When is it a good time to start planning a benefits strategy?
As we move from the remnants of a tough winter toward the promises of spring, it’s a great time for employers to begin planning a long-term employee benefits strategy, one that transcends the seasons of the calendar. Instead of focusing on one renewal to the next, which has been common practice for many years, employers (regardless of size) should establish a benefits strategy that is three to five years into the future--essentially paying it forward from one renewal to the next. Each renewal then becomes one of several tactical elements within the parameters of this long-term strategy.
In general, the long-term strategy should accomplish on five things:
- Offering competitive benefits to retain and attract employees
- Managing costs that fit within the budget
- Having healthy employees and family members
- Dealing with minimal administrative headaches
- Complying with state and federal mandates, including the Affordable Care Act (ACA)
Many employers embark on a long-term strategy that focuses on these “five things,” but more often than not, they do not stay the course, falling back to status quo tactics such as a carrier RFP, a plan design change, or an employee contribution adjustment to save money at any cost without a comprehensive look at the long-term picture. The aforementioned tactics are merely a cost shift to employees and do not tackle the root cause of the cost issue, namely the health of the covered population. In addition, these tactics may not mitigate the costs associated with the ACA such as the Transitional Reinsurance Fee, the Health Insurer Tax, and the Cadillac Tax.
These days, in response to the ACA, there a number of long-term strategies employers can put in place, none of which is mutually exclusive of the other. Here are 6 to consider:
High Deductible Health Plan with a Health Savings Account/Health Reimbursement Arrangement (CDHP)
This strategy involves increasing individual engagement and accountability by getting individuals more involved in the buying process. The deductible (vs. copayments) helps individuals better understand the cost of healthcare and may steer them toward lower cost settings such as a 24/7 nurse line, a convenience care clinic, an urgent care center, or their PCP. The personal account, (otherwise known as an HSA/HRA) enables employees to use their own money or employer money set aside for them to buy healthcare services more judiciously than they might under a traditional copayment plan. It is important to note that the successful roll out of these plans requires 1) a robust communication campaign, 2) a fairly easy to understand plan design, 3) some level of employer funding.
This strategy enables employers to take charge of their employee benefits program without the dependency of the insurance carrier. Actionable data is readily available and can be analyzed to help better manage and develop the long-term strategy. Additionally, the employer will avoid such costs as premium tax and the Health Insurer Tax, which could equate to 4 to6% of total costs. Obviously, there are some risks associated with self-insurance since the employer pays claims to an individual and aggregate stop loss limit. Newer self-insured products such as level-funded self-insurance have mitigated some of the risks of self-insurance for smaller employers.
Private Exchange with a Defined Contribution
This strategy provides budgeting ability and administrative efficiency, including plan options that are ACA compliant, to employers. It provides customizable choice and decision support to employees similar to shopping experiences they may have on Amazon.com. A private exchange can have fully-insured or self-insured funding.
Health and Wellness Program
This strategy is simple in concept but often difficult to implement. It’s simply about offering programs to individuals that keep them healthy and out of harm’s way. The difficulty in implementation usually comes down to the lack of leadership support. Return on investment figures vary widely and are not always scientific as much of the “savings” is cost avoidance (i.e. the cost of the heart attack that did not happen because an individual participated in an employee sponsored health and wellness program and began eating better and exercising). The successful health and wellness program should follow these steps:
Health and wellness programs can be done in conjunction with any funding type and with a private exchange.
Often referred to as voluntary or worksite benefits, Integrated Benefits are becoming an increasingly popular and cost effective employee benefit. Life and disability products can augment or replace employer paid coverage. Also, accident and critical illness products can fill the perceived gap in coverage often associated with high deductible health plans, providing indemnity coverage for named accidents and illnesses.
Captive Insurance Program
This strategy involves the employer becoming an owner, generally one of many owners, of its own insurance company called a captive. It also includes conditions for participation such as having a high CDHP employee participation and/or a health and wellness program. Like self-insurance, the captive groups are responsible for paying claims to the point in which stop loss coverage takes effect. If there is money remaining in the captive pool at the end of the year, the captive groups receive a dividend. The set-up of a captive requires some up front capital and the paperwork is more complex than traditional funding options; however, due to the conditions and mix of groups within the captive, they can have better long-term cost outcomes than traditionally funded programs.
The primary takeaway? Employers should be wary of traditional, short-term tactics to meet recurring objectives (i.e. the “five things”). Each of the strategies above requires planning and execution over an extended period of time, and employee communication is paramount. As spring is upon us, it’s a great time for employers to take a fresh look at their current benefits strategy and work with their benefits advisor on a long-term strategy that can pay it forward, evolving and flexing as the market changes.