The Importance of Employee Health Benefits to Public and Private Sector Organizations

By Reddick, Christopher G. | Public Personnel Management, Summer 2009 | Go to article overview
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The Importance of Employee Health Benefits to Public and Private Sector Organizations


Reddick, Christopher G., Public Personnel Management


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.

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