Employer-sponsored medical insurance is an essential benefit for American families today, yet the costs associated with that coverage can place undue strains on employee finances. For Honolulu-based Alexander & Baldwin, Inc. (NYSE: ALEX) (A&B), ensuring health insurance premiums remain affordable and equitable, and that employees receive a livable net wage, is one way the REIT is recognizing the important role employees at all levels play in driving the company’s success.
With that goal in mind, in early 2023 A&B dropped the typical one-size-fits-all approach to employees’ premium contributions in favor of a three tier plan that ties premiums to employees’ salaries.
Today, A&B calculates employees’ premium contributions, which includes drug and vision coverage, according to three salary levels:
- Tier 1, lower salary range. The HMO premium for a single person in Tier 1 is $42 per month.
- Tier 2, middle salary range. The HMO premium for a single person in Tier 2 is $67 per month.
- Tier 3, higher salary range. The HMO premium for a single person in Tier 3 is $92 per month.
All of the company’s more than 100 employees participate in the program, which also awards a $25-a-month premium discount to any employee who earns a specified number of wellness points through the employee-led wellness program. So an employee in the Tier 1 salary range could pay as little as $17 per month for health insurance.
Known as Olakino, which in Hawaiian means a “state of health and well-being,” the wellness program received gold level recognition in 2023 and 2024 from the American Heart Association’s Workforce Well-being Scorecard program. Olakino provides support for employees' overall well-being throughout the year with programs, presentations, and challenges.
“This tiered premium shift demonstrates the company’s commitment to equity and fairness in the workplace and supports our health and wellness efforts and employer-of-choice strategy,” said Derek Kanehira, senior vice president of human resources at A&B.
Kanehira said employees were “grateful” for the new method of calculating health insurance premiums. That’s particularly true for the little over one-third of A&B’s employees who saw a reduction in their monthly health insurance premiums thanks to the new plan.
Rising Premiums
Amid the steep climb in health insurance premiums, every dollar counts.
In 2023, the average annual premium in an employer-sponsored health insurance program stood at $8,435 for single coverage and $23,968 for family coverage, according to KFF, a health care research and polling organization. Both figures, taking into account employer and employee contributions, were up 7% from the previous year.
Meanwhile, a recent study published in the medical journal JAMA Open Network
discovered that from 1988 to 2019, American workers receiving workplace-based health insurance saw their total earnings reduced by 5% due to premium increases. The study pointed to a heavier burden of health insurance premiums on lower-paid workers and on Black and Hispanic workers.
At A&B, the overall positive reaction to the new premium-calculating system stemmed largely from gaining early buy-in from executives and employees alike, according to Kanehira. Communication with employees emphasized that the new program was designed to keep health insurance affordable and “create a more equitable workplace environment,” he said.
The same premium model is in place for 2024, with the only tweak being an update of the salaries used to determine the three tiers.
A&B benefits from the new setup, including increased employee engagement and productivity, as well as lower turnover, Kanehira said.
“If employees are doing well — mentally and physically — and they feel that they’re being treated fairly and they’re able to get the health care that they need, you’re going to have more productive, committed, loyal employees who are more engaged,” said Theresa Adams, senior HR knowledge advisor at the Society for Human Resource Management (SHRM).
Modest Take-Up Rate
Lance Migita, leader of the Hawaii health and benefits practice at HR consulting firm Mercer, said that thus far, few employers in his market have adopted a premium structure like A&B’s. Migita helped the REIT establish its salary-based premium program.
“Employers are curious to explore the idea, but not many are quite ready to take the leap,” Migita said. “They like the idea of bringing more equity and fairness but are just not prepared to jump all in yet.”
While the concept of a salary-based program for setting health insurance premiums is not new, “the take-up rate among employers isn’t extremely high,” SHRM’s Adams said.
Data published in 2022 by KFF showed that only 10% of large employers (those with 200 or more employees) providing health benefits had a program similar to A&B’s aimed at decreasing the premium contributions of lower wage workers.
A 2023 survey by consulting firm WTW (formerly Willis Towers Watson) pointed to more promise in the area of salary-based health insurance premiums. The survey found that one-fourth of employers structured payroll contributions in a way that equated to salary-based premiums.
Among other advantages, salary-based health insurance premiums can help boost employee recruitment and retention, Adams said. “Anything that an employer can do to attract employees is important.”
Practical Considerations
So, what can a REIT do to help attract employees with salary-based health insurance premiums? A&B’s Kanehira suggests that a REIT mulling an approach to health insurance premium contributions that’s similar to their approach should ask these questions:
Assessing Health Insurance Premium Contributions for REITs
- Would this change align with company’s goals, values, and priorities?
- How committed is the company’s leadership to this concept?
- Would health insurance premiums be calculated based on fixed percentages of pay, job titles, or some other way?
- Could the payroll system adequately support this model?
- Could the HR team properly administer this model?
- Is the REIT prepared to engage in timely, effective communication with employees so they would understand why this change is being made?
Kanehira advised companies considering this approach that “undoing a salary-based model could have a significant impact, especially to the employees in the lowest tier, so be mindful of this while making an initial decision to make a change.”.
Adams noted that employers also must be mindful of how a salary-based system for health insurance premiums might affect employee satisfaction with raises, promotions, bonuses, commissions, and other pay-related moves. Depending on how a premium system is set up, a raise, for example, might push an employee into a higher tier that demands a bigger contribution toward premiums, she said.
“Generally, in order to make insurance premiums affordable for lower-wage workers, [premiums] need to be made more expensive on a relative basis for higher-wage workers, so there is a measure of disruption and employee dissatisfaction among a small portion of the population,” said Alan Silver, senior director and actuarial intellectual capital leader at WTW.
Regardless of how a salary-based premium program is structured, Adams said it is “not something that should be done on the fly.” For instance, an employer may want to survey employees about this kind of program before one is put in place.
“If an employer chooses to do this, they should only do it if they’re really committed to the program,” she said. “It would be very difficult to implement it one year and then change it the next year. I think that could really cause engagement issues and morale issues.”
Silver stressed that an employer should make a salary-based premium arrangement as uncomplicated as possible. So, rather than dividing a premium program into seven salary tiers, you may want to settle on an easier-to-manage two or three tiers, he said.
“There is no magic formula for the number of salary [tiers], and there’s no shortcut an employer can take to flip a switch overnight,” Silver said. “Without an intentional, well-thought-out strategy, the cons may outweigh the benefits.”