Is the Sky Falling?

The dilemma for many organizations is that while cost savings are important to the short-term financial viability of the organization, however, these must be achieved within the context of a growing labour shortage. Despite the recessionary pressures currently being felt in the economy, the longer-term prognosis for the Canadian economy has not changed—we will have a shortage of skilled workers in this country. The issue of attraction and retention has not gone away—the rules of the game have just changed slightly. It is no longer attraction and retention at any costs and it will take planning and creativity for employers to successfully navigate through this new landscape.

We know one thing for certain: employee benefits costs will increase in the near term. Increases will be exacerbated by a combination of higher plan utilization and a general retrenchment by the insurance industry. Experience from previous economic downturns has demonstrated that benefit plan utilization often increases as workers become concerned about job stability. Spikes in healthcare, dental care, vision care and even disability claims are quite common as employees attempt to maximize benefits coverage while still employed. This increased utilization then translates into higher premium costs.

It is also not uncommon for the insurance industry to adopt a more conservative approach in the underwriting of certain benefits—being more selective about the type of risks it is prepared to insure and at what cost. And, in today’s relatively low interest rate environment, this reduces the investment return earned on capital assets which is in turn reflected in higher premium rates. Put all this together and benefit costs will likely increase more than we might have predicted before the credit crisis hit.

So, what can employee plan sponsors do to deal with these increased benefit costs? Well, first and foremost, it starts with a plan. While it is easy to look at the amount spent on employee benefits as a cost, it is really an investment—an investment in the long-term viability of the organization. Short-term sacrifices might be necessary, but an engaged and healthy workforce is an essential component in every organization’s future success. Eliminating benefits today may reduce costs but at what price? Plan sponsors must balance the actions they take today with a longer-term view of their human capital investments—to weather the current storm but also position itself for future growth.

There are many tactical strategies that an organization can take to reduce benefit costs in the short term but the truly successful organizations will do so while continuing to differentiate their work environment in a positive way. And this will take some creativity and innovation. It is easy to increase a deductible or to reduce benefit levels but these would be considered relatively intrusive and therefore not well received by employees. Why not look at the cost of the delivery of certain benefits by entering into preferred provider arrangements with the community pharmacist or dentist? Health care spending accounts have tremendous potential to cap benefit expenditures while adding plan flexibility and there are creative ways to generate the funding for such accounts.

And, if employer sponsored benefits coverage must be reduced, consider how this coverage could be supplemented through a wide array of individual insurance products available in the marketplace. It may be tempting to reduce and/or eliminate investments in corporate wellness or health promotion but it doesn’t have to be the case. There are plenty of “free” services available within the market either as a value-added service provided by insurers or a public service provided by government agencies. Package up these services to maintain a commitment to the health of your employees and their families.

Regardless of how an organization chooses to manage benefit costs in the short term, an effective communication strategy can help to deliver the message while minimizing any negative fallout. The majority of employees appreciate transparent and honest communication during tough economic times and with knowledge of the “table stakes” they are often willing to help. Understanding the issues and the tough decisions to be made may not make things any easier but it may cultivate a sense of “we’re all in this together” and actually improve employee engagement.

So is the sky falling? Clearly not, but for many industries in Canada, the road ahead will be challenging and sacrifices will need to be made. Care must be taken to not indiscriminately cut valuable human resource programs such as benefit plans if the outcome will be a demoralized and disengaged workforce. The challenge is real but the opportunity is to do so in a way that further differentiates your organization from others within your industry and positions your organization for growth.