With COVID-19 making nearly every headline, benefits administrators and plan sponsors are seeing dramatic changes in emerging trends around group benefit plans. While some trends are on the rise, such as virtual healthcare and pharmacy-by-mail, many organizations have also been forced to seek cost-cutting measures, revealing an opportunity to review group benefit plans on a deeper level.
Often times, the knee-jerk reaction is plan design cuts, however cutting costs does not have to mean reducing member coverage. With the right benefits advisor, plan design changes can be one of the last considerations.
Continuum of cost containment
Changes to group benefit plans range from very effective and non-intrusive to those that have the greatest impact on employee satisfaction.
For cost containment, best practice is to aim for actions on the left side of the continuum; those that have the highest potential savings and are the least intrusive to employees. Examples of these include changing to funding models like administrative services only (ASO), introducing managed formularies for drugs, and completing a deep dive on your drug utilization. The next best ideas are those where employers can still achieve some savings while maintaining employee satisfaction, such as negotiating administrative fees and long-term rate guarantees, and introducing mail-order pharmacies.
On the right side of the continuum are actions that cause the greatest impact to employees and should be avoided where possible. Some of these options may have cost savings, but should be considered as a last resort, namely benefit reductions. This includes cutting life coverage from 2x to 1x, introducing higher deductibles or copays to health and dental, or introducing a hard drug cap. There are also fruitless ideas that can upset employees due to perceived takeaways, and have minimal impact on costs. Examples include reducing scaling units and/or dental recalls, removing semi-private or private hospital care, and reducing dental maximums.
Six best practices for cost containment
1. Change funding models on health and dental
Many employers don’t know that they can purchase health and dental in different ways. A popular method is called non-refund accounting or fully-insured, in which an employer pays a set rate for a given period (usually 12 months). No matter what they claim in this period, the premium does not change. However, these rates tend to be higher than necessary and often result in insurer profit. Where claims increase, usually the premiums increase more drastically the next year.
Many organizations have made the switch to administrative services only (ASO), whereby they take responsibility for covering the cost of routine claims, plus a fair administration fee. They also purchase stop loss to ensure that an insurer will cover them for any high drug claims over a given amount (usually around $10,000 per year per employee). When moving to ASO, employers generally reduce costs on a permanent basis.
Interestingly, for the period of March 3 to April 30, 2020, health and dental claims reduced drastically. For those clients that are already ASO, the impact of COVID-19 on their costs was even more pronounced.
2. Market your pooled benefits
After moving health and dental benefits to an ASO funding model (maximizing savings), you can focus on other non-intrusive cost savings measures, for example, taking life and LTD benefits to market. Canadian insurers will compete aggressively to provide competitive rates. You should target 10 to 20 per cent savings on pooled benefits like Life and LTD, as well as a long-term rate guarantee.
3. Risk management
It is important to understand the inherent risk inside your health coverage. The vast majority of risk to plan sponsors is due to your unlimited drug coverage. Most plans have a cap on every other benefit (e.g., massage $500/year, etc.). Therefore, you need to ensure that you have best-in-class insurance primarily for high drug claims. By adopting risk management best practices, you can greatly reduce your overall costs while ensuring employee coverage is not affected.
Three strategies to reduce risk include:
- Improve the quality of your stop loss, such as from per member to per certificate
- Add a drug cap, that is, a hard maximum on your prescription coverage (such as $10,000/year)
- Shift high drug costs to other payers:
- Spousal plans
- Drug manufacturers
- Provincial governments
4. Introduce a wellness program
Preventable disabilities are the top cause of lost productivity for Canadian employers. When there are fewer disabilities, injuries, and chronic diseases within your workforce, there will be lower health care costs. Among employers who have offered mature wellness programs, more than half saw a decrease in absenteeism and 66 per cent reported an increase in productivity. By including health education, health coaching and incentive programs you can have a direct impact on the future state of your costs.
5. Introduce preferred provider networks (PPN)
PPNs are providers and retailers that are recommended by the employer because there are either embedded value-adds for employees or reduced costs – or both. Ask your consultant to provide you with a list of available PPNs through your current providers and those available outside as well. Communicate those PPNs to your employees to promote good consumer behaviour and reduce long term costs.
6. Evaluate your group benefits consulting firm
Sometimes organizations will rely on group benefits plan advice from those who aren’t experts in the field, such as brokers and consultants whose expertise lie in financial planning or commercial insurance. And even when the consulting firm does specialize in group benefits, it’s valuable to evaluate the approach of other leading firms.
By taking a deeper dive and analyzing your group benefits plan, you’ll find there are many options available to organizations who are trying to cut costs, and with very minimal employee impact. A trusted and experienced group benefits consultant can save you significantly in both time and money going forward by recommending and implementing the solutions which are right for your unique situation.
Written by Jeffrey Stinchcombe, Partner at People Corporation.