Innovation in Adversity

Benefit plan costs need to be managed and perhaps even reduced in an environment that is likely to see the opposite. Increased costs fueled by higher plan utilization, lower investment returns earned on plan assets and perhaps even higher insurer expenses as they focus on maintaining their own profitability—an imperative to manage costs running contrary to the reality of the situation. Is there an opportunity to be innovative in this type of environment? In a word, the answer is absolutely.

First, a check list. Before a plan sponsor can determine how best manage their future benefit costs—and how to add innovation—it is useful to answer a few simple questions, such as:
• Where do benefits fit within the organization’s overall compensation philosophy? The relative order of importance may provide some clarity as to where to focus efforts.
• What is the cost savings imperative? Is it to simply manage the rate of cost escalation or to reduce bottom line costs? And what is the specific target?
• What are the future workforce requirements of the organization? It is not impossible to undo changes made in the short-term but you also do not want to do anything that will damage the organization’s ability to compete in the longer term.
• What do employees think? Employees know the score and they may be willing to accept change in ways never considered. For example, greater employee cost sharing may be preferable to benefit reductions.

Innovation can be found in a number of different areas including plan design, program delivery and ultimately in how plan beneficiaries use the benefits. The following are some innovative cost savings strategies in each of these areas:

Plan Design Innovation
Everyone has heard about flexible benefits so the concept can hardly be considered to be innovative. What’s new is how flexible benefits have evolved in recent years. The flexible benefit programs of today and tomorrow will feature a very basic core level of benefits, supplemented by both health spending accounts and taxable spending accounts from which a broad of individual products can be purchased. Now the new Tax Free Savings Account adds another new dimension.

The future of benefit plan design is less about the addition of employer funded core benefits but rather the facilitation of the purchase of individual products by the employee to which the employer may or may not contribute funding.

Plan Delivery Innovation
Preferred provider arrangements are relatively uncommon in Canada but now might be the time to negotiate a preferred deal with local pharmacists, chiropractors, dentists, etc. As entrepreneurs, these professionals are looking to maximize revenue particularly during these economic times so this is a good time to negotiate price discounts. And you may find some professionals such as pharmacists being prepared to sweeten the pot with value-added services or even price discounts for other products in their stores.

Plan Utilization Innovation
For the majority of benefits, the ultimate cost of the program is driven by claims. The best way to reduce cost is to reduce the level of claims. Workplace wellness programs, employee assistance programs, absence management plans all have a role to play in reducing claim costs. In the future, I believe the active management of specific disease states such as diabetes will become more prevalent simply because the cost savings potential will be too great to pass up. Managing plan utilization is arguably a longer term strategy but now is the time to be thinking in these terms.

Are these cost savings strategies particularly innovative? Perhaps not in that these concepts have been in the market for several years. However, the truly innovative plan sponsor will look beyond traditional plan design changes in an attempt to achieve their cost savings imperative.

Plan sponsors do not need to hollow out the core of their benefit program to reduce costs. There are tremendous opportunities to reduce costs in other ways while at the same time adding value back into the program.