De-risking your benefits program

Inadequate coverage
A benefits program is broadly intended to protect employees and their families from the financial consequences of ill-health, disability and death. If the coverage is poorly designed and inadequate, it may put the plan sponsor in a difficult position.

For example, an employee passed away within days of starting the job and he was not yet eligible for life insurance coverage. The employer, in this case, decided to pay the benefit out of pocket because of a moral obligation to the deceased’s family. However, there would be no legal obligation to do so.

Unintended promises
The benefits promised are often articulated in a number of places—the group insurance contract, the collective bargaining agreement and the employee handbook or benefit enrollment material— but unfortunately, it is often inconsistent, incomplete or vague. This can lead to unintended promises.

The plan sponsor may be put in a position of defending their position in court, going through a grievance process or simply paying a claim that was never intended to be covered.

Unexpected costs
The benefits environment can produce unplanned costs—the changing healthcare system, for instance. Without clear, up-to-date definitions of what the plan covers—and what it does not—experience cost creep.

Most employers routinely assume costs downloaded from provincial health programs but, better contract wording could, at a minimum, reserve their right to refuse coverage.

Uncontrollable costs
The cost of many aspects of the plan will continue to escalate, and few sponsors model the potential impact. A surprising number of plan sponsors have not considered the future impact of high-cost medications on their extended health plan costs and what they might do to mitigate their future exposure.

Identifying and anticipating the uncontrollable costs would help identify the tipping point to turn self-insured plans into fully insured arrangements, or to make plan design changes.

The cost of administration/communication errors
Mistakes happen. They are often innocent administration errors, but sometimes with significant financial consequences. Lost or misplaced enrollment forms are a common error.

When a claim is filed by the un-enrolled employee, more often than not, the sponsor digs into their pocket to pay. Communication errors can be equally as problematic if inaccurate or incomplete statements are made, which can lead to a misrepresentation of the benefit promise to employees.

Reputational Risks
A well-designed and appropriately delivered benefits program can enhance an employer’s standing with employees and their families. The rules of customer service tend to apply: when employees have a good experience with the plan or its delivery, they will tell one other person. When they’ve had a bad experience, they will tell 10 people. A poorly designed program with problems in its delivery can damage an employer’s credibility—both internally and externally.

De-risking your benefits program starts by understanding the exposures in your plans and applying best practices to mitigate them. There are far too many plan sponsors that believe their liability is covered by the premiums that they pay and that at the end of the day “it is just insurance.”

Insurers, by definition, are experts on risk. Now, more than ever—driven by economic pressures and shareholder demand—insurers are exercising their expertise at risk mitigation to manage their own businesses. It is up to the plan sponsor to understand and mitigate their own plan risks.

Here are some key steps in de-risking your benefits program.

• Documentation review: Pull all the documentation related to your benefits program together and assess what you have. Identify inconsistencies and vague descriptions that could lead to unintended promises. Also make sure your documentation anticipates changes in the legislative environment and protects your plans accordingly.

• Funding review: Review the basis on which your plans are funded or underwritten on a regular basis. The underwriting basis of the benefits program needs to reflect the risk tolerance of the organization together with the ability to pay unexpected costs. New funding alternatives as they emerge, such as the Employer Life and Health Trust, should also be considered for fit.

• Articulate roles and responsibilities: There are a number of individuals involved in the appropriate management of a benefits program. These roles need to be clearly articulated together with their accountabilities.

• Administration review: Well-defined administrative processes and HR effectiveness reviews can help to reduce these errors. If it is a resourcing issue, there are alternatives available.

There will always be risks related to the provision of employee benefits. However, a well designed, well funded and an appropriately managed benefits program can significantly reduce these risks and maximize a plan sponsor’s return on investment.