Managing Costs In Your Benefit Plan
Today, managing a benefit plan can be more complex than it ever has been. Understanding the factors in your program requires thought, vision and understanding of all the moving pieces. Ultimately, as an employer you have to decide between the cost and risk of a plan. Cost and risk are not just for what the plan pays for, but also the cost and risk to keeping your plan sustainable.
There are several key items that drive your benefit plan renewal costs, some of these are within your control and some that are not. The difficult part for employers is providing employees with quality benefits in a way where they can predict ongoing costs. As our population ages we have an increased weighting on benefits and pensions for employers of all sizes. Retaining employees is far more cost effective than advertising and training new staff.
In most cases usage is at times the most major factor and it has its own drivers behind it which we’ll address. Other factors are what insurers call “trend” which is really projected inflation, things such as increases in your provincial dental fee guide, expected changes in drug costs for the upcoming year and what new drugs and treatments may be available. Also, some plans have costs for pooling and EP3, their share of catastrophic drug coverage. Your firm size determines the credibility or predictability the carrier will use from your claims and then most carriers also have a requirement for profitability for their shareholders. Generally, advisor compensation is similar across the marketplace but with some carriers it is an added cost and you are entitled to ask what level the advisor has set that at.
As a benefit plan sponsor you have little control over credibility, EP3 pooling and some inflation factors such as the fee guide or cost of drugs. However, you do have some control over plan inflation through plan option choices as well managed and designed plans tend to have lower inflation rates than unlimited or uncontrolled benefit choices. Ultimately the largest area of control you have is your usage and your plans overall exposure. For smaller firms one or two higher claimers can affect your usage ratios and as a by-product your rates. This makes it important to know what your exposure is.
Most carriers have a “stop loss” or level of claims that will go directly into your usage. Claims above the stop loss go into the carriers large claim pooling. There is a cost for stop loss but it can protect your exposure so knowing the level is important. Some carriers build stop loss right into the rates and others allow for options of risk level and pricing you wish to choose.
It makes sense to consider dovetailing coverage with provincial catastrophic drug coverage programs like Ontario’s Trillium. Most of these programs have a deductible based on a percentage of household income, so typically lower earners have a lower deductible before the province would offer assistance. With this in mind it sometimes can make sense to have lower overall drug limits on plans where the employees earn less, keeping some of the exposure off the employer’s claims experience.
Other benefits can be industry specific, for example short term disability or WI (weekly Indemnity) often doesn’t make sense where lower incomes are involved and EI premiums are being paid as it can represent a real duplication of premiums. In other instances, workers such as labour contractors may not have EI coverage eligibility and WI could be a must for any plan for them.
Long term disability coverage is a cost that can be employee or employer paid, often determined by how the firm and employees want the benefit paid out. If they want it to be an after tax benefit then the employee must pay the premiums or be deemed to (taxable benefit). Costs for this benefit vary based on firm’s demographics (age and incomes) and job risk. Critical illness is newer in the group market but useful for firms where employees don’t have a typical insurable income for ltd coverage such as commission or dividend based incomes.
Employers typically have less control over costs on these benefits but typically they are fully pooled benefits with the insurance provider so the risk is often shared amongst the pool and firms that aren’t singled out for claims in these areas.
Health and dental are the benefits where usage can dramatically affect their rates. In many ways they are also benefits where you can have the most control. An effective use of deductibles, co-insurance, limits and dispensing fee caps can help control costs while maintaining effective coverage. Plans such as the Chambers Plan offer managed healthcare solutions, this offers another level of management for drug costs.
In the simplest terms managed drug programs use a formula or a list of drugs deemed as cost efficient for their effectiveness and their expense. Employees are encouraged to use listed drugs but may also opt for non listed drugs at a lower coverage level. This puts some of the drug management costs back onto the employee. By doing this they tend to think more about their options and less about using their drug card as a credit card. Claims experience tends to be significantly improved under these types of programs while employee satisfaction remains good provided the employees are educated into how the program works.
Dental costs can also be managed, but thought should go into the employee’s demographics. Young firms with mostly single employees will have much better usage numbers than firms with slightly older demographics where family and dependent numbers are much higher. Paying attention to your demographics may steer you to the best option for your staff without breaking the bank.
Other add-ons like vision-care are counter-intuitive for most business owners. They are typically a dollars in and dollars out benefit with cost outweighing benefits, but it is an area of employee satisfaction too often, although there’s not much insurance element involved firms will have a vision care benefit. EAP (Employee Assistance) programs can be low costs for benefits and have huge value to employees and their dependents. Being able to get confidential help on a variety of things from mental health and stress to grief counselling or substance abuse assistance increases employee attendance and effectiveness across the board.
For top up coverage owners can look to medical reimbursement or Cost Plus options as tax effective ways to increase their own benefits and Health Care Spending Accounts (HSA) can also have merit depending on the firm size and situation. Most HSA’s will be considered money to be spent so usage is typically very high so working with your advisor to use these types of programs makes the most sense.
All in all, when firms talk to advisors they are often on the defensive and looking for the best pricing options. This philosophy is flawed when it comes to the group benefits market. It’s more about building a benefits plan you can renew each year without large swings in your budget. To get there the most effective route is to open up to any advisors you are talking to and let them know what items are more important to you and your staff. Find someone you can work with that talks about these items more than focused on immediate pricing. Look for plans with lower overhead and an advisor who is open and you can work with and you’ll be more likely to have a happy group of employees for a long time.