The rising power of the consumer in the benefits arena

I recently presented at an employee benefits conference in the United States. As you would expect, much of the discussion was focused on Obamacare, however, there was a considerable amount of attention on worksite marketing and voluntary benefits.

According to some, healthcare reform is fueling a revolution south of the border with many predicting a transformational change in the group benefits market in the U.S. within the coming decade. Private and public exchanges, voluntary benefits and a focus on DC arrangements are expected to be dominating themes in the future, all facilitated by rapid advancements in technology. Employers may become largely irrelevant in the future employee benefits landscape—other than contributors to the cost of coverage. The real power will lie with the end consumer—employees and their dependents. The future benefit delivery model will be direct to consumer.

Before predicting the demise of the group benefits world as we know it here in Canada, it’s important to note some important differences in the Canadian and U.S. markets.

  • The size of the two markets is very different. In the U.S., there are approximately 150 million working Americans. In Canada, there are about 17.5 million working Canadians. The size of the market matters whenever you are contemplating a direct-to-consumer market strategy.
  • Healthcare is the burning platform that has driven interest in voluntary benefits in the U.S. And with the recent changes in the U.S., healthcare will continue to be front and centre. Many of the voluntary benefits sold in the U.S. today are focused on funding medical expenses. We don’t have the same burning platform in Canada, at least not yet.
  • Canadian employers tend to be more paternalistic than their American counterparts. In Canada, the level of employer funded “core” benefits coverage is higher in Canada than in the U.S. Canadian employers have tended to shy away from worksite marketing campaigns and intrusive programs citing privacy concerns. Culture may influence how quickly Canadian employers will jump on the direct-to-consumer bandwagon.
  • Attraction and retention issues exist in both countries, although arguably, the issues are more pronounced in Canada. Many Canadian industries will be experiencing significant labour shortages in the coming decades. Canadian employers have not signaled a burning desire to get out of the business of providing employee benefits, in part because benefits and employee health are seen as an important tools in the future war for talent.

I do see the Canadian market moving in a similar direction as the U.S. However, the evolution will take time. Although we are starting from a different place, there are signs in the Canadian marketplace that point to greater interest in voluntary benefits and a direct-to-consumer market approach.

  • At Mercer, we’ve done considerable research in recent years on what’s on the mind of employees with respect to employee benefits. A couple of interesting themes emerge. First of all, employees are willing to pay out of their own pocket for benefits that they deem to be valuable. And secondly, employees view benefits more broadly than what most benefit plans currently contemplate. So there’s an opportunity to meet these broader needs through a voluntary benefit program.
  • Employee choice in benefits works. From an employer perspective, it enhances the overall employment value proposition. From an employee perspective, it allows them to better align their benefits coverage with their unique needs/wants/expectations. Still there are some well-documented challenges in implementing employee choice, such as the cost of administration and communication. An employee choice program partially grounded in the voluntary benefit market can deal with some of these issues.
  • It seems inevitable that Canada’s healthcare system will need to be reformed to deal with sustainability issues. The system could evolve in any number of ways; however, if the future includes greater individual participation in the cost of healthcare, this could drive increased interest in voluntary products. In the U.S. for example, accidental death and dismemberment and critical illness products are routinely purchased to cover the cost of large plan deductibles.
  • Advancements in technology facilitate access to the end consumer in ways never before anticipated. Access is immediate and it can be completely customizable. The ability to not only reach the market but also to potentially influence buying decisions has never been greater. And the pace of change will only accelerate. This aligns extremely well with a direct-to-consumer approach.
  • Consumer purchasing behaviours are changing, with online shopping being the preferred approach by many. The role of the in-store retailer is diminishing. Direct to consumer is flourishing in every aspect of daily life—why not employee benefits?

In 10 years, will we reflect back on the Canadian employee benefits market of 2013 and comment on how different it was? I don’t think we will see the same sort of transformational change being predicted in the U.S. Change within the Canadian market is usually measured in small increments. However, the voluntary benefits market will likely be significantly more robust than it is today and the end user—the consumer—will have considerably more influence over how their benefit needs are met. The future is closer than we think.