At Launchways, we pride ourselves on working closely with
each individual client to identify their workforce’s unique needs, navigate
their business model’s unique challenges, and leverage emerging best practices
to help them create employee benefit packages that truly support their workers
without breaking the bank.
As we near the end of 2019, we’ve been reflecting on the
most common client challenges we saw this year, and we’ve decided to share this
list of the Top 11 Employee Benefit Challenges Facing Today’s Businesses.
Here are the most pressing challenges we see assist our
clients with on their employee benefits programs:
Rising Healthcare Costs
Doctor visits, prescription drugs, and medical procedures
are more expensive than ever before, and it’s difficult to envision that
paradigm reversing in the near future. Media coverage surrounding healthcare
costs does a good job illustrating the impact on individual patients, but the
increased burden on businesses often goes unvoiced.
Every business wants to support their employees’ and their
families in times of personal and medical need, but the incredible costs
associated with certain long-term courses of treatment is causing some
businesses to feel nervous about the financial impact of offering comprehensive
coverage.
These tensions reinforce why it’s so important to partner with
the right employee benefits broker who you know is working in the best interest
of both your employees and your business to deliver maximum benefits value at
the lowest possible cost.
Understanding Employee Healthcare Needs
One of the biggest areas of loss in all of human resources
is the lack of alignment between employee healthcare needs and the benefits
packages offered. If benefits plans are too rich, it can cause undue waste of
business resources.
At the same time, however, shortfalls in coverage can be
financially and personally devastating to employees. That’s why tailoring your
benefit offerings to employee needs is crucial to hitting the sweet spot of
comprehensive coverage and well-scaled costs.
Analyzing employee healthcare usage data, available through
your carrier, can be extremely useful in this diagnostic work. Only when you
know what your employees truly need can you optimize your offerings.
ACA Compliance
The Affordable Care Act presents different challenges to
organizations depending on their scale, with specific regulations based on
employee headcount. Many growing or early-stage businesses break into different
tiers as they develop, and without proactive management, that can lead to
accidental non-compliance.
Knowing the ACA inside and out is a must for any employee
benefits specialist, and it’s also important to allocate co-planning time between
HR and finance to discuss how employee benefits programs will need to grow to
account for regulations as the business progresses.
If you don’t understand what the ACA demands of your
business, engage a compliance partner to help you navigate these complex
issues.
The Rising Relevance of Mental Health
Our shared cultural understanding of health and well-being
have shifted a great deal in recent years, and simply taking care of employees’
bodies is no longer enough. Mental wellness is just as important to success at
work and away from the office as our traditional understanding of physical
health and therefore must assume its proper place as a cornerstone of your
overall employee benefits strategy.
There are many businesses out there today who are failing to
provide their employees with an affordable and accessible framework to get the
therapy and medication they need, and businesses are often unaware this gap exists.
Across the industry, support for mental health must catch up to awareness.
Due to decades of stigma and denial, even talking about
mental health at work can be challenging at first, but in the 2020s, the
businesses with the strongest approach to mental health will be the ones with
the highest-performing teams.
Overreliance on Narrow Networks
A decade or so ago, benefits were trending toward narrow
networks, with the thought being that both patients and their employers could
save more money by staying relatively local and working with a tighter
healthcare team. In reality, narrow networks provide the most benefit to the
professionals who are doing the billing, not the paying, by ensuring a steady
patient flow.
Narrow networks can be a nightmare for new employees who
have existing relationships with out-of-network doctors or team members who get
life-changing diagnoses and want to pursue all options. They also prevent
patients from price shopping, which means you and your employees are stuck
paying whatever the in-network provider dictates, even if it’s not the best
deal.
Legacy narrow network healthcare is an underappreciated obstacle
to talent recruitment and retention, especially for organizations targeting a
younger or more diverse talent pool.
Offering a Qualified HDHP, but Not an HSA Strategy
High-Deductible Health Plans are always a great option for young
or single employees who do not require much coverage, and they also provide
tremendous savings for employers. With that said, however, an HDHP can easily
fail an employee who has sudden or unexpected medical needs that transform
their medical care into a mountain of debt.
If you offer HDHPs, it’s crucial that you protect your
employees by extending a Health Savings Account option. Using the HSA, you can
help your employees fill in the gaps in their HDHP coverage and limit their
out-of-pocket expenses, while still saving money compared to the price of a
lower-deductible plan.
As an employer, you must build benefits and incentives for
employees who have helped you out by selecting less expensive coverage options,
and the HSA is a best practice for returning that value back.
Educating the Workforce on Benefits
As we said earlier, one of the biggest areas of unnecessary
spend for many businesses is unused benefits. The root cause of that disuse is
often a lack of awareness, either because employees don’t know the benefits
exist or they don’t know understand how they would benefit from them.
Additionally, millions of workers who don’t know which
benefit package is right for them unwittingly set themselves and their
employers up for failure every year. As a proactive business leader, it’s your
job to give your team members the knowledge and tools they need to help
themselves (and you) when it comes to benefit elections.
Employee education is fundamental to any organization
getting benefits right at scale. Finding the right approach requires thinking
like a teacher and having a clear vision of what an optimized system will look
like.
Out-of-Date Dental and Vision Plans
People used to think dental and vision were “the easy part”
of employee benefits, but as technology has improved both fields, new
approaches have been innovated and care has gotten more expensive. For many
businesses with a legacy approach to benefits, their dental and vision plans
are simply out-of-step with the times.
Dental plans need to account for new approaches like implant
dentistry and cover a wider range of surgical procedures to make great
dentistry accessible to more people. Similarly, vision plans must account for
corrective laser procedures, innovative cataract removals, and so on.
Accessibility to dental and vision care greatly impact
employees’ and their families’ long-term health and well-being. If your
insurance offerings only cover procedures that were common in the ‘90s, you should
look at revising your plan.
Benefits Administration and Integration with Payroll & HRIS
As we all know, HR professionals balance an incredible
number of responsibilities, both human and administrative. One of the things
that makes those day-to-day tasks so frustrating is the lack of integration
between the tools they require to do their work.
For example, some HR professionals utilize an HRIS to
archive employee data, an HCM for people management, a benefits administration
system, and a payroll portal for financial transactions. Without backend
integration between these apps and tools, professionals have to do a great deal
of repeat data entry, leading to lost productivity and potentially costly
transposition errors.
In order to run an efficient HR department that can manage
benefits and other concerns in a daily, proactive manner, every organization
needs to move towards a single integrated system for employee benefits,
payroll, human capital management, and beyond.
Managing Short-Term Disability and FMLA
Disability and Family and Medical Leave provide a crucial
safety net for all workers. However, as an employer, you have a variety of
obligations and responsibilities when an employee applies for leave.
Too many organizations lack clear procedures for leave
application and approval, leaving themselves open to strained relationships
with employees and potentially costly lawsuits. The more proactive you can be
in laying out policy for giving employees the family or recovery time they need
while maintaining internal productivity, the better a support you can be for
your team members and your organization as a whole.
Each business should have a clear approach to the leave
application process, transparent approval criteria, and an established re-entry
plan for employees when their leave is over.
Finding Alternative Funding Strategies
As our first ten challenges have illustrated, providing
strong employee benefits is increasingly about flexibility and scale. The best
programs are the ones tailored to the specific needs of your employees with
maximum value and accessibility in mind.
With that said, it can be tough to achieve that bespoke feel
with a traditional fully-funded health insurance program. The total freedom of
self-funding might not be possible for all businesses, but there are a variety
of new and innovative ways you can connect with alternative funding to build
something more personalized.
If you’re intrigued about changing your funding model to
create a more open-ended, employee-centric approach to healthcare, talk to your
leadership team and benefits broker about exploring new possibilities.
Most businesses begin their employee benefit journey fully-insured for good reason. Early in a business’ growth cycle, it’s highly advantageous to keep monthly healthcare expenses predictable and under control, with any variation squarely the carrier’s problem.
However, once a business has grown past that developmental stage and stabilized with a properly scaled workforce and projections of continued success, self-funding becomes increasingly attractive. When businesses self-fund, they gain more granular access to their bottom-line healthcare expenses and can potentially save money in the long term by assuming increased benefit management responsibilities and opening themselves up to a little more risk.
Moving forward, we’ll explore:
• Why growing businesses should transition toward self-funding
• First steps for businesses looking to self-fund
• Important planning considerations for organizations hoping to self-fund
• The advantages and disadvantages of level funding
Why Transition Toward Self-Funding? Shifting toward a self-funded benefits program is a major decision for any organization and not something that can be accomplished without a great deal of planning and follow-through. While the process may sound daunting for HR and finance leaders accustomed to fully-insured processes, there are tangible benefits available for those brave and organized enough to make self-funding a priority.
Leveraging Your Business’ Stability to Reduce Overspend Self-funding uses organizational size and stability to reduce average monthly costs, as the employer significantly lowers overhead by paying a variable monthly fee based directly on employee claims (healthcare usage).
While there are increased internal management responsibilities for benefits professionals on the HR team in self-funded scenarios, there are also significant gains, as organizations reduce administrative fees and take power back from carriers when it comes to dictating monthly costs. That kind of overspend reduction can help tighten up an employee compensation budget for HR departments looking to stay streamlined for company growth, even if headcount begins to rise.
Businesses don’t need to be large to benefit from self-funding, either. In the right scenarios, self-funding is possible at almost any scale, as long as the employer truly understands what their employees need and will use in terms of healthcare.
Why Variable Cost can be Preferable to Fixed Premiums Many risk-averse planners might be tempted to stick with the predictability of fixed-rate, fully-insured plans because the number you know is much less daunting than a worst-case-scenario figure. However, stop-loss and excess-loss coverage are specifically available to limit the financial blow of catastrophic claims scenarios, which means that a month of coverage for a healthy workforce could, in many situations, be significantly cheaper than a month at the fully-insured rate.
Furthermore, if the employer maintains a healthy workforce where daily wellness and preventative medicine are values and priorities, expensive trips to the emergency room and invasive procedures are minimized through plan design and education. That means self-funded companies can exponentially increase their benefit if they establish a (or take advantage of an existing) meaningful culture of wellness.
Leveraging a self-funded plan might seem like a risky and costly expense, but it’s actually a long-term investment in the company’s ability to grow and work better. In the same way, the potentially increased cost of self-funded insurance is mitigated by the opportunity to reduce inefficiencies and overspend in most cases.
Providing Exactly What Your Employees Need Of course, in any conversation about employee benefits, the benefit of the employees needs to be a central focus. Working for a company with self-funded insurance is beneficial to team members throughout the organization, as the savings from reduced administrated costs can be passed down from the employer to individual policy-holders.
Additionally, self-funding means the employer has more specific control over benefit offerings and, with a strong understanding of employee needs, can design plans in a more thoughtful, specific, and employee-focused way than ever before. Of course, businesses can only achieve that if they have a rich, detailed knowledge of their employees’ and their families’ medical needs, claims-related behaviors, and emerging trends and technology that connect employees with medicine and medical professionals in innovative and cost-effective ways.
Maximizing a self-funding transition requires incredible preparation and a robust base of knowledge about both plan design generally and each individual organization’s specific finance picture, needs, and goals.
Preparing to Self-Fund Achieving self-funding is a journey unto itself that forces HR and finance to work together to establish the best-possible understanding of needs, possible solutions, and the impact of each on the bottom line.
The Importance of Preparation In short, if a self-funded employee benefits program is not designed and scaled correctly, it can significantly harm the company’s ability to maximize profitability. On the other hand, though, getting self-funding right opens the door to a variety of gains for both the business and its employees. The difference between those two outcomes is good planning.
Altering a benefit funding model is a paradigm shift that no one professional or department can make happen on their own. Cross-department planning and collaboration must occur in order for all relevant decision-makers to get a full picture of current healthcare costs, the possible impact of transitioning toward self-funding, how benefit offerings will change, etc. That means input from HR, finance, the boardroom, and beyond is necessary to plan for a strong, positive transition.
When HR, finance, and senior leadership have a shared understanding of how self-funding will reduce overspend without tying the company’s hands in a way that impacts profitability, then the real design work starts.
Understanding and Planning for Risks One of the reasons self-funding is such a cost-saver is because, in self-funding, a business assumes a great deal more variable risk. In a fully-funded scenario, a catastrophic accident or life-changing diagnosis to an employee impacts a company’s healthcare fees very minimally – that security is part of what businesses pay for. Once a business is self-funded, however, a major uptick in claims or a string of big-ticket claims can certainly eat into profitability for the month or quarter.
Minimizing those risks requires researching stop-loss and excess-loss coverage and determining how that coverage should be scaled to your workforce and its needs to provide the business with the profitability protection it requires. Reducing the risk of such high-cost events from occurring through employee health and wellness offerings (which are significantly cheaper than the cost of reactive medical care) is another crucial proactive planning measure.
Maximizing the Data Available to You Designing a self-funded plan requires a rich understanding of the benefits and services employees absolutely need. By studying the healthcare utilization data available through their providers, HR leaders and CFOs can get a very clear, specific understanding of what kind of services employees are using regularly and what their actual costs are.
That data is incredibly valuable in planning what a standard “month” of real expenses in a self-funded scenario might look like compared to current fully-funded costs. Again, the transition toward self-funding cannot be made or even attempted until that data story is fully understood, or else the company is simply self-funding for the sake of self-funding, rather than making an educated, profit-minded decision to improve healthcare efficiency.
Scaling Your Benefit Plans to Your Funding Goals Once a commitment to self-funding has been made and HR and finance have worked together to understand how the transition will support company growth and translate to more efficient spending, the next step is to think about how the change in funding model will affect specific benefits offerings.
To be blunt, plan design is more important than ever for HR to ensure self-funding is efficient at scale and supports growth. Armed with utilization data and other measures of employee need such as surveys, internal leadership must work with a benefits broker who understands the transition plan and the importance of plan success in order to create benefits packages that are highly valuable to team members while remaining mindful of the bottom line.
To guarantee success, no HR leader or department should be working on their own during this period. Input from leadership, finance, and your benefits broker can be incredibly useful to ensure proper perspective is maintained and the transition plan is well-aligned with short- and long-term company goals.
Meeting in the Middle: What about Level Funding? Some organizations looking to transition away from a fully-funded approach without completely losing their safety net may be interested in what is known as “level funding.” Level funding provides a middle ground between fully- and self-funded benefits programs, in which the carrier and the employer share responsibility.
What is Level Funding? In a level funding scenario, an organization pays a set monthly fee to an insurance carrier, as in traditional fully-funded plans. However, the carrier tracks actual employee usage and claims throughout the year so that at year’s end, the difference between the actual claims and the monthly fees can be determined.
If the employer organization’s monthly spending equals more than the total of the claims at the end of the year, they are reimbursed the difference. However, if the value of the claims is greater than the amount the employer paid in, they must pay the carrier the difference.
Level funding can be highly beneficial for businesses who understand their utilization picture extremely well and can predict with great certainty that they will be will not stray an acceptable percentage from the projected payments. On the other hand, if an organization goes into a level funding situation without truly understanding their employees’ needs, it can lead to an additional payment at year’s end.
In short, level funding protects businesses from many of the administrative challenges of self-funding but doesn’t carry the same cost-saving benefits as a well-planned, well-executed self-funded approach.
Key Takeaways The transition from fully-funded insurance offerings toward a self-funded program is one of the biggest and most important adjustments an HR department can oversee. Pulled off successfully, a self-funding initiative can streamline healthcare costs while keeping the entire team productive and well-supported. Scaled, planned for, or executed incorrectly, however, self-funding attempts can put a major strain on a business’ month-to-month profitability.
If you’re an HR professional or finance leader starting to consider whether your organization is ready to begin the journey toward self-funding, remember: • Self-funding is a great way to reduce healthcare overspend by embracing variable fees month to month • In a self-funded model, employer healthcare costs are based on actual usage, not projections • Transitioning toward self-funding is a crucial shift that requires organization-wide commitment and extensive planning o Healthcare utilization data can be valuable in this work o Understanding risks and connecting with the coverage needed to mitigate them is crucial • Partnership with finance is necessary to ensure benefits offerings are scaled with company capabilities and objectives • Level funding offers a blend between self- and fully-funded approaches that eliminates both the best- and worst-case scenarios for self-funding failure/success • Working with the right employee benefits broker can help your business smoothly transition to a self-funded strategy
