Benefits Renewals: Seeing the Forest for the Trees

For many things in life, it's important to take a holistic view of a given situation to make sure goals and objectives are met. Here are some ideas for applying this line of thinking to your client's benefit plan renewals.

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​These last few months I have been dealing with water intrusion issues in my condo development. After reviewing the multiple recommendations of various contractors, the HOA Board has finally agreed to bring in a consultant. What does this have to do with benefits? Let me explain. Each contractor provided their best guess as to why water was entering my neighbor’s ground floor unit. The window contractor felt it had to do with the window joists, the stucco guy thought the stucco was compromised, the foundation guy wanted to reseal the entire perimeter since that had to be the issue, and an engineer posited that it was the settling of a structural beam. Who knows, it could be a little bit of each issue contributing to the overarching problem. Now we are bringing in a “Building Envelope Inspector” to help us see the forest for the trees. 

​This often happens when dealing with benefits, too. When a client’s medical plan rates are going up 10% and they only budgeted for 6%, everyone gets laser-focused on the medical plan – bid it out to the market, change the plan design, put in a skinny network. Just get that rate down. But if you look at just that one insurance plan, you miss the global solution to the client’s benefit problem. Regardless of size, every employer should review their benefits program as a forest. In fact, pruning in one area might bolster the rest of the foliage. A true benefits consultant takes all the client’s benefit programs into account when reviewing the renewal, developing goals, and recommending solutions.
 
Total Cost Consciousness
In my opinion, a benefits consultant’s main role is to bring “large employer thinking” to clients of any size. The first step in this process is to provide a roll-up of insurance and non-insurance benefits expenditures when reviewing a client’s renewal. This review should include all benefits where there is an employer cost: medical, telehealth, dental, vision, life, disability, worksite, pet coverage, ID theft assistance, etc. It should include the costs associated with FSA, HSA, HRA, and COBRA administration. If the employer has an HRA, or contributes to an FSA or HSA, include the estimated employer liability as well. The spreadsheet should include only the employer portion of the premiums, contributions, and fees. This provides a true picture of their overall benefits program renewal. 

​Diving into the example above, ABC Company receives a medical plan increase of 10%. The typical reaction is “we must keep the medical plan at no more than a 6% increase so let’s cut the medical renewal by 4%” through bidding, plan design, provider network changes, employer contribution levels, etc.  But let’s say, upon analysis of all benefits, their plan renewals aggregated together are receiving an overall 7.7% increase, resulting in a needed 1.7% reduction to reach their budgeted goal. This is a far more palatable number that could be achieved through minor medical plan changes, or through changes to other plans under the client’s benefits umbrella. How you approach trimming costs for a client will depend on how much you need to trim and the client’s goals and objectives.

The Typical Cost Cutting Strategies
Before we delve into “out of the box” strategies, let’s do a quick review of the tried-and-true tactics that most agents gravitate towards. Benefits consultants typically start with these plan strategies, which can be broken into medical plan tactics and other go-to strategies:

Medical Plan Tactics

• Changing the plan design, such as increasing deductibles, copays, and out of pocket maximums
• Continuing the same plan design, but offering a smaller network of providers at in-network coverage levels and/or removing out-of-network coverage completely
• Moving to an HSA-qualified medical plan with lower premiums and using some of that savings to fund employees’ health savings accounts
• Increasing the medical plan’s deductible and implementing a deductible bridge HRA

Other Go-To Strategies

• Lowering the employer’s contribution on some or all lines of coverage, shifting the monthly cost increase to employees
• Bidding some or all of the plans to the marketplace to determine if other carrier or trust plans can provide roughly the same benefits at lower premiums
• Removing a benefit from the program

These are obvious choices, but they may not be the best – or only - course of action given the client’s objectives and goals.

Out-of-the-Box Thinking
There are a number of other strategies that can be explored when trying to shave percentage points off of a benefits program renewal. Here are just a few, and will depend on the current plans inforce:

• Add a second dental plan, providing coverage for preventive and basic services only. Typically the employer will be able to increase their employer contribution level on this “base” plan and still net lower employer costs. While employees will pay more to buy up to the same level of coverage they have today, those enrolling on the base plan will likely pay less than they are paying today.
• Ditch the external telehealth plan if a program is embedded in the medical plan. Most medical plans already include this benefit, although typically they require an employee cost share per virtual visit.
• If the program currently includes a deductible bridge HRA, change the employer reimbursement from 100% after the initial deductible level to match the coinsurance of the medical plan. 
• If offering an employer-paid long term disability plan, lower the covered benefit percentage and pivot to offering a mandatory employee-paid LTD program where the employer grosses-up salary to cover the premium. When an employee pays the tax on the premium (which would occur through the gross-up strategy), they will not be taxed on benefits. For example, an employer-paid plan providing a benefit of 60% of salary would provide after-tax payments of approximately 45% of pre-disability salary, while an employee-paid “gross up” plan providing a benefit of 50% of salary would not be lowered due to taxation. 
• Change the LTD plan to a base/buyup structure, providing all employees with employer-paid benefits at 60% for the first 2 years, and allowing employees to buyup to a longer benefits duration.
• Convert dental and/or vision coverage through an insurance carrier over to a Flexible Spending Account for reimbursement, with employer funding. Consider implementing the employer’s contribution as a match of the employee’s contribution, setting reimbursement at a flat percentage such as 80% regardless of the services being reimbursed (for administrative ease), and allowing part of remaining balances to roll over.  

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The Bottom Line
As you prepare for your client’s renewals, remember to view the process holistically, taking into account a client’s goals and objectives, their employee population and the entire benefits package costs and offerings. Do a deep dive every year and tweak as necessary. This methodology provides more benefits stability, which has advantages for everyone. For employees, constantly increasing their cost for health services can sour them on the benefits program. Moving from one carrier to another year after year not only worries employees who may need to change providers, it also worries the insurance marketplace as underwriters wonder how long your client will stay with them after the high cost of that first-year implementation.

​There will be times that the medical-only tactics are the right foliage to trim. But, maintaining good forest stewardship and exploring other solutions can provide the added value that your client is sure to appreciate in their benefits consultant.

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