of the Group Life Assurance (GLA) market. Plus the cost of protecting people who have become too sick to work is also increasing, due to the huge increase in the number of costly mental health claims, driving up the cost of Group Income Protection (GIP) claims. This means that legacy schemes set up many years ago are now at risk of becoming prohibitively expensive to run.
Clearly, health interventions designed to reduce the number of otherwise healthy individuals being allowed to sink into severe mental health conditions, such as chronic depression, is one solution. But funding such initiatives requires investment. Fortunately, there are potentially huge savings that can be generated by overhauling legacy benefits that are no longer fit for purpose. For example, when most group income protection schemes were set up many years ago, it was assumed that people were entering into a job for life, so the schemes designed to pay out until retirement age. This is no longer the case. Very few people will now work for one employer for their entire career, meaning that a GIP scheme being set up today will typically be designed as a capped benefit that will pay out for two to five years, with additional resource being focused on early intervention on for individuals suffering a mental health condition to prevent a claim in the first place or rehabilitation for anyone whose condition does worsen.
Many employers have shied away from tackling their legacy benefits packages, due to the complex legal and employee consultation process required. This causes them to view this as a ‘no go’ area that might be too difficult to change, migrating from a retirement age scheme to a capped scheme can generate significant savings of up to 60 percent, which can then be reinvested in wellbeing benefits that prevent people from becoming too sick to work in the first place3. Similarly, although employees still very much want to know that their employer will be able to help them access costly treatment should they need this, pressure on the NHS increasing waiting times for treatment and not expanding the scale of screening programmes means that people are also becoming increasingly attracted towards employers who offer preventative healthcare benefits. With one in two people in the UK due to be diagnosed with cancer at some point in their lives4, making the shift from reactive benefits towards proactive healthcare benefits is also in the interest of employers. Although a more proactive approach will initially increase the number of lower-level claims, it will also dramatically reduce the cost of premiums and future payouts for larger claims. For example, bowel cancer, which now affects an increasing number of people from a younger population, and due to account for ten percent of all cancers by 2035, can easily be cured if detected early on. Caught during stage 1, the survival rate is 97 percent and the cost of treatment £3,373, compared to a survival rate of just seven percent, and treatment cost of £12,519 if detected later on (stage 4)5. Even so, the NHS is currently only able to offer screening of half the bowel (as opposed to the full bowel) in England, Wales and Northern Ireland from the age of 60. Yet research shows that lowering this by just ten years to 50 years old (as is the case in Scotland) would save thousands of lives. With the NHS unlikely to be able to offer more proactive services anytime soon, and delays to access diagnostic services in particular costing many individuals the crucial weeks and months that can stop a cancer spreading, demand for private health benefits, such as access to private GPs, health screening, oncology specialists and even dental services, is only set to increase.
At the same time as revising their legacy benefits systems to release the funding needed to pay for more proactive healthcare benefits, employers are also thinking about how they can use their benefits to better support their diversity and inclusion agendas to attract a more diverse workforce. Examples include supporting women concerned about future fertility issues and ensuring that healthcare services make provisions for transgender employees. As well as devising packages that help people from different ethnic backgrounds to address the particular health risks they face, such as increased risk of prostate cancer for black men, increased risk of type 2 diabetes for people of Southeast Asian origin and increased risk of dangerously high iron levels for people of Irish origin6. Those employers who want to do more to engage, retain and attract employees will also have to move away from offering disjointed tactical benefits, such as the gym memberships and one-off mindfulness days, that have done little or nothing to reduce the average number of working days lost per person due to absence or presenteeism, which has risen sharply from 23 days to 30 days a year over the past four years7.
Instead, organisational data on how people are using existing benefits, such as medical plans, employee assistance programmes, group income protection and occupational health schemes, must be used to understand how employees are currently interacting with what’s currently on offer, to create pathways that encourage more employees to utilise the benefits available. Such pathways should include proactive elements, such as training managers to spot the early warning signs that someone is becoming too stressed or sick to work – as well as reactive elements, such as a triage model for ensuring employees in need of further support are given clinically appropriate referrals into relevant treatment options. At the same time, employers need to start offering ‘people-shaped’ benefits that enable individuals to thrive as a whole, instead of attempting to address physical or mental health in isolation. This is important because physical and mental health are intertwined. If someone is struggling to manage their income and live within their means, they are likely to not only experience stress and anxiety, but also sleep loss, causing them to want to eat unhealthily, because they feel tired. They might not even consider themselves to be unhealthy, but by offering benefits designed to boost their financial wellbeing, you can prevent future health and productivity issues from arising. Only by focusing on the individual and organisation in this way can you create a benefits package that enables people to stay happy and healthy, creating a competitively advantageous offering that both attracts and meets the needs of a modern workforce.
