CUs Grapple with Rising Benefit Costs
Is CUs’ ‘employee-friendly’ image being eroded by smaller, pricier benefit packages?
While wages stagnate, health insurance costs continue to rise.
That puts a pinch on employees who are earning the same amount but paying a larger share of their benefit costs.
Last year, credit unions’ health insurance premiums rose 11% on average, with 83% of credit unions paying more in 2012 than they did in 2011, according to CUNA’s 2012-2013 Credit Union Staff Benefits Survey.
And it also challenges credit unions as employers that promote competitive benefit packages and a “best place to work” reputation as selling points to potential employees.
What happens when those benefit packages erode a little bit each year? Or when they start to look like all the other benefit packages out there? At some point, credit unions could run the risk of losing their employee-friendly reputation.
Consider the plight of Tampa Bay (Fla.) Federal Credit Union. It has been four years since the $213 million asset credit union raised salaries. The credit union also suspended its 401(k) match. In 2010, employees lost educational reimbursements as well as any nonsales bonuses.
And in 2012 the credit union, which had previously paid 100% of employee health-care premiums, shifted 25% of those costs to staff. It did maintain its longstanding commitment to pay 50% of dependent premiums.
“The economy has had a huge effect on us,” says Diana Wozniak, Tampa Bay Federal’s human resources (HR) manager, and chair of the CUNA HR/Training & Development (TD) Council.
“Our overall compensation package would appear to be less attractive,” she says. “Suspending salary increases inhibited our ability to fill positions at an attractive rate. So while we could hire new employees, our ability to retain our top performers became more difficult.”
Fortunately, many of the changes aren’t permanent, and Wozniak says the credit union plans to restore some prerecession benefits—except health insurance cost sharing—by 2014.
She’s still happy with the health insurance options available, and she credits strong organizational leadership for maintaining a positive culture and employee loyalty during hard times.
Tampa Bay Federal also increased “soft” benefits, such as denim days—allowing staff to dress down a bit—and it discontinued on-site fund-raisers to eliminate pressures to contribute financially. But Wozniak realizes employers can’t continually ask more of employees without offering anything in return.
“In a larger city like Tampa, we still have to compete with employers that haven’t suffered the difficult economic times as much as we have,” Wozniak says. “Keeping a balance of competitive salary and benefits will be crucial to moving forward. Everyone wants to work for a good organization with a good culture. But employees still have financial obligations to meet and they need comprehensive insurance benefits for their families.”
Benefits as a differentiator
Credit unions think of their benefits packages as a distinguishing feature enabling them to attract top talent and offer an attractive work environment, despite offering slightly lower salaries than for-profit competitors.
“It’s true that credit unions generally pay less than banks, but it’s also true that credit unions often compete for staff by offering quality benefit packages,” says Beth Soltis, CUNA’s senior research analyst, who notes the latter often puts credit unions at the top of many “best places to work” lists.SIDEBAR
Soltis says the “people-helping-people” cooperative culture attracts people willing to accept marginally lower wages for more meaningful work. But rising costs, particularly health insurance premiums, are making it more difficult for credit unions to compete primarily on benefits.
Soltis conducted CUNA’s benefits survey, and says the findings suggest credit unions’ commitment to benefit packages remains strong despite the pressures of the economy and rising health insurance costs.
Eighty-eight percent of credit unions with more than $5 million in assets offer some sort of employee health plan. Of those, 96% offer group health insurance. Those figures have held steady for the past five years, despite the recession.
But one-third of those credit unions are maintaining their offerings by introducing or increasing employee cost-sharing by requiring employees to pay a percentage of premiums or increasing deductibles or co-pays.
Soltis says it’s fair to assume many employees would rather pay more out-of-pocket than lose the health benefit altogether, but she cautions morale might eventually suffer if employees have to contribute more for benefits when wages remain frozen.
At the same time, the ongoing recession and widespread uncertainty over health care—due in large part to the Patient Protection and Affordable Care Act—have put pressure on both ends of the compensation continuum, making it difficult to increase or even maintain either wages or benefits.
Employees have been feeling the squeeze for a few years now, Soltis cautions.
After several years of recession and wage stagnation, shouldering a larger burden of health insurance expenses might be too much to ask.
“If employees are going to pay more, employers might have to give somewhere,” she says. “It’s rough for workers to pay more for gas and groceries and health insurance and lose money in their retirement packages without getting much in the way of wage increases.”
Eventually, Soltis says, credit unions that cut benefits too far could see decreased productivity, increased absenteeism, and higher turnover, particularly among their high-skilled workers. Filling vacant positions will be difficult if neither wages nor benefits stand out in the marketplace.
NEXT: The wellness factor
The wellness factor
Oregon Community Credit Union (OCCU), with $1.1 billion in assets in Eugene, Ore., found a way to ease pressure on both wages and benefits without shifting costs or cutting the quality of coverage.
Four years ago, OCCU developed a formal wellness program, which it runs via a committee that meets once a month. The program includes general health education (along with strategic events and incentives including race fee reimbursements—up to $50 a quarter), an on-site health fair, live-instructor Zumba classes, annual fitness challenge, and more.
While there are obvious cultural reasons for offering the wellness program, Tracey Keffer, HR manager, says the financial side is even more compelling. Health plan usage and medical loss ratios declined soon after launching the formal wellness program, she says.
“The first year our medical loss ratios came in low. At first we were thinking it could be a fluke. Then the second year we were even lower, and the third year they were lower still,” Keffer says.
This enabled OCCU to negotiate a 15% cut in premiums and increase its dental coverage maximum by 20% while also exempting routine dental exams from that total. This year the credit union will add an orthodontia benefit, and it will continue to provide 100% health-care premium coverage for employees.
Last year OCCU rewarded plan participants with a $250 contribution to employees’ medical flexible spending accounts for additional wellness activities such as fitness classes or more race fees.
The credit union also negotiated a $2,000 contribution from its insurance carrier to the wellness program. In 2013 it will receive a $5,000 contribution.
The carrier has seen how low our medical use has been, Keffer says, so OCCU will receive a contribution to implement more program features.
While being among the 17% of credit unions to actually lower insurance costs last year is a feat in itself, Keffer believes a wellness program has far more merit than simply the premium savings. “It’s not only controlling costs,” she says. “The healthier [our employees] are, the more they’re going to produce for us.”
That echoes the argument made in “Credit Union Wellness Programs: Good Health Is Good Business,” a CUNA HR/TD Council white paper, which states healthy employees not only save money due to lower insurance costs but they also generate greater revenue because they’re happier, more productive, and higher performing.
Currently, 13% of credit unions with assets of $5 million or more offer a formal wellness program, CUNA’s benefits survey reports.
Other credit unions have made some changes to encourage healthier choices. Tampa Bay Federal doesn’t have a formal program, but it does offer employees a free fitness room at its headquarters and it discounts bottled water in vending machines to make it a more attractive choice than soda.
Wellness programs have emerged as a solid strategy to blunt increasing health insurance costs. And OCCU has taken its wellness program even further, using it to drive its culture of personal and organizational health.
The more successful the program is, Keffer says, the more money the credit union saves and earns, and the more money that comes back to employees by way of flexible spending bonuses, regular bonuses, and wage increases.
“Employees understand that one of our goals is generating income,” says Keffer. “They realize that the less we spend on insurance, the better the bottom line, which in turn goes back into their pockets.”
It also enables OCCU to remain competitive with wages as well as benefits, which helps the credit union attract and retain employees. They’ve had merit increases in both of the past two years, due in part to their substantial health insurance savings, says Keffer.
NEXT: The self-insured option
The self-insured option
Credit unions must consider the potential impact on employee attraction and retention when they make benefit decisions, even in a soft economy when unemployment is high.
“The cost of turnover will far exceed any savings you have by shifting costs to employees. You’re going to pay for it,” says Lisa Pesta, vice president of HR at the $1.1 billion asset Meriwest Credit Union in San Jose, Calif. “We’re in Silicon Valley. When I look at our competitors, I don’t look at other financial institutions. There are sexier opportunities in Silicon Valley. I have to create a culture where employees want to stay.”
But double-digit increases in health insurance premiums are making it difficult for credit unions to hold the line on employees’ cost of health insurance.
Meriwest managed to keep employees’ 15% share of premiums steady despite increasing costs. But when the base premium rose, so did the employee contribution. The credit union also raised co-pays from $15 to $20 a few years ago.
Reluctant to shift more cost and unable to achieve great savings through negotiations, Pesta enrolled Meriwest in the Credit Union Health Benefits of America (CUHB) plan offered by the insurance broker Risk Strategies Company. CUHB is a partial self-insurance plan targeting credit unions.
Under the plan, Meriwest covers its own small claims. It pools resources with other credit unions for large claim coverage, and the plan caps maximum annual liabilities.
A third-party provider handles the credit union’s claims, and Pesta says the CUHB plan looks like a traditional health plan to employees. The benefit, though, is that Pesta could reduce health insurance costs by 6.4%.
Patelco Credit Union joined the modified self-insurance program in 2009 for the same reason.
“The rate increases were going to be so high that if we didn’t do anything, we were going to revamp our group medical plan or substantially increase the employee contribution. We didn’t want to do either,” explains Ed Cassady, vice president of HR at the $3.6 billion asset credit union in Pleasanton, Calif.
The credit union has saved approximately 15% annually, but Cassady adds there are other benefits to CUHB. For reinsurance purposes, each credit union stands alone.
For example, that means a bad claims year in 2012 at Patelco won’t affect Meriwest’s required contribution in 2013.
Cassady also adds that the self-funded plan allows Patelco to access health usage data, which enables the credit union to tailor wellness programs and services to the needs of its employees.
Cassady expects this targeted investment to yield even further savings as its wellness efforts mature.
People might think there’s quite a bit of risk involved in a self-insured option, Cassady says, but there really isn’t. If you want to explore all avenues, attempt to control expenses, and produce a good package, learn about partial self-insurance, he recommends.
Many credit unions might have previously been unwilling to assume the risk involved with any full or partial self-insurance plan, Soltis adds. But she expects more credit unions to explore it and other out-of-box alternatives in an effort to maintain high-quality benefits.
“It’s so important for recruitment and retention,” she says, “and more employers are recognizing the health of their employees is important to their productivity and directly tied to the workplace culture.