Hidden Costs of Lowest Price

This week I had a chat about a prospective client regarding the hidden costs of chasing the lowest rates and the unexpected effects on employers and staff.

Highest Coverage at the Lowest Cost - Commodities

If you are buying a commodity like a pallet of laundry detergent (a throwback to my early days in retail). You make a purchase at an agreed-to "price per unit" and the transaction is complete. If you bought during a time-limited promotion, there is no expectation you will get the same deal again, and you know that when you reorder, the next transaction will result in a higher "per unit price". You had all the information up-front.

Highest Coverage at the Lowest Cost - Group Benefits

In the Group Benefits Benefits world, most benefits providers will use undisclosed first-year "teaser rates" to try and win your account, relying on the advisor and client having the perception that the lowest price for the highest level of coverage must be the best plan.

The employer makes their decision and budgets for the company portion of the monthly premium, and communicates expectations to staff of what they can expect for bi-weekly payroll deductions based on the previously mentioned "teaser rates".?

Employers and staff proceed with the best of intentions and expectations, however because they based their calculations on the quoted "teaser rates", an unrealistic expectation is created of what their chosen level of benefits should have cost in the first place, resulting in unexpected rate instability at renewal the following year.

Most People Want Predictability

Studies show that 90% of people choose fixed rate mortgages or long-term leases as they need stability and predictability when budgeting. When asked, this is also what decision makers and staff tell us they expect from their benefits plan.

Actual Conversations

Here are some real comments we have heard from companies that have come to us for solutions to the unstable rates they have been experiencing. Have you said or heard any of the following:

• Can you please explain to me why am I paying so much more for the same coverage as last year
• My staff are going to have some feedback on this much of an increase without improving the coverage
• My staff are going to have some STRONG feedback if we increase rates and decrease coverage at the same time
• I can't afford to absorb this much of an increase, and I can't ask my staff to absorb it all either. What am I supposed to do?
• I thought we were buying insurance!!!
• What other options can we look at?

Unexpected Considerations

In addition to the above, here are a few more comments from employers as they come to us seeking long-term solutions:

• How often do I need to go through the time and effort of going through the process of changing carriers (again) hoping for a different result?
• Both employers and employees want predictable payroll deductions
• Changing carriers frequently can undermine staff confidence in the employer stability
• Reducing benefits coverage is the same as reducing pay, as benefits are viewed as part of the overall compensation package that employees and their families rely on
• Employer loses confidence in the current benefits advisor

Conclusion

If you are an employer or a benefits advisor and relate to the comments above, the good news is there are solutions.?It is possible and important to set-up a benefits plan for success. You may just need to hit the reset button and start fresh.

Looking for a a program that is easy to budget for? Our programs have a history of rate stability. Want to know if a renewal is fair? We have developed an industry-leading software program to analyze group benefits renewals.

More from behind the scenes next week :-)

Dale