Last week, after years of declining revenue, Postmedia Network Inc. released an internal memo announcing significant cuts to non-unionized employees’ benefits. At first glance, the changes appear warranted for the struggling media company. Upon closer inspection, the question isn’t whether the company should have cut benefits but rather how it could have strategically reduced health-care costs ahead of time while preserving value for its employees.
Many employees see group benefits as a core element of compensation packages. In fact, 77 per cent of Canadians believe they have an entitlement to employer-sponsored health benefits, according to research published by Sun Life in December 2016.
Taking benefits away — or even reducing certain components — can therefore be a painful process, with employers facing backlash in the form of resentment, decreased morale and productivity and, ultimately, the inability to either recruit or retain high-performing employees.
With that in mind, here are five strategies every Canadian employer can adopt to cut health-related costs:
1. The more you know, the less you spend:
Sanofi Canada’s latest health-care survey found most employers simply don’t know about or understand common cost control measures. That lack of awareness increases financial anxiety, while reducing the ability to make smart decisions.
By the same token, plan members are just as likely to be unaware of their plan coverage and costs. By creating an open line of communication about health-care expenses and introducing cost transparency — that is, the cost per service for plan components — employers can create a level of trust, appreciation and accountability.
Making employees aware that both they and the employer ultimately pay for their benefits plans can encourage smart consumption by plan members. In addition, the conversation can easily help employers understand which benefits are seeing little use, making the decision around which ones to remove that much easier.
2. Stay up-to-date with industry benchmarks:
While cutting benefits entirely can seriously damage employee relations, simply reducing the amount of coverage, or increasing copayments, can soften the blow. For example, the standard limit for prescription drug coverage used to be 100 per cent, but more and more employers have moved towards 80 per cent coverage as the new norm.
The same goes for extended health coverage, which commonly includes massage, chiropractic, physiotherapy and other paramedical services. Instead of individual maximums of $300 to $500 per practitioner, it’s quite common to see combined maximums of $500 to $750 for all services.
3. Control drug costs:
Many employees see prescription drug coverage as the most important component of a group benefits plan. But the rising cost of drugs, on top of an increasing number of submitted claims (in part due to Canada’s aging population), has led to skyrocketing costs.
Controlling drug plan costs begins at the pharmacy level. A 2014 survey by Towers Watson found that implementing just one or two pharmacy management techniques could reduce annual drug costs by 12 per cent on average (or $135 per employee).
The strategies include enhanced generic substitution, multi-tiered formularies (companies providing higher coverage rates for less expensive formulas) and case management for specialty or high-cost medications. One of the easiest ways to reduce cost is by understanding dispensing fee differences and using them to an employer’s advantage. Employers can encourage employees to seek pharmacies with lower fees and request several months of refills at a time.
4. Introduce a consumer-driven mentality with health-care spending accounts
Health spending accounts are becoming an increasingly popular and cost-effective complement of, or even an alternative to, traditional group benefits. They consist of a predetermined amount of tax-free money provided to employees for the coverage of their medical and dental expenses.
Health spending accounts provide employers with complete control over claims costs, as employees can only claim up to their individual maximums. On the employee side, they provide far greater flexibility and accountability by enabling them to choose how and where to best spend their health-care dollars.
5. Embrace online health tools:
Mobile health apps are a popular way to reduce health-care costs while also improving the employee experience. They enable plan members to virtually consult with a licensed medical professional from the comfort of their home or office via text or video.
Not only do they encourage preventative care by making it easier for employees to bring up minor concerns, such as a nagging cough or an unusual rash, mobile health care virtually eliminates unnecessary emergency room visits, where otherwise healthy patients are more likely to face exposure to more serious illnesses.
In choosing to cut back its employee benefits, Postmedia bought into the idea that group benefits costs are simply too high and that the only way to stay afloat is to make their employees pay. Yet with simple restructuring and better benefits management, companies can reduce many health-care costs without affecting the value the plans provide.
Peter Demangos is the co-founder of Collage, a human resources and benefits platform.