The importance of employee health benefits to public and private sector organizations.

Employer-sponsored health benefits are a vital part of human resources management (HRM) because they compose a large and growing portion of an employee's total compensation package. (1) The costs of health plans have been increasingly focused upon in the media in the United States because of rising health care costs and increased premiums. For instance, premiums rose 9.2% from spring 2004 to spring 2005 and outpaced overall inflation by nearly six percentage points. (2) Overall, premiums have risen 73% since 2000. (3)

The public sector uses benefits as a way of attracting and retaining employees because of its inability to offer salaries as high as the private sector. (4) Health benefits can be used to attract the best and brightest to public service careers. (5) In addition, the politics of public sector employment has often dictated that government provide more generous benefits packages rather than wage increases because benefits are less subject to public scrutiny. (6)

There is little recent empirical research examining the important relationship between employee satisfaction and health plans. (7) In the study described here, I use health benefits as one measure of employee satisfaction with organizations. This article has two purposes. One purpose is to conduct a comparison of the public and private sectors because of the noted differences between these sectors and because few empirical studies address the differences in the provision of health benefits between the public and private sectors. The second purpose is to examine factors that predict the increased importance employees attach to health benefits.

Miceli and Lane have distinguished between benefit level satisfaction and benefit system satisfaction, and this distinction is important to this article. (8) Benefit level satisfaction concerns perceptions about the quality and quantity of benefit coverage. In contrast, benefit system satisfactions focuses more on how well the system by which benefits are administered operates. Benefit level satisfaction is a function of environmental, personal, and administrative characteristics, while benefit systems satisfaction is related to an organizationwide perspective of efficiency, effectiveness, and management. There has been more research in public personnel management on benefit level satisfaction through employee surveys. (9) However, much less research has been conducted on the organizationwide impacts of benefit systems by surveying HR managers, which is the focus of this article. (10)

In the study, benefits managers' opinions of the importance of health benefits for improving employee morale, health, and productivity, as well as for attracting and retaining of employees, were explored. Surveying benefits managers is a reasonable way of assessing these important issues since benefits managers are able to provide an organizationwide perspective on the role of health benefits. By contrast, a survey of employees on health benefits would not provide an organizational perspective that is vital for the study of HRM.

To examine the relationship between health benefits and employee satisfaction, this article is divided into several sections. The following section examines the existing literature on employee health benefits. From this literature, several testable hypotheses are derived that are used to explain the importance of health benefits to employees. Information is provided on a national survey that was conducted by the Kaiser Family Foundation and the Health Education Research Trust (KFF/HERT) in 2005 on organizations that offer employer-sponsored health benefits. There is then an examination of the importance that benefits managers attach to health benefits. Differences between the public and private sectors are explored, as they relate to health benefits and employee satisfaction. Regression models that test the relationships between characteristics of organizations and health benefits are outlined. Finally, there is a discussion of the limitations of this study, areas for future research, and implications for public sector HRM.

Literature Review on Health Benefits and Hypotheses

This section will review some of the existing literature on employee health benefits. From this literature, several testable hypotheses have been derived about demonstrating the impact of the importance benefits managers attach to employee health benefits.

Importance of Employer-Sponsored Health Benefits

According to a 2004 survey, many Americans consider employee benefits important when choosing a job. (11) Eight in 10 employed Americans say that benefits are very important to them when making a decision about whether to accept employment. Health insurance is clearly regarded by the majority of Americans as the most important employee benefit.

The importance of health insurance as an employee benefit is also illustrated by the fact that more than one quarter of Americans report that they or an immediate family member have encountered job lock, passed up a job opportunity, stayed at a job they would otherwise have quit, or had not retired solely because they needed to keep the health insurance coverage they were receiving. According to another survey, employees are moderately satisfied with their benefits, with 39% of full-time workers reporting this, which is a rise from 32% in 2003. (12)

There also is a correlation between benefit satisfaction and job satisfaction with organizations. Benefits may have the ability to attract and retain employees, and perceived dissatisfaction with benefits may result in job dissatisfaction, higher levels of absenteeism, lower levels of performance, and higher turnover rates. (13)

The existing literature argues about the importance of health benefits in attracting, retaining, and improving the overall satisfaction of workers. (14) As previously noted, the public sector has traditionally offered generous benefits packages because of the politics of public sector employment, where increases in benefits are less prominent than wage increases. (15) It is often assumed that there is a relationship between the importance attached to health benefits and having a more satisfied and productive workforce. However, little empirical evidence exists on this important relationship. (16) This article specifically examines three factors that might explain the importance attached to employer-sponsored health benefits. The three factors are type of health plans offered, characteristics of the organization, and characteristics of health benefits. Each will be examined in turn.

Types of Health Plans

There are various types of health plans employers sponsor for their employees that are predicted to have impacts on the importance attached to health benefits. Research shows that greater choice of health plans leads to increased employee satisfaction. (17) In a conventional plan, or indemnity health insurance, there are no preferred provider networks, and a person faces the same cost-sharing regardless of which physician or hospital he or she chooses. The person under a conventional plan typically faces a deductible and co-insurance above the deductible.

During the 1980s and 1990s, many employers moved workers into managed care plans to control costs. (18) There are three common managed care plans that are offered in organizations. These plans have been devised to focus on controlling costs, which is a major shortcoming of conventional plans. Specifically, the managed care plans are health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point-of-service (POSs) plans. In an HMO plan, a person must receive his or her care from an HMO physician; otherwise, the expense is not covered. When enrolled employees use HMO physicians, expenses are typically covered in full.

In a PPO plan, employees face lower deductibles and co-payments if they use physicians or hospitals in the preferred provider network. The typical PPO plan consists of a network of doctors and hospitals that should be consulted for a member to have the lowest possible cost-sharing. Finally, in a POS plan, employees are reimbursed at a lower rate for services they receive outside the network (similar to the PPO plan), but they also have a primary care gatekeeper or physician who must approve visits to specialists and hospitals (similar to the HMO plan). A POS plan is essentially a hybrid plan, with elements of both HMO and PPO plans.

There is some choice for employees of the different managed care plans offered by governments in the United States. A 2002 survey of state employee health plans indicated that 47% of covered workers in state employee plans had a choice of conventional coverage, 89% had a choice of HMO coverage, 56% had a choice of PPO plans, and 34% had a choice of POS plans. (19) A 2002 survey of municipal governments showed that HMOs were offered by 41% of local governments, while 68% offered PPO plans and 17% offered POS plans. (20) The evidence from the two surveys indicates that there are a number of different health plans in the public sector.

A relatively new plan being increasingly offered by organizations is the high deductible health plan (HDHP). An HDHP typically has a single deductible of at least $1,000 and a family deductible of at least $2,000 annually. (21) An HDHP is sometimes offered in combination with a health reimbursement account (HRA), which is an employer-sponsored account that is funded on a pretax basis by an employer only, not the worker. Employees use the funds for medical care or services. Sometimes HDHPs offer a health savings account (HSA) into which both employers and employees can make contributions on a pretax basis.

This study explored the prediction that the different types of health plans have an impact on the importance attached to health benefits by benefits managers. The prediction is that some of these plans will have greater importance attached to them than others (e.g., conventional plans compared with PPO plans). However, there are expectations of a positive impact from having a choice of health plans and of greater perceptions of importance by benefits managers.

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