Are You Overspending on Benefits Your Employees Don’t Need or Want?

by Jim Taylor | Sep 12, 2019 | Employee Benefits

As we approach 2020, businesses are more concerned than ever with being scaled and built for profitability. Teams are leaner than ever, superstar talent carry greater workloads, and businesses that aren’t built for sustained growth are disappearing fast.

In that quest to trim the fat, controlling employee benefit overspend should be a major goal for all growing businesses. Even with responsibly scaled salaries, employee benefit offerings that aren’t well-selected can cause an organization’s compensation costs to balloon, significantly eating into opportunities for profitability.

Moving forward, we’ll explore:

• How benefit overspend can happen to any organization
• Why monitoring benefit overspend is especially relevant for growing organizations
• How to understand which benefits are actually beneficial
• How to bring finance, HR, and senior leadership together to make benefits work for everyone

Why Benefit Overspend is Such a Common Problem

Employee compensation is one an organization’s strongest tools when it comes to talent acquisition and retention. That means that the quality and value of your benefits program is indeed crucial to building a great team that’s fit, happy, and productive.

Unfortunately, however, scaling and aligning those benefit offerings is a complex task. In fact, compensation plan design is probably one of the most difficult tasks HR has to manage. That intimidation factor, paired with the fact that human resources professionals don’t always have the background in finance they need to correlate the direct connection between employee benefits compensation and the bottom line, is why benefit overspend happens in so many organizations.

More is Better, Right?

The biggest mistake businesses (especially new businesses) make when they design a benefits plan is trying to include every form of inclusive coverage and access to any valuable program. In the increasingly competitive war for talent, that kind of an approach can be attractive at face value, but year-to-year, it can become a burdensome anchor on business profitability.

Both benefits professionals and individual consumers frequently make the mistake of assuming benefits are like a stockpile of food for emergencies: it’s maintained in case you need it and provides peace of mind, but it’s not a part of your daily, weekly, or monthly life. If that’s your paradigm, then of course you’re going to assume more is better.

Here’s the truth, though: Impactful benefits programs aren’t the emergency food in the basement; they’re the dry and canned food in the pantry – they’re there for use in a pinch day-to-day. True “benefits” are the offerings that provide value, security, and convenience to employees’ and their families’ everyday lives.

Once you understand that, it quickly becomes clear that bigger isn’t better; usefulness and accessibility improve benefits programs.

Over-Emphasis on Industry Competition

One of the most common ways new or growing businesses fall into benefit over-spend is over-reliance on industry benchmarks to help guide their benefit plan design. While benchmarking is a great tool to help you understand and plan relatively fixed expenses like base salary, benefits packages must be scaled to the individual business and workforce.

Without an incredibly deep and granular understanding of your competition or goal competition’s complete financial picture, you can’t reasonably predict that their employee benefit practices will translate to success in your organization.

Studying the competition’s benefit offerings certainly has value and can inform your planning, but if it’s the main guiding light for your benefits program, you’re making the classic mistake of focusing on the competition rather than yourself. Finance, HR, and overall leadership must work together to articulate a vision of the business, its blueprint for success, and how benefits can be scaled to make that happen.

Lack of Understanding Means Lack of Alignment

Another classic mistake businesses of every size and sector make is that they create their benefits plans for a hypothetical team of theoretical employees instead of letting the real needs of their actual employees shape the process. While that can be quite difficult at outset, after a year or two of benefit program usage, you should have enough data available to create a rich understanding of what people within your organization need to build that daily health and security we’ve discussed.

If you’re not working to optimize your offerings to what people actually use, you’re likely creating or fostering overspend. At the same time, however, your benefits program must also answer and scale to finance goals. In just a minute, we’ll explore how you can leverage HR and finance help create that alignment.

Why Benefit Overspend is a Potential Pitfall for Growing Businesses

Early-stage businesses are incredibly dynamic, but that also means there is the potential for vulnerability. A disappointing quarter or behind-schedule development project can quickly erode a business’ profitability, and without the secure cash holdings of an established company, bloated employee benefits spend can turn into a big red number for a given financial term.

In order for an organization to grow continuously, with an expanding staff and increasingly complex human capital structure, an employee benefits program must account for not just costs at the program’s launch but of the way those costs might balloon, expand, or creep as the company grows. That means benefits plans aren’t just about the design that will land talent right now, they must be plugged into and built with short- and long-term financial and organizational plans in mind.

When benefits are well-scaled and well-aligned, they support an organization’s internal team, maximizing their ability to do great work while also maximizing the organization’s chances for profit as well as their ability to make informed financial projections. Finance leaders, HR leaders, and CEOs must come together to create that robust, clear vision, or they’re not really thinking about or planning for growth.

Defining “Benefit” in a Way that Makes Sense for Everyone

Increasingly, employers and employees alike are aware of the fact that employee benefits are actually an opportunity to create mutual benefit. The old way of thinking was that businesses offered benefits to be competitive and benevolent. Now, however, the cards are on the table, and people understand that part of the benefits game is keeping employees present and productive.

That doesn’t mean the pendulum has swung back and benefit plan design can be all about making the books look good, however. Medical care, prescription drugs, and hospital visits are only increasing in cost, and more people than ever have complex, potentially expensive medical needs.

Creating an approach to benefits that works for everybody and supports growth truly requires finding a balance between the needs of the actual people within your organization and the financial needs of the organization as a business. You can’t serve either purpose exclusively and expect to solve the problem in a satisfying way; both sets of values must be accounted for.

Understanding What People Really Need

As we’ve said before, one of the best ways to understand your actual organizational healthcare/benefit needs is to understand your employees’ actual healthcare/benefit needs. There are two main ways to do this: by asking them using surveys or other tools or by reviewing your carrier’s usage reports. The best approach involves using and weighing both.

Too often, employers are scared to talk to their team members about benefits because they’re scared all they’ll hear is that the programs aren’t good enough. While there’s sure to be a certain degree of that feedback, the discussion can also provide the best-possible understanding of what people actually want, need, and value. If you can get the buy-in you need to build an authentic data set, a lot of your most important questions can be answered for you definitively.

Those usage reports from your carrier will fill in the quantitative data to help you understand which offerings are most accessible and well-used (which, remember, means “valuable”). You can also build a very strong understanding of where the dead weight in your benefits program might be.

Understanding What the Business Can Bear

Once you have a strong grasp on your human needs, the next step is to determine what kinds of plans and packages your organization can reasonably offer. Obviously, the goal is to create packages that deliver consistent, satisfying offerings while still leaving yourself the best chance to predict and achieve business growth.

If identifying and eliminating overspend is your primary goal, this is really the most important point in the process. HR needs a clear picture of the finance goals so that they can create plans accordingly. At the same time, finance requires HR’s understanding of day-to-day employee needs in order to do their work in an accurate manner. Bringing those two data sets and approaches together can seem incredibly challenging at first, but it’s actually your best chance to get benefits right in a way that works for everyone.

Embracing the Push-Pull

The intersection of HR and finance can be tricky to navigate because both sets of professionals come from very different backgrounds and come equipped with what some might say are competing sets of values. With that said, they share the most important common ground of all: they’re responsible for setting up operations for success.

Getting your employees the benefits they need while keeping the business lean and scaled for profit and growth is a tall task, and frankly, no one person can make it happen. It takes a major commitment from leadership and a willingness between finance and HR to work together, plan together, and commit to seeing things through each other’s lenses (at least some of the time).

When your organization can articulate an approach that makes HR, finance, and the executive suite or boardroom happy at the same, that’s how you know you’re onto something really great.

Key Takeaways

Employee benefit overspend is rampant across business, and part of the problem is that many organizations don’t understanding how or why their approach to benefits isn’t aligned with their employees’ needs or business goals. In order to create impactful benefits packages that delight your team and drive business, it’s important to remember:

• More is not better when it comes to benefits because overspend can be devastating to potential profitability
• In early-stage or growing businesses, benefit overspend can be especially damaging
• Overspend usually happens because organizations either lack a strong understanding of employees’ actual needs or feel the need to offer exhaustive benefits in the name of competition
• To truly be “beneficial,” offerings must be impactful and see actual use
• When it comes to determining which benefits are actually essential, ground-level employees (and their usage data) are your best resource
• Part of getting benefits right is learning to manage the dance between humanistic priorities and business priorities

For CFOs: How Healthcare Consumerism Can Reduce Costs and Improve Employee Experience

by Jim Taylor | Aug 30, 2019 | Employee Benefits

As insurers and employers attempt to adapt to increasing healthcare costs, they have moved towards a model that encourages healthcare consumerism. The Affordable Care Act marketplace and the rise of high-deductible health plans mean that employees have more choices and more control over their healthcare expenses than ever before. Since employees have a larger role in controlling healthcare costs, employers should make a priority of guiding them towards becoming engaged and strategic consumers to reduce their own costs. At the same time, the trend towards healthcare consumerism can make a significant impact on a company’s bottom-line.

So what are the impacts of healthcare consumerism on your business’s finances and your employees’ healthcare experience, and how can you help your employees become responsible consumers? In this post we’ll explore:

• Why healthcare consumerism should be a priority for CFOs
• The cost/benefit analysis of healthcare consumerism
• How to help employees become responsible healthcare consumers through:
  • Plan design
  • Employee engagement in the healthcare process
  • Educating employees about healthcare options and best practices
  • Empowering employees by providing them with the proper tools and technology

Why Healthcare Consumerism Should Be A Priority for CFOs

Guiding your employees towards embracing their role as healthcare consumers and helping them become as informed and empowered consumers as possible should be a top priority for any CFO. As control over healthcare decisions and costs shift towards employees, so does power to reduce healthcare costs for employers. Which means that your employees become your greatest asset to reduce your healthcare expenses and manage your budget. Ignoring the healthcare consumerism trend can be extremely costly for employers as their employees will be ineffective consumers who incur unnecessary costs while achieving suboptimal health outcomes, thus decreasing their productivity and job satisfaction.

At the same time, consumerism itself is an enormous opportunity for employers. At its most basic level, it shifts costs from the employer onto employees as deductibles take the place of premiums and expenses are increasingly paid from employees’ health savings accounts. And as responsibility transfers from employers to employees, overall costs go down – especially within the context of increased consumer choice. Insurers and providers have to compete to win over employees’ business, driving down prices while increasing the quality of care where it matters most to consumers. The healthcare industry has to win over individual employees in their millions rather than a comparatively few number of employers, leading to more tailored solutions and disrupting the market to provide new cost-saving opportunities. Healthcare CFOs see consumerism as their number one business challenge and their challenge is your opportunity. They are striving to meet consumers’ needs and generating serious savings for employers along the way.

Looking at the issue from another perspective, healthcare consumerism saves companies significant time and effort because it allows employees to craft their own solutions and manage their own healthcare. Instead of having to assemble a health insurance plan that covers each employee’s needs, employers can work with their benefits brokers to create a range of options so that employees can opt into what works best for themselves and their families. This form of healthcare consumerism eliminates waste from unnecessary coverage and makes it easier for employers to provide their team members with the coverage that they need.

Cost/Benefit Considerations of Healthcare Consumerism

The potential savings from healthcare consumerism are significant, but that does not mean that there are no risks or tradeoffs. As for all major business strategies, you should consider the costs as well as the benefits of encouraging healthcare consumerism and guiding your employees to become better consumers before launching any initiatives.

Changing healthcare procedures is expensive, as is employee education and empowerment. Any major push to make employees more enlightened and engaged healthcare consumers might well be met with resistance by CFOs who are more concerned about their short-term bottom line.

There is also a risk that moves such as implementing HDHPs will be seen as attempts to reduce benefits and shift costs onto the employee. As such, it is incredibly important to approach these topics carefully and strategically, always focusing on the benefit to the employee. It is also another reason why tiered plan structures are a great idea because HDHPs are presented as an option rather than a mandate.

But it is much riskier to avoid adapting to healthcare consumerism. The market is moving towards a consumer-based model whether employers want it or not. So in addition to missing out on the benefits of healthcare consumerism we outlined earlier, failure to adapt can be extremely costly and result in worse healthcare outcomes for your employees. They will become healthcare consumers, but they will not be informed about their options and will incur unnecessary costs, avoid necessary care to cut expenses, and otherwise harm themselves and your bottom line.

How to Help Employees Become Responsible Healthcare Consumers:

Plan Design

The key to consumerism is choice, and your plan design plays an important role in this. To encourage your employees to become healthcare consumers and take control over their healthcare costs, you should work with your benefits broker to develop plan designs that give employees more control and more choice in their benefits selection.

The move towards consumer-driven health plans or CDHPs is at the heart of employee healthcare consumerism. These plans are generally high-deductible, but low-premium, plans (HDHPs) that are coupled with tax-sheltered or exempt health savings accounts. They reduce upfront costs for companies and employees alike and give employees maximum control over their healthcare expenses. Because employees mostly pay for the healthcare they use, rather than paying a high monthly premium, they will make more intentional healthcare choices. For example, they will be more likely to avoid high-cost options such as ERs and opt for cheaper alternatives like urgent cares centers or telehealth consultations.

But while HDHPs give employees control over their healthcare decisions and reduce costs for employers, they do not give employees choice when it comes to insurance decisions. Which is why many growing businesses choose to work with their brokers to develop a tiered insurance structure which includes more comprehensive plans with higher premiums. These plans also generally require employees to take on a higher percentage of the premiums. This way employees can opt to pay more upfront to avoid high-deductibles down the line, but employers still save. Providing insurance choices should be a part of any move towards healthcare consumerism.

Employee Engagement

For your business to reap the rewards of consumerism, your employees need to be aware of their role as consumers and engaged with their healthcare decisions. Otherwise, they will be unintentional and inefficient consumers.

The necessary first step to getting your employees to engage with their healthcare is to give them the ability to shape their healthcare costs and results. This entails offering consumer-driven health plans and often providing a tiered health insurance structure. If employees do not have choices, then there is no room for consumerism, let alone engaged and intelligent consumerism. But it is also not enough to simply provide them with choices: you have to give them the power to achieve positive results by offering them solutions that meet their needs. If you do not, and all of their healthcare options are unsatisfactory, then they won’t put much effort into choosing and will not become engaged consumers. And even if they try to, they will get substandard healthcare and savings results.

So a major focus of your employee engagement efforts should be to craft a healthcare approach that addresses employee concerns and needs. Your benefits broker can be an invaluable asset in developing healthcare options that increase employee engagement with the healthcare process. By conducting anonymous health risk assessments (HRAs) and employee surveys, they can identify demonstrated employee needs and ensure that your plans cover those needs. For instance, they might find that your employees need and value dental care but care much less about vision: these findings would allow you to reallocate resources towards dental and away from vision, creating healthcare options that attract employee engagement without increasing healthcare spending.

Once you have created a healthcare environment that is conducive to employee engagement, it’s time to work directly with your employees to get them to take control of their healthcare decisions. The first step is to educate your employees about their options and how to become better healthcare consumers. We will explore how to educate your employees and what benefits you can achieve from employee education in more depth in the next section, but it should be clear how important of a role employee education plays in healthcare consumerism. All of the healthcare options in the world will not increase consumerism if employees do not understand the options and are not armed with the information they need to choose between them.

In addition to education, you can also execute several strategies to increase employee engagement, including:

• HSA matching to encourage planning and move employees towards CDHPs
• Software solutions to make shopping for insurance and managing healthcare easy and accessible
• Hold healthcare events to educate and engage employees
• Offer wellness benefits to get employees thinking about their holistic health

Employee Education

It’s not enough to just get employees engaged in the healthcare marketplace: that might make them consumers but it will not make them intelligent, savvy consumers. That’s where education comes in. You should provide your employees with the resources they need to truly understand their options and best provide for their health while reducing healthcare expenses for themselves and you as an employer.

The good news is that healthcare providers and insurance carriers recognize the challenge that healthcare consumerism poses and are working to provide consumers with the information and tools they need to choose healthcare options. Which makes your job easier and saves you both time and resources.

Your greatest asset when it comes to employee education is your benefits broker. Unlike insurance carriers, brokers are truly your ally when it comes to reducing your expenses and providing your employees with the care they need. And some of the greatest contributions that brokers can make towards your business’s success come from employee education. They can provide the educational materials that inform employees about not only plan details that help them choose the best options for their health and wallets but also about healthcare best practices so that they can become the most effective consumers possible. They can also hold in-person events in your office, from forums and Q&As to one-on-one guidance sessions with your HR staff and your employees themselves. Your broker is an expert in the healthcare industry: let them use their expertise to educate your employees.

That being said, you still have an important role to play in employee education. Beyond engaging external resources to give your employees access to education, you should maintain consistent communication with your employees about their healthcare options, the tools available to them, and any changes to their benefits. Your employees will have peace of mind and be more able to make intelligent healthcare decisions and leverage the assets available to them. It is also vital that you communicate with them year-round rather than in the lead-up to open enrollment to reduce the pain and expense of open enrollment for everyone involved.

Empowering Employees

Once you have given your employees the insurance options that maximize their role as consumers and the engagement and education that makes them informed consumers, it’s time to provide them with the tools they need to become empowered consumers. There are more options than ever to manage healthcare and reduce expenses, and your broker will likely have connections with trusted providers who can give you these tools.

There are two major categories of cost-reducing tools that you should use to empower your employees. The first is telehealth, which over a quarter of employers currently provide and 96% of employers plan on implementing. The advantages of telehealth are significant: not only do digital consultations cost less than a third as much as traditional doctor’s office visits on average and divert employees away from extremely expensive trips to the ER for on-demand advice, telehealth also reduces absenteeism and increases productivity by allowing employees to access the care they need more quickly, easily, and without missing work to do it.

The second tool you can use to reduce healthcare costs for your employees and your company is a pharmacy savings card. Programs like CleverRX allow employees to purchase prescription drugs at a negotiated rate that is frequently lower than their copays would be. In fact, 80% of consumers could save money using one of these cards. Pharmacy savings cards are just another example of how providing your employees with as many choices as possible helps them become empowered, cost-cutting consumers.

Software platforms should also play a part in your empowerment initiatives. Healthcare management apps like HealthiestYou allow employees to access plan information and health guidance, shop for providers, review pharmacy options and rates, and even receive telehealth consultations all from one centralized platform. At the same time, open-enrollment platforms can make it easier for employees to make smart insurance decisions and cut through the red tape that makes employee engagement a challenge. Online employee benefits portals help employees manage their healthcare, reap the rewards of the benefits you spend so much to provide them (increasing employee engagement and retention), and access educational materials.

Key Takeaways

Healthcare consumerism is a powerful force that can have a huge impact on a company’s bottom-line and on employees’ healthcare experiences and outcomes. As such, encouraging consumerism and helping employees become better consumers should be a serious priority for CFOs at growing businesses. Just remember that:

• Your plan design should allow employees to manage their healthcare costs through HDHPs + HSAs, and also provide them with a range of insurance options
• Engaging employees in their healthcare decisions is the first step in guiding them to become responsible consumers
• Employee education allows employees to make strategic decisions regarding their insurance plans, healthcare, and health behaviors
• Tools and technology such as telehealth, pharmacy savings cards, and enrollment software empowers employees to reduce costs while receiving the care they need

While healthcare consumerism is an enormously powerful tool to reduce costs, it is best used as part of a broader strategy to reduce healthcare expenses. We will be holding a webinar on how to reduce healthcare costs at your growing business on September 19^th at 11:00am CST. Join industry experts including Jack Diamond of Teledoc, Brett Cunningham of CleverRX, and our very own Alex Koglin to learn how to manage your healthcare expenses while providing your employees with the best healthcare possible. Register today!