The composite Open Enrollment Readiness Benchmark score for January was 34 out of a possible 100.
While advisers might be tempted to attribute this poor showing to the fact that most organizations are only a month or two out from having completed their most recent benefits sign-up period, what should really grab their attention is that the activities related to plan design received an aggregate score of just 53 (large employers, as a group, scored just a 47). This means that the majority of the more than 400 employers included in the most recent OERB survey feel they are already lagging behind in designing next year’s benefit programs.
Designing a benefit plan is the first, all-important step in what most advisers say should be a 12-month process to prepare for open enrollment. Plan design is critical because it allows an adviser to frame the benefits discussion in terms of the client’s business priorities. On average, employee benefits account for 9% to 11% of a company’s operating expenses, making them the firm’s second- or third-largest line item. Yet nine out of 10 employers have never even considered how their benefit package can support their business strategy.
“This is the perfect time of year for an adviser to have a strategic discussion with clients about why they offer benefits in the first place, what they’re trying to accomplish with their benefits offering, and whether their plan and the way it’s currently designed meets their strategic goals,” says Jack Kwicien, a managing partner at Daymark Advisors, a Baltimore-based consulting firm that works with benefit advisers. “This gives them time to think about the plan design well in advance of the upcoming year’s renewal.”
The first major consideration when designing a benefits plan is whether the employer wants to change carriers or—even more radically—move from a fully insured to a self-funded plan. “Many employers have been risk averse and reluctant to consider self-funding,” Kwicien notes. “But healthcare costs have gotten so high that they are becoming much more receptive to the idea.”
To control costs, the employer may also be willing to take more of a carrot-and-stick approach with its employees. To encourage greater participation in the company’s wellness program, for example, the employer could offer larger premium subsidies to employees who enroll, while those who demur would be asked to cover a greater share of their health costs.
During the strategy session, the adviser should help the client articulate the key reasons it offers a benefits package in the first place, and Kwicien notes that these will differ according to the nature of the client’s business and the makeup of its workforce.
For instance, an employer that runs a warehouse operation is likely to pay most of its employees on an hourly basis. The wages will be relatively low, and the company will continuously look for ways to automate more job functions and lower its cost of doing business.
In comparison, a healthcare concern requires highly paid knowledge workers, whom the employer views as a competitive advantage. To thrive, the company will constantly seek to recruit the best talent in the marketplace.
Owing to the different nature of their businesses, the two employers in Kwicien’s example should take entirely different approaches to designing their benefit plans.
The warehouse business will look to manage down its health costs and shift the expense over to the employees to the extent possible. The employer will also be inclined to remain fully insured but to increase the deductible. The company is unlikely to embrace an HSA, because its employees may not understand how it works, and it doesn’t want to take the time to explain it to them.
The healthcare employer, on the other hand, wants to use its benefits plan to attract and retain the best talent. A company like this is much more likely to adopt a self-funded plan or a higher-deductible program with an HSA, because its employees are much more likely to understand how the latter approach can work on their behalf. Such a firm is also much more likely to make use of tools like benefit portals, given that its workforce has access to and a preference for technology.
“The adviser should tailor the plan design to the specific employer,” Kwicien emphasizes. “This isn’t a cookie-cutter approach. This is understanding the client’s business operations, the demographics of its workforce and what it’s trying to accomplish with its benefits plan—and then constructing a plan that serves those requirements.”