It seems to happen a lot. Seemingly daily, someone will say they can save a plan sponsor money on its group benefits plan. My not-so-subtle reply is usually, “Another great deal, eh?”
“Based on what?” I then ask. I always know the answer because saving on premiums is the easiest way to get someone’s attention.
Let me be very clear: it’s not that costs aren’t critical; obviously, they are. Managing costs is a cornerstone of any benefits plan strategy. Nor do I mean there aren’t times when it makes sense for plan sponsors to change insurance carriers. There are fair reasons to do so, such as poor customer service, an inadequate online platform or significant changes in the insurer’s business.
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But what drives my cynicism is that determining whether the claim is true or not requires much more than just a simple pitch. To imply otherwise is doing a serious disservice to plan sponsors and to the industry. Deciding to switch insurance carriers requires significant attention to a variety of factors, only one of which is the cost of premiums.
First, there’s the deceptively simple yet key issue of time. It takes time to examine, review and make decisions on available options. It takes more time to educate plan administrators about the new program and to communicate with and re-enrol all the employees. Afterwards, there are often disruptions in claims payments and adjudications that accompany new policies for pharmacies and dental offices. It all takes time and — last time I checked — time is still money.
In addition, some more complex financial impacts can arise. For example, what initially may look like a deal offered by a competitor can turn out to be completely unsustainable because it doesn’t support existing claims levels. The great deal can create a substantial first-year deficit that leaves the plan sponsor vulnerable to a possible large increase at renewal that wasn’t accounted for.
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Similarly, there’s the potential for the loss of built-up reserves that will need to be funded in the first year. This can also have a negative impact on first-year pricing. Finally, claims often spike when there’s a new carrier as there may have been a reset in coverage allocations and limits. Would employees spend their new vision care allotment if they were handed a reset in coverage? Most employees would respond with a resounding, “Heck, yeah!”
Plan sponsors may find it’s worth the effort to review all of those soft factors and financial implications. And ultimately, the results may offer savings not only today but ongoing in subsequent years. Although the context wasn’t business-related, something John F. Kennedy once said is still relevant: “There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction.”
Just be aware that the real costs of changing carriers are often hidden and figuring out where they are is usually not simple. To paraphrase French playwright, Jean Anouilh: “Sometimes, saving money just costs too much.”
Joe Demelo is an advisor with TRG Group Benefits & Pensions Inc.
This article originally appeared on Benefits Canada‘s companion site, SmallBizAdvisor.ca