A lot has changed in how a company goes about setting up their employee benefit plan. The costs, risks and potential consequences reign immensely on a company to attract and retain great employees and be deemed an employer of choice. Strictly setting up an insured benefit plan is not the only solution as it once was considered. Employers are smarter, aware of the potential cost consequences to misuse or making the plan too rich, and the potential for huge renewal increases.
Employers are becoming more aware of the potential options available to them. They are also becoming increasingly aware of the fees associated with certain plans. Employers want to make their employee benefit plans sustainable. To make this happen, companies need to look at how they can modernize a benefit plan.
At the end of the day, employers want to
- know how they can save money
- enhance the plan for their employees
- cause the least amount of disruption to its employees, administrators and ownership
- ensure they are correctly setting up a benefit plan
All these things can be accomplished when modernizing your benefit plan.
5 Pillars of Modernizing Your Company Benefit Plan
Strategy 1: Financial Efficient Health and Dental Funding
An important consideration is selecting the appropriate funding model. Many companies remain entirely in an insured format where they may want to consider a Retention Accounting or Administrative Services Only (ASO) funding model. This may be appropriate for some or all of the components of a company benefit plan.
You should be getting a report from your broker at each renewal outlining how the company would have faired financially if they had been in either model.
The graph below outlines the pros and cons of either funding model.
Strategy 2: Risk Mitigation
a) Drug Plan Challenges
The most significant risk to benefit plans today is the escalating cost of prescription drugs. By now, many benefit plans have a mandatory drug substitution incorporated in the mix. This is where plans are covering the cost of generic drug costs or the lowest cost therapeutic alternative. There are still opportunities for cost containment by utilizing a better-managed drug formulary and a central dispensing pharmacy. Leveraging this can save you 20%+ on your annual drug bill.
Presently the largest threat to most plans is the expansion of speciality or biological drugs. These speciality drugs can cost thousands of dollars, and there are no generic substitutions. These biological drugs were once for catastrophic illnesses but today are available for a host of common illnesses.
Some brokers are taking the approach of eliminating all these drugs from a company plan or require special authorization. Some consultants are suggesting to deflect these costs to the Trillium Provincial Plan, but this isn’t a straight forward solution either. The Provincial plan is limited, administratively challenging and conflicts with many owners’ sense of compassion. Is it right to push a valued employee to a program that is not guaranteed and can prove emotionally taxing to a person when they need a plan the most?
Stop-loss insurance is becoming more and more expensive. Insurance companies are encouraging plan sponsors to take on more of the risk to make costs more reasonable. Aggregate Stop-Loss versus Individual Stop Loss is becoming more viable as a solution for companies in Canada to help manage the risks and the potential soaring costs of prescription drugs.
This is a component of most plans that will leave many up in arms to determine the correct solution for the future. If this hasn’t come up for discussion with your broker than he/she doesn’t understand the problem or has chosen a solution for you that you may want to familiarize yourself with quickly.
b) Long Term Disability
Another risk facing employers is soaring Long Term Disability costs.
Higher salaried employees are often under-insured because of non-evidence maximum (NEM) amounts underwritten by the carrier on a group plan. If the employer hasn’t made the employee properly aware of the additional amount available, then they potentially face the risk to pay the difference. This could be for the entire time of the claim, which potentially is until the age of 65.
Another way of mitigating against soaring LTD costs is by incorporating a Disability Management service to assist in helping to get the employee back to work sooner and often before the employee makes an LTD claim.
Strategy 3: Tax Efficiency Salary Test
Your employee benefit plan can help save your company money and put more real dollars into your employees’ pockets.
If a company is looking at the cost of living increases, put a portion of it into a Health Spending Account. An HSA is a non-taxable benefit to an employee and is a 100% business expense to the company. As an example, instead of giving a 3% salary increase to an employee who is subject to the employee’s marginal tax rate, pay a 2% into a salary increase and 1% into an HSA which is not subject to income tax. See the cost model below as an example of the net advantage to the employee.
These are a few of the ideas, that will help to modernize your benefit plan, saving the company money and will make your employees happier in the process. This can be set up by employee class and/or by tenure.
Strategy 4: Communication of Compensation Value
Do your employees know the total compensation package that you are providing them? In the past, an employee would be handed a benefits booklet at enrolment. Today, the best practice is issuing all your employees a Total Rewards Statement. They will understand all the costs that the employer contributes on behalf of the employee over the course of the year. The employee will soon see that the amount the employee sees on his/her payslip isn’t reflective of the costs incurred by the employer. Communicating what the cost of a benefit plan is to an employee gives a greater sense of the real dollars involved in sustaining it.
The other best practice is to survey your employees to understand their needs and then create an action plan around the results. This should be something that can be facilitated by your benefit company.
Strategy 5: Innovations
There should be value-added components to your plan that both employees and employers get value from. Examples of this could be having a speciality Accidental Death & Dismemberment carrier that has an element of critical illness insurance attached to it for around the same cost as regular AD&D insurance.
Another benefit could be the addition of “Workperks” which offers employee discounts of 10-50% for services they use and value daily. Services like restaurants, hotels, car rentals, movies, retail discounts and many more offers that can be used across Canada for 1,200 perks at over 6000 + locations. This something that can be included for pennies a day and yet yields a tremendous value for the employee.
On-line survey technology allows a company to facilitate an online survey to its employees and compile results and recommendations for improvement. This is like a secure, confidential and comprehensive suggestion box that can gauge the environment of a company and its morale.
These are only some of the initiatives that are being incorporated into modernized benefit plans which will help ensure greater communication, satisfaction, cost sustainability and value in this very complex and vital part of your company remuneration strategy.