In the world of employee benefits, plan sponsors rely on external advisors to assist with plan design, set prices and even manage the plan administration. The growing complexities of our healthcare system, the high toll of stress in the workplace and the spiralling cost of prescription drugs have added a new dimension to the employer’s task of balancing employee satisfaction with affordable operating costs. Cost management and plan sustainability are always at the forefront of employers’ concerns, but today’s focus on employee engagement, as well as health and productivity, has upped the ante.
Benefits advisors come in a variety of flavours: consultants, brokers and, more recently, insurers. Third-party administrators (TPAs) have also joined the list, enabling employers to outsource some of the tasks outside of their core competencies for which they are often responsible. While many of these advisors’ services overlap, there are pros and cons for each of them and it will be up to the plan sponsor to see which advisor offers the best fit.
Advisor Types
Consultants – Consulting firms say the advice they bring is independent (that is, not aligned with any particular insurance company or service provider). They may invoice by the hour or on a fixed-fee basis. But often, their compensation is not tied to results. Employers should review their service agreements to ensure that the liability of the consultant, in the event of a gross financial error, is appropriate to the risk borne by the employer for the error.
Larger consulting firms tend to brand the firm, not the individual consultant. Internal peer review and quality standards are intended to provide consistency. However, sticking to the party line may be at the expense of creativity and uniquely tailored solutions. Employers should clarify whether the recommendations they receive are grounded in their specific circumstances or dictated by the consulting firm’s internal standards.
Most firms offer some form of benchmarking to compare the value of a sponsor’s benefits plan to a hypothetical universe. Bear in mind that the comparison is based on value, not actual cost, and that “value” can be subjective and difficult to define. Key questions to ask include, can a plan sponsor select the companies against which its plan will be compared? How often is the benefits information refreshed? When is the comparator’s data removed if it’s not updated? What is the demographic of the group being compared? If plan design changes are being contemplated, benchmarking will provide an approximation of how the plan stacks up to the comparison group. However, the conclusions should be validated with the employees.
In marketing, tools such as conjoint analysis have been used for decades to identify and prioritize consumer preferences. In employee benefits, conjoint analysis is too expensive for all but the largest employers. However, surveys and focus groups can provide a rich element of employee input to validate or adjust the actions suggested by the benchmarking study.
Larger consulting firms often maintain national databases of rates and expense factors that allow their consultants to quickly ascertain whether, for example, renewal terms are reasonable. On the other hand, smaller firms or brokers may be able to test and negotiate appropriate terms based on more intimate knowledge of specific markets.
Consulting firms may also offer compensation advice, whether for the entire employee population or just for executives. In addition, larger firms typically provide employee research into total rewards, helping the plan sponsor to integrate and brand all elements of the employment experience.
