Signing a General Security Agreement at the bank, lying awake at night wondering if you can meet payroll, fretting about the next installment against a capital or operating loan—these are just a few of the pleasures of business ownership.
And unless benefits advisors have walked a mile in these shoes, it is difficult for them to relate to these daily and often fundamental challenges. Group benefits is but one of a number of items all competing for a space at the owner’s table and on the income statement.
Fundamental business risks are changing, and while recent jobs data in the U.S. and Canada show signs that both economies are returning to strength, there remain a number of hurdles. Chief among those is inflation.
Let’s assume for a moment that the Canadian economy is, and forever will be, inextricably linked to the U.S. As our perennial No. 1 trading partner, our fate has always been hooked to theirs, even though there is an emerging awareness that we must look for business opportunities beyond our neighbours to the south. In the short and intermediate terms, however, whatever affects the U.S., affects us.
The U.S. Congressional Budget Office recently published two statistics that do not augur well for both economies and suggest a looming inflation crisis. First, the U.S. budget will face interest payments on its accumulated debt that will outpace any other budget line item—including expenditures supporting the entire U.S. military—within the next few years. Second, the majority of that debt will be paid to China, as it has been the world’s principal buyer of U.S.-issued debt. In a sense, America will be funding the buildup of Chinese markets, military might and economic expansionism while trying to struggle with increasing levels of federal government debt at home. In a sense, the U.S. will be funding its own competition.
Historically, we know that, at some point, the U.S. will have little choice but to take steps to inflate its way out of this mess and repay today’s nominal debt with tomorrow’s less-worthy dollars. The result for our poor business owners—both north and south of the border—is that they will face the cyclical nature of increased prices for energy, goods and services that they must, in turn, pass on to consumers.
Even though our two markets have—to some extent—shown a level of “decoupling,” the fact remains that we will not be able to completely escape this trend. Indeed, as Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty have stated in the press, Canada will face its own inflationary pressures. Domestic levels of household and government debt are dangerously high, and interest rates here have remained at historically low levels for what seems already an eternity. Rates have to go up at some point.
So what can advisors do to help their clients?
First, they can acknowledge that the health and strength of the business—and its people—must be kept sacrosanct. The social contract must recognize that health plans need to be sustainable, and presume the wisdom of business owners to do the best they can to attract, reward and retain their best people.
That means finding the most appropriate solution to the client’s particular needs and circumstances. Perhaps the advisor suggests a healthcare spending account to a fledgling new company that has just realized it must offer some form of health protection to its staff. The solution might mean considering plan maximums wherever plan costs have outpaced a business’s ability to fund its plan. Or maybe the advisor suggests co-ordinating both types of benefits strategies to control costs while offering plan members flexibility.
Hard dollar savings of any kind are attractive to a business, as they fall directly to the bottom line and enhance a company’s overall profitability. A “delta” of even a few percentage points might make the difference in a business owner’s cost of capital and perhaps even the business’s very survival.
Second, advisors and insurance and benefits payment organizations must do all they can to engage members in realizing that they represent the front lines in cost-containment efforts. Encouraging members to make better decisions as they consume health benefits goods and services will have a direct bottom-line effect on a company’s balance sheet.
Little things add up. Avoiding short-duration prescriptions in favour of 90-day fills for maintenance drugs may help avoid extra dispensing costs. Saving $10, four times per year, multiplied by all the plan members taking chronic care and maintenance drugs in today’s aging population could save untold amounts if more universally applied.
Finally, advisors and the benefits industry in general must increase employee engagement in wellness initiatives. Anecdotally, we all acknowledge that an ounce of prevention more than trumps the proverbial pound of cure. The costs of encouraging and helping plan members to make better lifestyle choices is paid back in lower rates of disease and absenteeism many times over but is very hard to maintain.
Examples of the prevention and cure phenomenon can be found in your local fire hall. The number of fires experienced in North America has been on the decline for decades. Provincial and local fire codes, enforcement activities and public awareness campaigns have all resulted in lower incidences of fire-related calls. In fact, the majority of response calls for today’s fire departments are directly linked to health-related emergencies.
Because we’ve been educated and are now acutely aware of the risks of house fires, we are facing fewer fire events. But because we are still largely inactive couch potatoes, we’ve managed to keep our highly trained firefighters busy by saving us from the increasingly common two-alarm high-fat heart attack!
Advisors need to relate better to the business owner clients they serve and understand all the stresses and pressures they face. Yes, a comprehensive benefits plan is integral to the building and maintenance of a client’s functioning staff. But maintaining a perspective on the company’s current risk profile and the future risks yet to come, such as inflation, will go a lot further to maintaining that company’s fiscal health and well-being.