Report on Western Canada: Not So Quiet on the Western Front

Many western Canadian companies are struggling with increasing benefits costs as well as retention and attraction issues. Discussions flow as chief financial officers (CFOs) and HR debate the costs. The conversation at an executive planning meeting may go something like this:

CFO: Our group insurance costs are equal to a third of payroll, and they’re rising rapidly. We need to reduce our expenses.

HR: We’re already struggling with staffing issues. The labour market is tight, and cutbacks to benefits will compound our problems of retaining and recruiting employees.

CFO: Then we need to shift more costs to our employees.

HR: But they’re already paying a higher portion than what’s offered by most of our competitors. And we’ve frozen salaries for the last two years and suspended bonuses.

CFO: We’ll have to push our employees harder to produce more without adding staff. No more early retirement incentives—keep them here longer so that we don’t have to recruit new employees.

HR: Our absenteeism and healthcare costs are already out of control, due to the added pressures on our existing employees. Our older employees don’t see any advantages in staying with us, and they’re creating disproportionate costs under our group life and healthcare programs.

CFO: So what can we do?

Although to varying degrees, this all-too-familiar discussion is common in western Canadian companies. Alberta is struggling the most, due to a labour climate just two years ago in which employers had to offer exorbitant salaries and “Cadillac” benefits at no cost to employees in order to attract new talent.

These days, employers are forced to navigate their benefits programs more carefully. They need to consider a number of issues, such as labour shortages and competition for employees; escalating benefits costs; the growing attitude of entitlement among employees; cost shifting from public plans to privately sponsored plans; aging employee groups; work/life balance; increased employee awareness, which produces a higher benefits utilization rate; and pressure on corporate bottom-line results.

Looking long term
On the bright side, the current environment also creates opportunities for plan sponsors. Just as a devastating storm can result in a community rising up and building a better place to live, plan sponsors are now able to develop longer-term benefits strategies to support their businesses and employees well into the future.

Benefits cutbacks are really only a short-term solution, with a descending spiral impact once the economy has recovered. Instead, the West is taking a proactive holistic approach. Cost control principles and wellness programs are at the forefront of these discussions. Risk management, as opposed to risk reduction, is being applied to group benefits plans more often than in the past. Similarly, companies are spending a greater amount of time analyzing their benefits expenditures and ensuring that they are producing a satisfactory return on investment.

Provincial plans
One area in which organizations have little control—but still feel a significant impact—is revisions to provincial healthcare plans. There have been a number of recent changes of note.

• Alberta, which is delisting its chiropractic coverage as of July 1, 2009, expects to increase costs under group plans anywhere from 0.5% to 7%, depending on the plan design. (Saskatchewan and Manitoba are now the only provinces providing some degree of coverage for chiropractic expenses—but can they be far behind?)
• Alberta will also see changes to its Senior Drug Plan, effective July 1, 2010. The coverage will become income-based and will therefore increase group plan costs where seniors are covered.
• In early 2009, B.C. modified its pricing policies on generic drugs and dispensing fees in addition to granting pharmacists the ability to renew or modify prescriptions without the need for a visit to the doctor. Optometrists have also had their scope of practice expanded, allowing them to prescribe some medications to treat common eye problems. The most likely effect on group plans may be a reduction in absenteeism due to a decline in visits to doctors.
• Saskatchewan enhanced its Seniors Income Plan as of Jan. 1, 2009. Although this is not directly related to benefits, this change may assist companies in retaining more seniors, perhaps on a part-time basis.

So what can companies do to take a more holistic long-term approach to benefits?

Companies should undergo a complete assessment of their employee demographics, as well as claims costs and patterns under their disability plans, healthcare and employee assistance programs, including a drug utilization review. They should also provide nominal incentives (for example, gift cards) to all employees who complete an online health risk assessment (HRA). The results from these steps can be correlated to allow companies to design a company-specific wellness plan that targets key areas and employee groups.

Companies can offer their employees some form of flexible benefits. Flex plans are a valuable solution to meet the needs of employees in all demographic categories and provide cost-containment opportunities for employers. This is especially evident where the flex plan contains a healthcare spending account (HCSA), as it is not subject to inflation.

As a further means of promoting wellness, companies can tie the level of flex credits to the results of employees’ HRA scores, offering more credits to employees who score favourably. A flexible spending account to reimburse employees for wellness-related expenses such as fitness club memberships, sport registration fees and exercise equipment is another way to encourage the wellness and health of employees.

Employers can offer employee-paid voluntary benefits—including critical illness insurance, pet insurance, concierge services and group home/auto insurance, among others—to all employees. The administration responsibilities relating to these benefits are usually minimal for employers.

For retirees, companies can explore ways to convert their group plan coverage to insured individual plans and/or an HCSA in order to remove ongoing liabilities.

Finally—but most important—employers can develop a comprehensive communications strategy to ensure that their employees understand the cost and value of their benefits and how they relate to the company’s overall business strategy. For example, they can send employees personalized benefits statements in the mail and then invite them to attend a webinar explaining the benefits.

If employers start to implement some or all of these suggestions, soon even the CFOs will be smiling and asking, “Why did we wait so long?”.

Glen Middleton is president of STRATA Benefits Consulting Inc.
glenmiddleton@stratabenefits.ca

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