How to take your Healthcare Benefits from an OpEx to a CapEx + ROI
Quality of benefits is linked to organizational productivity and employee retention, both of which have been proven to indirectly impact the bottomline. To generalize, better benefits equal happier, healthier people, which means they are more likely to work harder and stay longer. However, healthcare, as one of the top expenses organizations incur, is also directly linked to an organization’s financial health. In 2017, the average annual cost for employer-sponsored health insurance was $12,050 per employee per year. The total cost to an organization can be almost debilitating, especially for smaller or mid-sized companies. However, unlike many other line items where cutting spend is acceptable, i.e. it’s okay to forgo the development of a new website to save money, healthcare is an area where organizations not only rarely see costs go down, but struggle just to contain them because they don’t want to diminish or scale back the quality of their employees benefits. In fact, many companies often plan for a 12-15% increase and believe there's nothing they can do about it. It’s just a cost of doing business one year to the next.
But, what if there was a way to make healthcare a negotiable line item from a financial perspective? What if you could actually keep your costs the same and even have the opportunity to see returns at the end of the benefits year. In addition, what if that also meant you did NOT need to scale back on the benefits quality. It sounds too good to be true.
Healthcare should be a financial decision, made in partnership with your benefits adviser, and here are five steps you can take to move your healthcare spending from an OpEx to a CapEx and produce ROI at the same time:
- Rethink how you evaluate benefits. Request to have plan costs and employee contributions reported on a per-employee basis so you can easily and efficiently benchmark plans and costs year-over-year.
- Consider your options. Move your benefits programs from a traditional, fully insured program along the Healthcare Funding Continuum to a more innovative healthcare purchasing model; such as a healthcare purchasing coalition (HPC). Per employee costs for some HPCs run at 40% of the national average from their fully insured counterparts and, most often, the benefits packages offered are more robust and based on benefits use data specific to the individual organization. In addition, and among the many other benefits, some HPCs, such as The Staffing Exchange and the Alliance Healthcare Coalition, offer the opportunity for returns at the end of the underwriting year. In 2017, coalitions returned millions in unused assets to their members. The returns are proportional to the premium investment on a per employer basis and are ultimately recorded as unexpected profit. Getting back unused premiums further improves the organization’s benefits ROI.
- Pay for results instead of activity. Ensure your benefit professional’s goals and interests are aligned with those of your organization rather than tied to the insurance carrier you are contracted with. Do not accept the standard “advise and placement services” where the benefits professionals are compensated on a commission basis. There is no alignment of the benefits professional with the employer/clients in that type of arrangement. In some cases, benefits professionals profit from their clients' increased renewal pricing. Request a fee-for-performance agreement in which your adviser is paid based on the results of your benefits programs, instead of the size or amount of premium your organization pays. You can learn more about How Insurance Brokers Get Paid here.
- Say “no” annual premium increases. Don’t automatically plan for a 12-15% premium increase. Plan and balance your budget based on the the overall financial goals and objectives of your organization and allocate a set amount for healthcare benefits accordingly. In other words, treat benefits the same as your other top P&L expenses. By doing this, you challenge yourself, your HR team and your benefits adviser to think beyond the traditional way of doing things and explore options which provide better benefits at lower costs. And do not let the benefits professional tell you the only way to do that is to scale back the quality of the benefits programs.
- Integrate healthcare into your 831(b). Mitigating risk across your organization is important to optimizing its performance and financial well-being. 831(b) Captives have become a popular tool over the last five years to help insure risk and protect the organization from the financial implications of unplanned catastrophic events and expenses. If your organization already has set up an 831(b) Captive, put part of your healthcare program into it. As most would tell you, 831(b) Captives have recently been subject to increased scrutiny for proper use, making it difficult to balance and maintain an optimized portfolio. When Healthcare is integrated appropriately into an 831(b) Captive, it can be an effective way to lower the cost of healthcare while also helping the IRS compliance of the 831(b) program.