Four Short-Term Strategies to Cut Benefit Costs
September 19, 2013 – Article Featured in Benefits Canada Magazine
With the cost of benefits rising at roughly 6% per year, according to the Conference Board of Canada, the most cost-effective programs are those that are constantly analyzed with the degree of detail necessary to offset such trend.
Over the long-term, premium reduction is best accomplished through proactive health and wellness initiatives. However, there are several proactive cost reduction strategies that can be easily implemented in the short-term, without eliminating coverage or shifting costs to employees. Highlighted below are four key short-term strategies:
1) Contract Review
The increased complexity of benefit contracts has made switching carriers potentially very costly without the proper due diligence of the fine print.
For example, a large IT provider switched carriers to enjoy attractive savings. The new stop-loss protection of $5,000 per person was discovered to include an “annual” review provision, which was significantly different than the “initial” review previously in place. This now meant that the employer would have to cover recurring claims above $5,000. Statistically, first year drug claims have a 58% recurrence rate in year two, according to a Great-West Life survey.
Takeaway: If it sounds too good to be true, then it usually is. Always ask your consultant to highlight plan variations.
2) Waste Management
Premiums are paid to ensure coverage for low-cost, high-occurrence claims as well as low-frequency, catastrophic claims. Unfortunately, situations exist where premiums are paid for benefits that will never be collected.
For example, a mid-size IT provider saved 4% per year, in wasted dollars after eliminating premiums for LTD benefits employees were not eligible for based on the 85% all source maximum rule. Regulation states that disabled employees are not to receive more than 85% of net income, from all sources. If the group disability program is to pay 66.7% of salary tax-free, payouts for salaries above $70,000 will surpass the 85% threshold. The employer is wasting money and the employee is under false assumption, leading to a potential lawsuit.
Takeaway: Properly integrate with government and individual coverage offsets.
3) Fraud Detection
Most fraudulent activities are with regard to elastic stockings, orthopedic shoes, and massage therapy. Until such time that benefits fraud is met with higher penalties it will remain an issue.
For example, a large wholesaler regained control of unrealistically high massage therapy claims by eliminating online claims submission. Online claims are subject to a random audit requiring the original receipt to be mailed. If employees are unable to provide a receipt, the penalty is typically the denial of online privileges—which is nothing more than a slap on the wrist.
Takeaway: Analyze claim patterns in detail with your consultant to highlight any abnormalities warranting further investigation.
4) Time Management
Many employees will agree that career advancement, job fit, and company culture are some of the main reasons for choosing to join or stay with a company. A benefits program should run smoothly so HR professionals can focus on enhancing those elements of their organization.
For example, by offloading all day-to-day benefits issues to a consulting team, an HR director was able to focus on facilitating employee career advancement initiatives, evaluating employee job fit, and strengthening corporate culture. The end result was a reduced turnover rate by 20% in one year.
Takeaway: Maximize efficiency by leveraging your consultants for day-to-day support.
Implementing these four short-term strategies will help make your benefits program sustainable over the long-term.
Peter Demangos MBA, CFP, CLU, is the Managing Director at PDF Financial Group Inc. firstname.lastname@example.org