Where’s the empirical data which shows the savings over the long term?
Spring is in the air and we’re seeing new growth everywhere. A brightness after those long grey months of winter. With the change of season, so too comes the look on the other side of the fence where the grass looks greener than yours.
When it comes to benefits, this typically involves price.
Without a doubt providing benefits is a significant cost to employers. That may be why, according to statistics that less than half of Canadian employers provide their employees with some form of pension and/or savings program. When combining the legally required benefits of CPP/QPP, Employment Insurance, in addition to private plans, employers may be investing upwards of 10% of gross payroll.
It is not surprising that employers are looking to save money in the benefit area, but given, according to national studies that the average annual increase is around 6.2%, is it realistic?
According to Statistics Canada, from 1998 to 2021, the average hourly wage grew from $24.47 to $30.03. But worked within that number are your first into the workforce, under the age of 24, part-time, casual, and gig workers. If wages are on the rise, need, and plan utilization on the rise, moving insurers/benefit providers to simply save on a one-year rotation does not align with long term business strategy.
Like it or not, insurance companies are FOR PROFIT businesses.
· Their business is to assume and diversify insurable risk.
· Most insurance companies generate revenue by:
o Charging premiums in exchange for covering the “risk”
o Reinvesting premiums so they have enough to pay the expected claims on that risk and earn a profit
· Their day to day product is paying claims
o Process
o Check it for accuracy
o Submit payment
o All the while being diligent to filter out fraudulent claims to minimize the risk of loss
Data makes the difference
Where’s the empirical data which shows companies “switch” or move benefit insurers for the sake of perceived savings every couple of years that they actually gain on their investment? Asked another way, are companies that move insurers farther ahead in the race for better rates than those who do not?
There always seems to be a carrier willing to “buy” the business. A typical situation is the 20% savings over the current rates with a new provider and the company moves. Assuming that the plan is actually an apples to apples change, where all current usage and trend patterns have been disclosed, and there is no loss of existing coverage, what is the cost of the move outside the rates and how does the plan respond at the first renewal?
· People don’t typically respond well to change and all of the employee’s existing practitioners, will need to be informed of the new information and change.
· New learnings on technology and access, claims administration, not to mention common dependent errors.
· Because the reserves have not been carried forward to the new provider, those need to be re-established at the first renewal, which can typically impact the renewal by 15%.
· Employee claims are typically higher the first year of new coverage than they are when they are more comfortable with plan parameters.
· Moving providers year over year, or even every couple of years removes your ability to effectively negotiate the renewal. Like your own business, you will strive harder to RETAIN long term customers verses those clients that churn every couple of years.
In-house Case Study (randomly selected, not unique)
100% Extended Health Care
· 100% Pharmacy (unlimited maximum) and no deductible
· 100% Health Care
· $500 Paramedical per person, per practitioner
· Travel
· 24-month survival benefit
11-staff company plan
· Year 2000: Single cost $36.66 | Family $70.79
· Moved benefit insurers three times.
· Year 2022: Single cost $122.67 | Family $338.02
· Average annual increase 15.2%, over 22-years
24-staff company plan
· 2001: Single cost $35.66 | Family $92.49
· Never moved benefit insurers.
· Year 2023: Single cost $90.54 | Family $238.32
· Average annual increase 7.125%, over 22-years
62-staff company plan
· Plan design established in 2011 with little change since.
· Never moved benefit insurers.
· From 2011 to 2023:
o The plan has decreased 6-times.
§ Average decrease 4.6%
o One year no change in rates
o The plan increased 4-times.
§ Average increase 5.9%
· 2011: Single cost $72.71 | Family $181.46
· 2023: Single cost $73.90 | Family $184.39
· Actual increase 1.62% in 12-years
Best Practices
When considering a benefit package, consider it from a best practices point of view:
· Corporate budget
· Tax advantage
· Compensation alignment
· Culture endorsement
· Employee engagement
· Increased productivity
· Emotional wellbeing
· Talent retention
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