Four short-term strategies to save on benefits plan costs
Benefits costs are rising at 6% a year, according to the Conference Board of Canada. To offset this trend, plan administrators must find ways to contain costs without sacrificing value for members. In the long run, premium reduction is best achieved through proactive health and wellness initiatives. But employers can introduce certain cost reduction strategies in the short run without eliminating coverage or shifting costs to employees. Here are four options.
1. Understand contracts
The complexity of benefits contracts can make switching insurance carriers costly, unless you read the fine print.
Case in point: A big IT provider changed carriers to reduce benefits costs. But the new stop-loss protection of $5,000 per person included an annual review provision, quite different from the initial review previously in place. This meant the employer would have to cover recurring claims above $5,000. (First-year drug claims have a 58% recurrence rate in the second year, according to Great-West Life figures from 2009.)
Take-away: If it sounds too good to be true, it usually is. Always ask your consultant to highlight plan variations.
2. Manage waste
Premiums are paid to ensure coverage for low-cost frequent claims and rare catastrophic claims. However, premiums are sometimes paid for benefits that will never be collected.
Case in point: A mid-size IT provider saved 4% a year by eliminating premiums for long-term disability benefits that employees were ineligible for, based on the 85% all-source maximum rule. (Disabled employees cannot receive more than 85% of net income, from all sources. If the group disability program pays 66.7% of salary tax-free, payouts for salaries above $70,000 will surpass the 85% threshold.) In this case, the employer was wasting money, and employees had a false assumption that they would get the full 66.7% of their salary tax-free, leading to a potential lawsuit.
Take-away: Properly integrate your firm’s benefits with government and individual coverage offsets.
3. Detect fraud
The most common types of employee benefits fraud are using massage therapy and buying elastic stockings and orthopedic shoes. Until benefits fraud is met with bigger penalties, this will remain an issue.
Case in point: Online claims are usually subject to random audits, asking the employee to mail in the receipt. If the employee cannot provide a receipt, the penalty is typically denial of online privileges—nothing more than a slap on the wrist. A big wholesaler recently scaled back unrealistically high massage therapy claims by eliminating online claims submission for paramedical services.
Take-away: Analyze claim patterns to highlight any abnormalities that warrant investigation.
4. Prioritize time
Career advancement, job fit and company culture are among the most important reasons that employees join or stay with a company. A benefits program should run smoothly so that HR staff can devote more time to improving those elements.
Case in point: By shifting all daily benefits issues to a consulting team, an HR director managed to spend more time on facilitating employee career advancement, evaluating job fit and strengthening work culture. As a result, the turnover rate declined by 20% in a year.
Take-away: Maximize efficiency by using your consultant for daily support.
Taking these short-term steps will make your benefits program sustainable over the long term.
Peter Demangos is the founder and managing director of PDF Financial Group Inc.
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