According to the Canadian Institute for Health Information’s National Health Expenditure Trends report, private insurance and out-of-pocket expenses for healthcare in Canada reached an estimated $56.6 billion in 2010. Given this, it’s no wonder more and more plan sponsors are cost-conscious and turning to their plan providers for help.
“These days, we expect our relationship with benefits providers to be a partnership,” says Sandy Warmington, manager, benefits, Canada, with Ricoh Canada Inc. in Mississauga, Ont. “Group benefits plans no longer come in a vanilla envelope, and we want providers to understand the diverse needs of our group and its members.”
Following a recent merger, Ricoh Canada initiated a process to select providers for the company’s benefits plans, which cover 2,100 members across the country. The company determined that its plan must-haves include flexibility, excellent communications, technological capabilities for e-claims, quick response to issues and willingness to take ownership of systems errors, the ability to provide reporting on the group’s experience and recommendations to tie disability and drug claims experience into wellness initiatives. “We are watching our benefits spend very closely,” says Warmington. “We need our providers to help us keep track of costs and forecast to see where we are.”
The cost challenge
Without a doubt, rising costs remain the top issue for group benefits stakeholders. “Benefits costs are increasing farther and faster than either inflation or compensation,” says Stuart Monteith, senior vice-president, group benefits, with Sun Life Financial (No. 1 on the Top 20, page 31) in Waterloo, Ont. “Group benefits are no longer ‘fringe.’ They have become an integral component of overall rewards and employee compensation. But costs are moving at an alarming rate, and there is no obvious area where they seem to be flattening out.”
Ongoing growth in benefits spending is indeed alarming. And, as the population ages and governments become less able to keep up with skyrocketing costs, it’s unlikely demands on group health benefits will decline in the foreseeable future.
“Sustainability is a major issue, and we’re hearing a lot about aging workforce demographics, expensive treatments, rising trends in absenteeism, disability rates and mental health claims, as well as concerns over retiree benefits,” says Shelley Kee, vice-president, group business (Atlantic Canada), with Medavie Blue Cross (No.8) in Moncton, N.B. “Cost is a moving target, and we have to do something.”
Not surprisingly, price has become a major focus for plan sponsors as they come out of the economic downturn, adds Marilee Mark, vice-president, group marketing services, with Manulife Financial (No.3) in Kitchener, Ont. “They are looking for short-term savings as opposed to looking at value for the long term. With small employers it’s always about price, but larger employers are increasingly concerned about rising claims costs, and we’ve noticed an increased trend to a procurement approach focusing on cost versus outcomes.”
Meanwhile, group benefits providers are feeling a lot of pressure to help plan sponsors keep benefits programs functioning, says André Simard, sales vice-president, group and business insurance, with Desjardins Financial Security (No. 4) in Montreal. “Of course, everyone wants to pay less and have more coverage—that’s our biggest challenge. We have to work with plan sponsors to manage drug and disability costs by creating controls that have a positive impact on the price but not on the coverage. But at the end of the day, it is up to the plan sponsor to decide how to control costs, and it is a difficult decision.”
Go beyond tweaks
Many plan sponsors may be delaying making those difficult decisions. “We’re seeing increased polarization between plan sponsors that are maintaining their plans and those that are looking for fundamental changes,” says Brad Fedorchuk, vice-president, group marketing, with The Great-West Life Assurance Company (No. 2) in Winnipeg. “For the most part, any tweaks [such as increased deductibles and co-insurance] have been done already, and it may be difficult for some employers to do anything more. We haven’t seen a lot of big changes such as the implementation of managed formularies.”
Wade Harding, a benefits consultant and senior vice-president with Aon Hewitt in Halifax, points out that the industry needs to do a better job of helping clients to understand the potential solutions available. “In a recent survey we did of plan sponsors, we found that they don’t know enough about drug cards [and] the advantages of negotiating costs with insurers or PBMs [pharmacy benefit managers], or about negotiating ingredient costs with manufacturers,” he says. “There are many potential solutions, but they aren’t talked about enough.”
While much attention is focused on ensuring that controls such as mandatory generics, co-ordination of benefits and prior authorization are in place, Mark argues that it is time to revisit some of the fundamentals guiding what plans should pay for and at what level. For example, is the intent of a plan to pay only what is medically necessary? “Taking a closer look at what is included in core coverage could free up some dollars to invest in other benefits that promote health,” she says.
Group benefits providers also stress the need to shift some of the responsibility for cost management onto plan members. It’s important for members to develop a greater appreciation for the costs associated with their benefits plans and to understand they have a financial stake in keeping costs down, says Kee, adding that traditional plan designs (e.g., co-pay for drugs) offer no incentive for members to do this. In other words, new plan design features need to be introduced that instill a “consumeristic element” to encourage plan members to make wise decisions when accessing healthcare products and services. Later this year, Medavie Blue Cross is piloting a new website application in Atlantic Canada to help members choose pharmacies that offer the best value based on a combination of cost and service.
Others agree that plan members need to be more cost-conscious. “We’ll not be able to contain costs until members have some skin in the game,” says Monteith, who thinks health benefits will shift from DB to DC plans eventually. (See “A Hybrid Approach,” page 23.) “The older generation may be driving current cost increases, but newer generations will likely inspire plan changes.” Looking at recent research into the wants of gen Y, he notes that younger employees do not want their parents’ benefits packages, preferring instead to focus on fitness, wellness and staying healthy.
“People want more control over their health spending, and we need to treat them like adults,” he says. Under current laws governing taxable benefits, however, sponsors are limited in what they can cover in healthcare spending accounts (HCSAs). “Our clients want to see the industry thinking about ways to radicalize benefits, and private payers need to work with government to ensure that we can offer a broader range of tools and services to meet the needs of a diverse range of members.”
In the meantime, insurers and PBMs should consider a variety of cost management strategies such as formulary management, a case management approach for access to expensive therapies and tight controls to prevent fraud. Negotiating with healthcare providers to secure lower prices also holds tremendous opportunity. “This is a real value added to private plans and can have a significant impact on the sustainability of benefits plans in the future,” says Kee, adding that negotiation can be applied not only to drug benefits but also to dental care or vision care, for example.
The promise of health promotion
While most sponsors still seem reluctant to make radical changes to benefits plans, there is growing acceptance of the need to promote employee health. Over the years, many have questioned whether wellness programs would provide return on investment. But more employers now see the business case, says Mark, pointing out that greater access to information about the particular drivers of health trends within an organization and a growing readiness for employees to participate in wellness programs is allowing employers to take a more targeted approach to health promotion.
It may be the only thing they have any hope of influencing, adds Harding. “That’s not to say they shouldn’t be involved in formulary management, dispensing fees and markups, but sponsors’ ability to influence those areas is limited. Individual sponsors can, however, deal with their employees’ health, and it is to their competitive advantage to do so since the payoff is significant: greater productivity, lower absenteeism and reduced healthcare costs.”
“When done well, wellness programs show good success, not just for reducing disability but also for boosting productivity,” says Carl Laflamme, vice-president, sales and marketing, with SSQ Financial Group (No. 5) in Quebec City. “In the short term, a wellness program may cost more, especially for drugs, since if someone finds out they have high cholesterol they will likely take medication. But even in the short term we may see a reduction in disability—and definitely in the long term.” He notes that SSQ has seen disability rates fall since creating its own wellness program in 2004. “Employees like it a lot. We sponsor a Quebec City marathon and had 500 employees participate last year.”
The good news for plan sponsors is that the market is full of services targeted at employee wellness. Benefits providers offer clients everything from health risk assessment tools to coaching for chronic conditions.
Many employers are turning to their benefits providers for help with wellness, says Jean Guay, senior vice-president, customer experience, with Standard Life (No. 10) in Montreal. Each year, Standard Life puts out a directory to give sponsors an up-to-date listing of the main Canadian organizations providing information and support for health and wellness. The directory includes a calendar of key events taking place during the year so that employers can link their own health and wellness promotions with the events.
“We’ve seen an increased willingness over the past 12 to 18 months for employers to invest in health promotion, and we believe it offers an opportunity for long-term sustainability on the claims cost side,” says Guay. “Although there is still a lot of work to do to convince employers that this is a good investment, at least they now understand that if they don’t promote employee health, the situation will get worse.”
The great enabler
One of the brightest spots in the benefits industry is the growing use of technology. In fact, technology has become the great enabler for cost management on both the claims and administration sides. It also boosts competition among providers. Adoption of electronic data interchange makes it easier for sponsors to move from one carrier to another, says Simard. But he believes that within a couple of years, tech-based tools and applications may not be the same differentiator as they are now. “Everyone will have similar technology, and differentiation will be based on who is paying claims and answering the phones quickly and accurately.”
In administration, technology is slowly reducing the mountains of paper claims typically found in adjudicator offices. For example, in 2010, Sun Life adjudicated 1.4 million electronically submitted claims online and reimbursed through online banking—twice as many as in 2009, according to Monteith.
Sun Life recently introduced imaging and data lift technology in which paper claims are scanned and the technology lifts certain characters off the claim to put into the adjudication system. The information also goes into the call centre system so that the claims number comes up automatically to deal with a problem or question. The program’s next generation will lift individual emails and send the claimant an emailed acknowledgement of the claim.
Mobile innovation is also shaking up the claims side.
SSQ is launching a mobile app that allows members to use smart phones to submit claims. Expected in May, this innovation will let members take a picture of their claim invoice and send it in for adjudication and automatic reimbursement.
Getting plan members to have a better appreciation of cost gets a boost from technology, too. “The old days of paper claims and booklets is gone,” says Steve Moffatt, senior vice-president, sales and marketing, with Green Shield Canada (No. 6) in Toronto. “Today’s technology enables people to find out about their plans online and to engage in consumerism. If someone is informed of how much they have to pay at the point of service, they can make a more informed decision about the purchase.”
Great-West Life’s new product gives consumers easy access to their HCSAs and encourages cost awareness. The Visa payment card shifts the cost structure and delivery from the sponsor to the member. With a swipe of the card, members can pay for eligible expenses with approved providers. “We’ve seen a lot of traction with [the program], particularly with small to mid-size organizations looking for fixed costs,” says Fedorchuk. “This program is one way to promote consumer-driven healthcare.”
While group benefits providers search for ways to help control costs, the ultimate responsibility for looking after plan members lies with plan sponsors. “The world is changing, and managers are being asked to do more with less,” says Guay. “But it is important to take care of your people. That is the most valuable thing a company has.”
Sonya Felix is a freelance writer in St. Catharines, Ont.