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Cost Control In Employee Benefits
The 1989 movie Field of Dreams is similar to your employee benefit plan.
Field of Dreams stars Kevin Costner. In it he builds a baseball field in the midst of Iowa corn causing family turmoil and financial pressure. The voice tells him “If you build it, he will come.”
And the voice is right. The field becomes populated with long deceased baseball players, among them his father.
Employee benefits
At one time an employer could control his employee benefit costs by shopping periodically. That choice is less available now. Many carriers have exited the business and the others pay careful attention to the demographics of your group and its previous experience.
Cost control is difficult. High priced biologic drugs get most of the press, but the cost to provide routine drugs and other medical services is much higher than it was in 1989 when Field of Dreams first appeared.
Cost control now begins farther up the ladder.
If you build it, they will come.
Plan design matters. Be careful with limits, definitions and the things you cover.
Employees, like everyone else, are pushed by incentives. If a plan offers coverage for things the employee does not use now, the existence of the plan will push them to use them. Most of the benefits don’t carry over from one plan year to another, so there is an incentive to use them as the year end approaches. Ask a massage therapist if business is up in the last quarter of the year. Strange the need is not year round.
Be careful not to incentivize plan usage. You pay the claim plus the insurers overhead. The operative rule forming the insurers standpoint is, you send us ten dimes, we send back three quarters.
Small disincentives have a powerful effect
Deductibles matter. Even a small one. A flat dollar amount on a prescription is not a very good deductible because it could disincentivize an employee from buying needed medication. Undesirable.
If the deductible is the dispensing fee then the employee can have the medication and can shop for lowest fees. He keeps 100% of his saving. He saves nothing for his effort with a flat deductible.
If the plan includes a $100 annual deductible, the annual premium will usually fall a little more than the $100. Many employees will not meet the deductible and that saves insurers the cost of processing tiny claims.
Pareto’s Law applies to claims
You may be surprised to find that 80% of the claims paid arise from 20% or fewer of your employees. I am aware of one group where 1% of the employees generate more than 80% of the claims. The marvels of biologic drugs.
Understand your plan demographics and match benefits to needs. Ask your provider for information on usage and understand how that matches the value to your employees. If it does not match, change the plan design.
No one values things that are free
Employees often think only of their salary. Employee benefits are a surprisingly large share of an employer’s total cost of personnel. Some are mandated, like government plans, workers compensation, vacation, statutory holidays, and the like. Other are more controllable like pensions, health, dental, long and short term disability and life insurance.
Be sure the employees know that salary represents only about 75% of the total pay package.
Learn about how they use the benefits and how they fit
Ask for input as to what they value. Have someone familiar with the group plan and individual insurance coverages, meet with employees with a view to fitting their employee benefits with their overall needs. In many cases, the coverage offered in the benefit plan fits no one.
There is no reasonable expectation that the cost of benefit plans will fall in the future. Cost control involves shopping, claims control and plan design.
Be sure you address each.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. don@moneyfyi.com 866-285-7772
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