The most significant employee benefits plan issue: It’s not what you think

I’m frequently asked what I believe to be the most significant issue impacting employee benefits plans today. Most people are expecting my response to be rising costs, particularly drug plan costs. They are therefore surprised when I say changing employee demographics. I absolutely believe that the changing profile of the workforce is the most significant issue impacting employee benefits programs today. Yet it’s not an issue that is particularly well understood by many plan sponsors.

The impact of employee demographics on benefits plans is significant. And by demographics I mean not only the standard measures such as age and sex but also family status, culture, diversity and general health. Demographics influence the following:

  • Rating—Benefits plans are rated, at least, in part, based on demographics. For example, age and sex are key components in the pricing of risk benefits such as life and disability. Family status obviously has an impact on unit costs.
  • Usage—Demographic drives plan utilization, which, in turn, drives costs. Age is a determinant in population health. As we age, we tend to use some benefits such as health and disability more frequently.
  • Needs/wants/expectations—Our needs/wants/expectations of the benefits plan are driven by who we are (age, sex, culture, health, etc.). And these needs/wants/expectations vary considerably based on our individual demographic characteristics.
  • Delivery—Demographics also play a factor in how we want to receive information about our benefits plans and, in fact, how we want the benefit and/or service delivered.

In short, employee demographics influence every aspect of employee benefits programs. Yet most plan sponsors—other than basic statistics such as average age, male/female split and/or number of single employees versus those with dependents—do not have a complete picture of their employee population and how changes in this profile will impact their benefits plans in the future.

Let’s consider some of the more significant demographic trends impacting Canada today.

  • Aging—It’s been well documented that Canada’s population is aging, so it stands to reason that most workforces are getting older. As a consequence, age-rated benefits will cost more, and utilization in the areas of health and disability will increase. Preferences for certain benefits will start to shift (e.g., post-retirement benefits). And on a macro level, the aging population is expected to create a labour shortage in Canada (with employees exiting the workforce through retirement) creating a need/desire to keep otherwise retirement-age employees working for longer. Retirement age will become an increasingly difficult number to peg; therefore, termination provisions under benefits plans will need to adapt.
  • Mortality and morbidity—The good news: we’re living longer. The bad news: we’re not particularly healthy. However, with advances in medical treatment, we can live longer in poor health. This has profound implications for benefits programs. Benefits plans can attract higher costs for longer. This is why addressing employee ill health is so important in terms of managing future benefits plan costs.
  • Diversity—There are a number of elements to diversity such as culture, generational and the definition of family. Canada is already a multicultural nation and is expected to become more culturally diverse. With declining birth rates, the future labour shortage in Canada is expected to be filled almost exclusively through an immigrant workforce. There has been a lot written on the different generations now active in the workforce. And the definition of family is clearly not what it once was with blended families, same-sex relationships, overage dependents and pets—for some—replacing children. This diversity should shape the design and delivery of benefits plans in the future, far more than the standard one-size-fits-all plan of today.
  • Access—We live in a world of increasingly instantaneous access to goods, services and information. In many cases, this access is facilitated through technology. Even five years ago, who would have thought that the mobile phone would be so dominant in how we currently live our lives? Some generations are clearly more comfortable with using technology and the communication protocols embedded within that technology. All generations are demanding quick and easy access. It’s important for benefits plan sponsors to acknowledge these trends and adapt both the delivery and communication of benefits to members.

Though I believe the changing workforce is the most significant issue for benefits plan sponsors, I see it not as a problem but as an opportunity. There is a tremendous opportunity to better manage and make benefits plans more relevant by understanding these demographic shifts and recalibrating as necessary. It starts with understanding your current workforce—not only in simple terms (such as age, sex, etc.)—but who they are, where they came from and what’s important to them.

And given that the face of most workforces is likely to change dramatically in the coming years, plan sponsors also need to think in terms of the workforce of tomorrow. The war for talent will be won or lost based on decisions made today. Finally, and this is difficult for many decision-makers, acknowledging that your own personal needs/wants/expectations may not be representative of your employee population is key to designing and delivering a benefits program that is demographically relevant.

Demographics touch every aspect of an employee benefits plan. Understanding these interrelationships and adapting to even subtle shifts is the key to successful benefits plan design and management.