I meet with a lot of business owners each week; and they will often tell me that they make it a practice to review their benefit plan every two to four years. This may involve inviting other brokers and consultants to work with them on presenting options from other insurers. The typical motivation is due to cost increases in coverage and wanting to ensure that they are getting the best deal possible from their current carrier and broker. However, without a lot of forethought, a group benefits review of this kind can cause a lot of wasted time with a lack of meaningful results.
The reason for the lack of success with such a review of the group benefits market may be due to some of the following reasons.
1. No real difference in offering – Benefit plan coverage provisions are virtually identical from one insurer to the next. While some may have a slightly modified benefit clause, and others may tout they are embracing the future with technology, they are otherwise too similar to be considered genuinely unique. I have sat through many insurer presentations where they describe their differentiators, only to be underwhelmed by how similar most of the insurers are, and perhaps that is not a bad thing.
2. A lower price does not equal a lower cost – As a broker comes back with a plan design and premium comparison, there will always be an insurer presenting a lower price than what is currently being paid. However, this does not mean that the price is sustainable. I have found that given a five-year time horizon, most insurers will end up at virtually the same cost as most of their competitors. This should not surprise us because insurers adhere to common actuarial tables, and have been quite efficient in reducing claims processing costs to the lowest possible levels. Based on this, switching on price alone is at best a short term win, that reduces costs below that required to support claims. The result is tough first and second renewals with the new insurer.
3. The loss of reserve at the insurer – Within each insured health and dental plan is a reserve of money used for paying claims if the client was ever to leave the carrier. This reserve is called the “incurred but not reported” (IBNR) claims reserve. When a decision is made to leave a carrier, whatever portion of this reserve is not used at time of termination instantly goes to the bottom line of the insurer. The new insurance carrier now needs to build up a new reserve. This typically accounts for an additional cost of 8-10% of Extended Health and Dental premium, built within your first and second renewals. Based on this, switching insurance providers every two to four years does not make a lot of financial sense, as there is money being left on the table every time you switch insurers.
4. The cost of change – There are often two costs within every benefit plan. The first is the cheque you write to pay the premium. The second is the internal cheque you write for time spent by employees (during work time) to manage the benefit plan. This can come by way of administration and by employees re-processing enrollment forms for switching to another carrier. Often there are better uses of time for all employees than the time it takes to switch insurers.
5. Confusion among employees – Communication is the key for any change at a business. If there is a decision to change benefits providers, it is important that this is communicated appropriately to staff, as they will often come to their own conclusions on why there is a change. One of the most common negative messages I have heard from employees who were in the midst of changing insurers is that the company must be financially struggling, if they are changing carriers to save money. This is especially the case if the plan designs are otherwise the same and the only thing that is changing is the insurer.
6. A waste of time – The whole exercise can be frustrating and often prove futile. Without having clear objectives for why a benefits plan is being reviewed, the internal staff managing the marketing of the benefit plan is essentially throwing away time that could be better spent on other projects.
With this list of six, the obvious next question is what can be done if a business wants to review their costs and coverages on the benefit plan. I suggest the following six things:
1. Start with the objectives of the benefits plan – There are many reasons for why a business may want to provide their staff with benefits. Knowing what your objectives are will help you guide the process in order to facilitate the best result possible. The following is a short list of some of the most common objectives that I hear from business owners, and you may have your own to add to this list.
1) Build morale within the team of employees
2) Create a family atmosphere of financial protection and support
3) Provide a competitive advantage in attracting top talent
4) Reward long-term employees for their loyalty and expertise.
5) Protect against any potential union involvement within the employee population
6) It is an employee expectation that a basic benefit plan is provided.
2. Pick the right broker/consultant – Working with someone who is up to date on industry trends, continuing their own personal development, and offers unique value add programs and services is a rare opportunity within group benefits. Find that person or organization who is constantly evaluating what the market offers and matches it up with your objectives.
3. Review the strengths and opportunities within the benefit plan – Determining whether or not your benefit plan is the right fit for your goals is imperative. Seeking out what is working and what has an opportunity to be improved will increase the satisfaction employees have with the benefits plan. It is not unusual to find that there are coverages being provided that are neither necessary or appreciated by employees and their families.
4. Describe the ideal benefits plan – Work with your broker / consultant to develop an idea of what would ideally be offered to employees. This can always be updated at a later date, but knowing what you want is a key step in picking the right plan.
5. Pick the right platform – There are a lot to choose from, and working with your broker / consultant, you can chose the best overall group benefits offering that meets the needs of you and your employees, at a cost that is fair and explainable. An example of this would be the addition of employee and family assistance programs, along with a second opinion service and a disability management provider. Used effectively, these programs can reduce the overall cost of claims, and add more value for staff. There are also different methods for bundling these services whether the insurer provides them, or they are billed together on a third party administration platform.
6. Build in the right supplementary services and programs – There are a lot of additional services and programs that can ensure that the claims that are being recognized and paid are necessary, legitimate and within the framework of acceptable mark-ups. Did you know that often prescription drug claims are charged at 10% to 20% over Manufacturers’ Suggested Retail Price?
Overall, conducting a market survey of what insures are providing for the sake of a price and coverage comparison can be a bad use of time. Instead, conducting a full review of objectives and market offerings with a consultant or broker who is up to date with industry trends, will produce better results and maximize your return on investment for time and premium dollars.
If you are interested in conducting a review of your plan, please feel free to contact us at 604-542-3660 or firstname.lastname@example.org.
By: Michael H. Kettner, GBA, Group Benefits Consultant, Integral Financial Services Inc.