In today’s challenging economy, Canadian employers need to control costs in all aspects of their business—and the cost of benefits is becoming one of the largest concerns. Buck Consultants’ 2009 Annual Health Care Trend Survey indicates that overall medical and dental benefits costs are increasing at just under 15%—a much higher rate than any other business cost.
Effects of Inflation
The annual inflation rate for traditional benefits plans crept up from 13.8% in 2005 to 14.8% in 2009, and that trend is expected to continue. An aging workforce, more educated and demanding health consumers and increasing workplace stress are all contributing factors to the growing utilization of benefits plans. Add to this the cost of inflation on services and supplies, and it’s easy to understand why employers are worried.
Having learned the hard way, employers are more cautious about the benefits decisions they make today. Few are making significant coverage cutbacks because they recognize the potential impact on employee retention down the road. However, many employers are looking for creative ways to control costs and curb inflationary increases.
Stepping Away From Tradition
When traditional benefits programs were first implemented, many provided 100% coverage for most eligible expenses. Yet many items covered under health or dental programs are elective services and not catastrophic health events—which, with unlimited coverage, encourages abuse and results in a high demand for care with little regard for cost or quality.
In contrast, most health and dental plans today are designed with an element of employee cost-sharing. This practice encourages prudent decision-making, allowing for better quality of care and greater sustainability of the plan over time.
Growth of HCSAs
Healthcare spending accounts (HCSAs) continue to gain popularity as a vehicle for covering non-catastrophic health expenses. They offer flexibility to employees while giving employers full control over the amount that employees spend.
Instead of providing coverage for services such as vision care and paramedical, an HCSA gives employees a limited amount to spend each year on eligible health expenses.
Because the accounts have limited funds and operate on a use-it-or-lose-it basis, employees are forced to make prudent decisions and to budget for expenses that are within their control. By carving non-catastrophic coverage out of benefits plans and establishing HCSAs to fill the gap, employers can ensure that at least a portion of their costs is not subject to annual inflationary increases.
Big-picture Thinking
Looking at the bigger picture, there is a stronger focus today on human capital. Many employers are taking a much more proactive and holistic approach to their benefits programs by investing in wellness initiatives. Forward-thinking companies recognize that investing in the health and well-being of their employees will improve engagement and retention, and will contribute positively to the company’s bottom line.
Wellness programs offered in Canada tend to focus on stress management and emotional well-being. Employee assistance programs top the list of options, and utilization of these programs is growing. As for physical well-being, many benefits providers offer health risk assessments and other tools to promote healthy lifestyles.
Controlling rising healthcare costs is an increasing priority for Canadian businesses and will remain so for a long time to come. Cutting benefits coverage will undoubtedly cut costs, but the risk of losing employees—or ending up with dissatisfied employees—may not be worth the savings that a slice-and-dice approach to benefits costs may provide.
Battling increasing benefits costs requires a program design with a balance of control and responsibility between the employer and the employee.
Michele Bossi is the health and productivity practice leader in Toronto for Buck Consultants, an ACS company.
michele.bossi@buckconsultants.com
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the August 2009 edition of BENEFITS CANADA magazine.