Behavioural Shift

At the best of times, a plan sponsor has a plateful of benefits challenges, such as keeping a handle on changing employee demographics, budget constraints, the role of benefits in the “battle for talent” and more.

How much were these issues complicated by the economic events of 2009? Significantly—only not in the way that was originally feared. There were concerns early on in the year that companies might react to the times with sweeping benefits reductions. Instead, other responses developed, some of which were reinforcements of pre-recession trends.

Canada’s recession is now officially over—although, according to the Conference Board of Canada’s chief economist, Glen Hodgson, it is a “tepid” recovery. But there is no doubt that 2009’s depressed economy was a catalyst for a number of attitudinal and behavioural shifts in the benefits world.

2009 Trends
Here are some of the themes that 2009 has brought to the forefront.

Tighter grip on expenses – Foremost were the usual behaviours that accompany tighter budgets. Companies concerned with survival have no choice but to ensure that every dollar is spent wisely. Yet this did not, for the most part, result in a slash and burn of benefits.

“Some organizations were compelled to lay off employees, freeze salaries or suspend bonuses,” says Thomas A. James, vice-president, consulting services, with Pal Benefits Inc. “But if there were any benefit modifications resulting from financial constraints, they tended to be minimal and more often related to decisions under consideration prior to the economic downturn. Our experience tells us that employers that implement layoffs or a salary freeze seem to be especially reluctant and sensitive about reducing benefits, too.”

James elaborated further on how organizations, in general, should handle employees in a downturn. “There is no point in creating further ill will, as eventually, business will return. Valued employees should be treated as such at any point in an economic cycle.”

Disability due to stress – After years of increases, even though some healthcare costs were down slightly, stresses associated with a tough economy took a toll on workers. Consequently, incidences of long-term disability and absenteeism rose in 2009.

Ongoing issues – Those factors that historically have had a negative influence on benefits—namely, an aging population with greater healthcare utilization—continued to plague some employers.

For example, the rising cost of healthcare for an aging workforce, including new and expensive drugs and treatments—combined with Ontario’s elimination of mandatory retirement—has been a challenge for Teknion (a leading international designer, manufacturer and marketer of office furniture and systems) for a number of years.

“My primary concerns are an aging employee population, increased use of healthcare and more expensive drugs and treatments,” says Allan Bartolini, Teknion’s vice-president, corporate HR and development. “These influences continue to tax our healthcare budget.”

Employer Reactions
Plan sponsors responded to 2009’s economy with a number of behaviours:

Increased focus on return on investment (ROI) – Whenever times are tough—and even when they are not—company leadership looks to ROI, including the ROI for benefit investments. While, as mentioned, there were no drastic benefits plan reductions, there was heightened sensitivity regarding astute benefits spending, which then elevated the ongoing need for “the right plan at the right price.”

This taxed the persuasive skills of HR professionals looking to convince executives to implement a wellness program, since wellness generally requires two to three years before results can be quantified. Consequently, uptake of wellness programs was down in 2009.

Provider change – More plans than usual went to market as plan sponsors wondered if a vendor change would mean improved rates. Sometimes this was the case, as organizations were promised some initial savings. However, without a financial incentive to move, plan sponsors looked at other cost-cutting measures such as plan design modifications.

Modified plan design – When companies had to face and make tough decisions last year, some softened the change through strategic benefits plan changes that retained employees’ appreciation at little or no additional program expense.

For example, when Milgram (a Canada-wide customs brokerage, international freight forwarding and transportation company) faced the challenges of the global recession, it understood the importance of maintaining and improving employees’ benefits. Looking for a way to give employees more value for the money they contribute to the group benefits plan, Milgram surveyed employees on the idea of moving from a traditional to a flexible benefits plan.

“We knew we had asked a lot from our employees and we wanted to give something back to them,” says Caroline Richer, Milgram’s strategic HR manager. “The flexible benefits plan was a benefit they valued and was also fiscally responsible on our part.”

Flex is often more expensive than traditional benefits. Yet some companies, such as Milgram, were able to give employees the desired flexibility—within budget—by implementing a flex program defined by contributions as opposed to benefits.

Increased cost-sharing – It’s a challenge to persuade employees of the financial necessity to share premium costs—especially when the company previously bore 100% of all or most expenses. Nonetheless, a number of employers this year undertook this challenge. Rather than reduce coverage, some plan sponsors instituted greater cost-sharing. To a great degree, the success of their efforts depended on their ability to effectively communicate the fact that mutual participation was fundamental to the survival of the benefits program.

Forecast for 2010
While most of the 2009 trends will continue into 2010, as Canada proceeds with economic caution, a few others are also on the horizon.

More requests for benchmarking – When competing for skilled employees, a company must understand how its benefits program ranks in comparison to its peer companies. As plan sponsors continue to focus on ROI, they will need more and better benchmarking data.

Cost-sharing and reductions for good health – The trend toward greater cost-sharing with employees will continue. And, as employers attempt to convince employees of this need, some will begin to introduce the idea of rewards for good health in the form of lower premiums for healthy employees or for those who engage in healthier practices. This trend has begun in the U.S. and is gaining interest north of the border.

Demanding more from advisors – Companies will continue to ask benefits advisors to take on more “heavy lifting.” This means higher expectations when it comes to devising cost-saving strategies, creative redesigns, favourable renewals and negotiations, and overseeing complicated claims.

Fallout from provincial drug changes – Government legislation around drug purchases means reduced income for pharmacists. It is expected that pharmacies will attempt to recapture these losses through private plans.

Growing interest in administrative services only (ASO) arrangements – ASO, usually applicable to larger companies, is gaining popularity in the mid-size to small market. More and more, when employers don’t agree with insurers’ renewal rates—usually because experience is good—they consider changing the funding from insured to ASO. Unfortunately, without in-depth advice on the full implications of ASO, if they are hit later with a catastrophically high drug claim, they may be dissatisfied with their decision. They should also consider that not all third-party administrators providing ASO have the same reserves as the large insurers.

Healthcare spending accounts (HCSAs) – While these accounts are often implemented in larger companies, they’re gaining the attention of smaller employers. In particular, these employers are entertaining the idea of a basic medical program combined with an HCSA, or an HCSA that is the medical and/or dental program. Employers like the fact that an HCSA caps benefits liability, but employees may resist what they perceive to be a benefit loss.

For the most part, we have weathered the financial storm of 2009. Looking positively forward to 2010, its ripple effect on the benefits world has resulted in behavioural shifts that better prepare organizations for a cautious economic recovery.

Michael Worb is president and CEO of Pal Benefits Inc.
mworb@palbenefits.com

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