For the past several months, the economy has been the primary “news event,” even overshadowing the national election. As a result, our new president and Congress have significant challenges as we move further into 2009.

For businesses, health & welfare plans continue to strain resources and demand immediate action if we’re to relieve pressure in the future. Here are a few steps that employers should be considering in an attempt to overcome some of the headaches that manifest themselves as cost issues for health & welfare plans. 

Fact or Fiction?

Consider the following five statements:

1. Our firm has a self-funded plan and, as such, there’s really not that much we can do to change the cost structure.
2. We just completed our benefit plan renewal, so we can’t make any changes until next January.
3. Our benefit advisor tells us that all firms’ rates are going up at double-digit levels, and because of our size and structure, there’s really nothing we can do about it.
4. My carrier has the best discounts and the broadest provider network, so there’s nothing else to consider.
5. Our staff is covered by a collective bargaining agreement that doesn’t expire until mid-2010, so we have to wait until then to make changes.

Each of these statements is fiction. Without a doubt, individual facts and circumstances may “limit” what can be done. However, to categorically dismiss the opportunity to actively engage in benefit plan management presents a prescription for mounting deficits and falling behind in the race to become more efficient in the delivery of various employee benefits. 

What’s the Prescription?

Bottom line, there’s no single benefit design or structure that will ensure cost stability for every employer. We happen to be a fan of the statement, “The only absolute is…there are no absolutes!” That said, there are always options to consider. The key to optimizing plan costs is in the process. Here are our recommendations:

• Recognize that managing benefit plans is complex. There are lots of moving parts and many stakeholders with potentially competing interests. Therefore, don’t expect to start your process 30 to 90 days before the renewal date and have good options to consider. The goal here is to make management’s decision difficult…to have a number of good options from which to choose. That’s much better than starting the process too late and having to select from the best of the least optimal solutions.
• Understand that health & welfare benefit plan management demands a short- and long-term strategy. Short-term strategies are good for the next one-to-two years. Long-term strategies establish a target benefit platform for the next three-to-five years. Both are integral to plan management.
• Accept that because of complexity and continuously changing business conditions, plan management requires constant attention. Like other aspects of your business that frequently represent a much lower operating expense, establish processes that include ongoing supervision and data management. Health & welfare plans require the same attention, if you expect the “machine” to deliver quality results.
• Understand how you compare to your market with respect to plan design, costs, and contributions. On average, according to data from the Mercer Human Resources Study on Employer-Sponsored Benefit Plans, costs have increased by more than 80 percent since 2000. That’s the average! Depending upon the organization’s cost-sharing strategy, that cost increase represents what should be viewed as a considerable “silent wage increase.” Without recalibration, design becomes obsolete, and cost inefficiencies run rampant.
• Get back to basics, and conduct your own “continuous quality improvement” in the following areas:
  • Design
  • Employer and employee cost sharing
  • Administrative structure and carrier capabilities
  • Network – access and discount analysis
  • Financing mechanism
  • Internal risk shift/retention (pooling or stop-loss)
  • Advanced plan strategies, such as specialty networks, consumer-driven plan designs, wellness initiatives, etc.
  • Employee education – frequent and repetitive messaging
• If operating a bargained plan, know your numbers at all times, and prepare for negotiations well in advance. Favorable negotiations are the result of long hours of preparation and constant dialogue between management and union representation. The closer the relationship with your bargaining group, the more likely each side understands the business issues of the other.
• As you set strategy and evaluate plan performance, mandate transparency with respect to all aspects of plan operations. This means gaining an understanding of who’s doing what, when, how, and for how much. Another old adage comes to mind: “You can’t manage what you don’t measure!” Create metrics as part of your strategy; it provides a written record of past decision making that can be used to chart your course for the future. 

…And Call Us in the Morning

Benefit plans are complex, costly, often misunderstood, and expected to cover everything, for everyone, every time. With that as an operating standard, take the helm. Make sure you set objectives, chart your course, and record where you’ve been and what you’ve done. That way, future challenges will become more manageable.