Providing benefits plans for employees serves a number of purposes. First and foremost, it is simply the right thing to do. If you care about the well being of your staff and their families, you will offer them some form of package to ensure they can meet certain health and retirement-related obligations.
Also, benefits serve the purpose of attracting and retaining employees. Likely your competitors have benefits plans for their employees and if you want to stay competitive and attract top talent to your business, you need to compete on a level playing field with your industry peers. But like any business, you are mindful of costs and are looking for ways to keep business costs to a minimum.
So how do you provide an adequate benefits program that will be competitive yet at the same time cost-effective?
Jeffrey Stinchcombe is a partner with Health Source Plus, a benefits consulting firm and Third Party Administrator based in Toronto. He says benefits should be looked at as a “whole pie” through funding models. By doing this, businesses can control certain funding areas of their business.
“The old style of benefits was one size fits all but because of the generational differences in today’s workforce we’re starting to look at more flexibility of more plan design,” notes Stinchcombe. “What a guy in his 20s and 30s might want is a lot different than someone in their 50s or 60s. We’re seeing a shift toward defined contribution programs which manifest themselves as healthcare spending accounts where the employer puts a basket of cash in front of the employees and they can pick what they want covered.”
In other words, employers are defining their costs and providing health spending accounts in order to give employees the flexibility to choose the benefits that work for them (in this case, for their generation) and at the same time provide cost certainty for the employer – which ultimately reduces costs over time.
But there are other issues besides the actual dollars that employers must keep in mind. Wayne Farrow, President of Synergy Benefits, says benefits administrators must understand the claims being made by employees. “Claims equate to premiums which equate to higher or lower costs,” he notes.
According to Farrow, employers have to be sure their claims adjudicators are only paying for claims that are relevant or necessary – in other words, they are adjudicating claims properly. “There should be more protocols put in to allow for less expensive alternatives to a particular designer or biologic drug, for example,” he says.
Farrow also notes that from a plan design perspective, certain components of a plan can be removed – things that are not catastrophic. This means things like drugs and basic dental could be part of a plan but more expensive items like paramedical, massage therapy, eye-case, and orthodontics could be removed. He also stresses that many offices are multi-generational and that is why health spending accounts, or HSAs, are often a good way to go.
Health Source Plus’ Stinchcombe points to other areas that would allow employers to contain costs – things like looking at long-term rate guarantees. “It’s in the employer’s best interest to negotiate with the insurer as long a rate guarantee as they can,” he says. “It’s very common to negotiate 24 months but now we are seeing as high as 39 months.”
He also notes that plan design optimization can help employers with their benefits design. Essentially it is a way to benchmark your plan against industry peers to see if you are under-providing, over-providing or providing just the right amount of benefits compared to others in your industry. Says Stinchcombe: “Any good consultant will give you a benchmarking study to get a sense of what you are up against. From there you can craft a program that makes sense from a recruit, reward and retain perspective and then you have to quantify the cost, which is the final part of plan design optimization.”
Stinchcombe stresses the need for employers to pay their employees premiums and not have it come out of their paycheques. The reason? Human nature dictates that if an employee pays a certain amount for insurance, they will try to claim beyond the maximum to ensure they have gotten their money’s worth.
Conversely if the employer pays the premium, employees they are less likely to seek the ancillary benefits inside the program. Stinchcombe says as an employer he might add a couple of deductibles that would further deter over-use.
Some employers have adopted a method for cost containment known as Administrative Services Only (ASO). Essentially this means employers who self-fund or administer the services themselves on a case-by-case basis without an insured option. Stinchcombe says there has been a quantum shift among employers in this regard, often saving them 5%–30% on fees.
However Farrow says the practice is better suited towards larger companies with a solid claims history. “ASO is not necessarily more cost effective than insured,” he says. “It really depends on claims history. On an ASO, the employer pays whatever the claims are and that could be a very bad deal for a small company.”
The risk is that employers just might not know their own costs because there is a lack of history. “Ultimately, plan design should satisfy the needs of the employee and employer,” says Farrow. “Some employers are so focused on costs that they forget [the benefits] is part of how an employee is paid. They look at it as an expense.”
“There’s more to it than what it costs,” he stresses. “They have to think about what they’re return on investment is because they should look at it more as an investment in their employees.”
- Joel Kranc