A focus on containing—or even cutting—benefits plan costs is nothing new for employers, especially given the increases in drug costs and other benefits in recent years. However, the recession has turned that focus into near desperation for some organizations. The pressure is on to balance financial demands and workforce needs without sacrificing employee engagement—all as the war for talent begins to heat up again.
A few years ago, even in the face of escalating benefits costs, employers would have economized in a number of other areas before they touched their employee benefits plans. Employers that were turning significant profits were reluctant to reduce benefits for fear of facing employee backlash and losing ground in the talent war. And at the start of the downturn, organizations were still remiss to tamper with benefits. In a Hewitt Rapid Response survey conducted in December 2008, 80% of respondents had no plans to reduce their medical, dental and disability benefits plans.
However, with the sustained downturn and the business re-engineering process that has occurred as a result, that hands-off attitude is no longer an option for many employers. Organizations can’t afford not to look at their benefits programs; they need to weigh costs against needs and find ways to maximize the return on their investment. The downturn has become the backdrop for organizations to make changes—in some cases, changes that really should have been made sooner.
Think big picture
When reviewing an employee benefits arrangement, it’s necessary to understand the organization’s short- and long-term business objectives. This is essential for framing an approach to design, as well as for determining key messages in the communications material. For example, is the organization benchmarking costs to a budget as a percentage of payroll or is it benchmarking the competitiveness of the plan design? Is it looking for equitable cost-sharing with members and/or cutting back on expensive, unsustainable design elements? From a longer-term perspective, what are the goals for the plan in the future, and how different is that from its current state?
In a 2009 Hewitt survey, Flexible Benefits in Canada, 31% of respondents said their organization covers 100% of the cost increases annually for extended healthcare and dental plans. However, this approach may not be sustainable with inflationary costs rising in these plans.
When making decisions about benefits plan design, many employers consider their programs within the context of their broader total rewards package. Employers may decide that if salaries are competitive, they can risk providing fewer bells and whistles in their benefits programs and vice versa. If trade-off decisions need to be made to rebalance the distribution of the existing budget, should the organization be the one making those decisions or should the employees make them in a total flexible rewards approach?
If compromises are necessary, it’s imperative that employees fully understand the value of their total rewards. Annual statements and online reporting tools provide the big picture so that employees can see the cash value of the various components.
Collect and benchmark data
Many organizations view competitive benchmarking as a key step in the decision-making process. Sophisticated valuation tools can help facilitate the apples-to-apples comparison of plans based on relative values, and blending this with cost-competitiveness starts to build interesting groundwork. For example, if an organization’s benefits plan falls in the middle of the pack in its industry but its costs are equivalent to the plans that rank the highest, it’s critical to investigate the reasons.
Another key area to review is provider arrangements. Doing so will ensure that underwriting and renewals have provided optimal costs for the coverage selected. Could an organization take on more financial risk in order to save on insurance costs? How do insurer charges compare when benchmarked against those of similar organizations? Are claim adjudication and disability management practices appropriate for managing costs? Could a better renewal deal be negotiated?
Once external data are collected, it’s time to move inside the organization. The best way to know whether or not the benefits programs are meeting workforce needs is to ask the employees. Sophisticated online tools can help plan sponsors to do the following:
- measure the perceived value of various benefits;
- identify gaps between actual and perceived competitive value to pinpoint targeted follow-up actions;
- assess employee understanding and value perceptions of the overall benefits program;
- determine the benefits that are most important to employees;
- gather employee feedback regarding trade-offs; and
- segment perception data by factors such as geography or business division to detect important variations in the employee population. These differences can drive design concessions and the communication rollout process.
Even if organizations don’t adopt these sorts of measures, they can certainly gather employee feedback through engagement surveys and/or focus groups. Even less formal discussions can be useful, provided that they include various employee groups.
Many organizations have additional information readily available to help them further gauge the effectiveness of their employee benefits programs, including drug plan utilization data, employee assistance plan usage information, disability statistics, absence figures and health risk assessment responses. Most service providers have a wide array of data-reporting capabilities to support them.
Communicate value
Once you’ve aligned your benefits plan with your organization’s current and future objectives, creating a solid communication strategy is the ideal way to ensure that plan members hear the key messages, understand the impact of changes and appreciate the true value of the benefits they still have.
There are a number of ways that organizations can reinforce the value of the total rewards package. One approach is to make total rewards more accessible. Hewitt research finds the most common complaint from employees is that they don’t know where to find information about how best to use their benefits and other services. Sometimes, they don’t even know they have certain benefits, such as flexible spending accounts or pension plans.
It’s hard for employees to appreciate a benefit if they don’t know it exists or can’t find information on it. Offering a one-stop online benefits resource is an effective way to alleviate this problem. Creating a benefits “hub” website—where employees can log in to access tools and checklists and view transactions for all of their benefits in a single place—is a great way to give them the information they need to value what they have.
Feedback from surveys and focus groups indicates that employees find personalized communication extremely valuable. They especially appreciate statements, both in print and online, that quantify the big picture of their pay and benefits. At a time when employers probably won’t be adding benefits, reminding employees about what they do have can be a key retention and engagement tool.
Another innovative benefits communication technique that is becoming popular, especially among flexible benefits plans, is to treat employees like customers. This isn’t much of a stretch: employees already make decisions about what they buy, how valuable their benefits are and which “products” best suit their needs, just like other consumers. When communicating benefits information to your employees, consider the following principles.
Focus on the specific behaviour that has to change. What should employees stop doing, start doing or do differently? Is the objective to increase active benefits enrollment, improve wellness or have employees take some other action? The answers to these questions should drive your communication strategy.
Segment the employee population and aim for the target audience. Employers should think about messages, visuals and delivery techniques that will get their points across to the people who matter the most. For example, messages about prostate cancer screenings or mammograms have the most relevance to those they affect directly.
Keep it simple. Annual enrollment is not the time to tell employees about the 100 other things they should remember about their benefits during the year. Communications at annual enrollment should focus on achieving a clear outcome. What specific actions (no more than three) should employees take during annual enrollment? Organizations should concentrate on these items and then use the rest of the year to drive home other messages, such as the importance of wellness.
Using social media to help employees understand and appreciate their benefits is another technique that is starting to catch on. Employers are now exploring how to incorporate social media into benefits and compensation communications—for example, using Twitter to allow employees to get information quickly during annual enrollment. Smart organizations have been using the Web to reach out to employees and potential recruits for some time, and many have used social media to communicate their brands.
Times are indeed changing, and the recent economic plight may have provided the impetus that many employers needed to take a more strategic approach to benefits plan design and communication. The end result may well be benefits programs that are better aligned with business objectives—and that are better understood and appreciated by employees.
Maureen Simons is a senior communications consultant and Paul Stephens is a senior health management consultant with Hewitt Associates.
maureen.simons@hewitt.com
paul.stephens@hewitt.com