How Can HR Contain The Rising Costs of Employee Benefits?

Cost Containment Strategies for Employee Benefits

Small and medium-sized organisations in Singapore can be caught between a rock and a hard place. Money gets tight and budgets are stretched. Finances will force employers to look for ways to economise. Cutting costs in human resources is a primary target, especially employee benefits.

Giving into the temptation is almost too easy. Employers can argue the Central Provident Fund and MediShield will take care of most employee needs. Options include offering no benefits that aren’t mandated, and giving employees lump sums to purchase private insurance policies. These decisions might save an organization a considerable amount of money. However, they are short term solutions with long-term adverse consequences. There are other ways to contain costs.

Bundling a Book of Business

Insurance companies want your business. They’re willing to make concessions in premiums to get an opportunity. A common practice is to have the same insurer provide a group life insurance policy as well as the company group healthcare policy. There could be some variations on this.

For example, a small or medium-sized organization in Singapore may allow the healthcare insurance company to provide multiples of a person’s base salary in life insurance coverage. The employer can allow employees to purchase two or three times their base salary and these employees will enjoy the premium charged under group instead of individual coverage. Two forms of insurance, Long-Term Disability and Accidental Death and Dismemberment, are major moneymakers for any insurance company with multiple lines of business. An employer might allow the insurance company to offer either type of policy to employees. This is all in exchange for a reduction in the group premium.

Insurance companies are going to make much of their income on investments. They will require cash upfront to make stock purchases and this is the opportunity to once again lower premiums. Many companies pay their insurance monthly. The administrative cost is added onto the cost of the policy and this increases the price. There is nothing that says that you must pay your group insurance policy on a monthly basis. Indeed, you can pay it annually, quarterly, or bi – annually. Insurance companies are willing to give a discount on the premium in order to get substantial sums of money (e. g. Quarterly premium is three months instead of just one).

An organization would have to reserve the amount of insurance for each, but there is still the savings realized by a premium reduction. It is also true that interest generated by reserving the premium will belong to the organization. It doesn’t go to the insurance company.

The Value of Benefits Audits

Decision-makers do not often think about the value of benefit audits. This particular process can make an organization more familiar with how its benefits programs work and where there are expenses. The audit can also show where some of the costs can be trimmed, particularly in claims. The employee benefit audit is a valuable tool in effective administration.

A good audit is going to be a team effort. The organization must work with the insurance carrier to define what the scope of the audit is going to be. Another party such as a third-party administrator (TPA) should be part of the process. Prior planning is going to make the audit implementation that much easier. It will be a time when data is going to be collected for review.

The review of the claims experience is going to be a key part of any cost-containment related to the audit. It will require looking at the claims process during the period of the audit, which ordinarily will be the prior plan year. Working with the insurance carrier and IT, HR can develop categories and subcategories to be reviewed. When it comes to healthcare insurance, it is essential to see where the money is being spent and on what.

There will be certain areas, such as repairing broken bones, that are going to have a fair amount of costs attached to them. These are justifiable. Yet, there can be some cost trimmings in areas of administration. Certain tests or procedures such as in-hospital visits might not be as essential as treating head trauma. These can either be taken out of the plan or the cost transferred more to the employee. While the latter is not always desirable, rarely used procedures are not going to cause drops in employee morale.

The review of non-medical benefits will be more concerned with whether employees are using them. Some benefits are introduced to make things easier for people. However, if nobody uses the benefit there is no reason to reserve any cash for it. Part of the planning is going to determine what benchmarks are necessary to be met for a benefit to be further funded.

Certain discounts seem nice but if they are not being used, then the maximum benefit for each can be reduced. Some benefits can be eliminated entirely due to lack of interest. Employees are not going to grumble about something being taken away which was never utilised. Some other benefits can be modified. For example, reimbursement for transportation can be reduced from 75% to perhaps 50%, depending on usage. The audit can also provide an idea of the average expense per employee of a popular benefit. This information will allow HR to prepare a more precise budget for such benefits, with less chance of allocated funds not being used.

Using Benefits to Trim or Manage Costs

Small and medium-size companies should offer more than just one or two benefits. Once the organization is established, it is time to start looking at other benefits that employees need. The selection of additional benefits can have a bearing on cost-containment and, whenever possible, these new benefits should be included in the overall benefits package.

A great example are wellness programs. These are smoking cessation, diabetes control, and other programs that are intended to help employees live a happier and healthier life. These same benefits also have an impact on health care costs. When a person is watching their diet and getting enough exercise, that same person is not going to be filing medical claims as often as someone who sits and does nothing. Promoting these other benefits can encourage people to live a healthier life.

People get anxious over medical bills because they don’t know how to budget. A financial wellness program, something that younger employees would like to see, can help. Certified counsellors can advise people on how to manage costs such as medical bills. It makes paying a higher deductible a little bit less stressful.

One thing that can have a favorable impact on any costs is transparency. Many employees do not know how much is being spent on their behalf. Quarterly statements that outline the cost of benefits can make employees aware of expenses. Information that helps them become more cost-conscious consumers can keep a number of benefit costs down.

The Two-Tier Approach

It is possible to differentiate between classes of employees. Nonexempt workers could be given catastrophic health coverage only or be denied family coverage. Exempt employees would be given the full insurance package. This is better than no coverage at all and can keep costs down but at another cost.

Turnover rates may be significant for nonexempt employees. It might not be a problem in industries such as hospitality which normally has high turnover. Valued exempt employees will be retained thanks to the coverage they receive. The law should be considered before deciding on separate coverages for different employee classes.

Consider Incentives

Claims experience is a primary driver behind increased premiums. While getting rid of certain benefits is a way of trimming premiums, there is another that appeals to the self-interest of employees.

An organization can offer incentives for not using benefits, particularly the healthcare benefit. The idea would be that if a person went without filing a claim for a given period of time, their premium will be reduced a given percentage and stay at that lower rate until a claim over certain amount of money is filed.

An employer must be careful about this strategy. You certainly do not want an employee not filing a claim when there is a serious injury or health issue. The important thing is to steer employees away from frivolous claims such as doctor visits that are not necessary. The incentive can be as little as a 10% reduction in the premium, and that is enough motivation. The benefit is a lower claims experience and that can result in either premiums not being raised every year or a raise that is small enough to be manageable.

What about Self-Funding?

Insurance premiums can get excessively high. A small or medium-sized organization needs to have money for product development and marketing and paying a lot for certain benefits is not cost-effective. Self-funding is a possibility.

Self-funding essentially is reserving a certain amount of money every year to meet anticipated claims and other expenses. It will require the advice of an outside party to determine how much should be reserved every year. It also requires knowing the claims experience patterns of employees. While this does seem to be a risk, it might not be at all. An organization can seek out an insurance company that will provide an insurance policy for those expenses that go over a certain amount. The employer can still require that employees pay a certain amount each year, but that figure may be lower than the standard premium charged.

Third Party Advice

You should not use an ax to cut benefit costs when a surgical slice is all that is required. Employers do not necessarily have to go to the extreme in keeping costs under control. These decision-makers must realize they might not know everything about containing expenses. It makes perfect business sense to seek the assistance of outside parties.

Third Party Administrators (TPAs) can reduce the administrative costs many employers have to assume. These outsiders are professionals in cost-containment and can make helpful suggestions as well as conduct matters such as claims administration in a highly efficient way. Insurance brokers work for the client and not the insurance company. These professionals can scout the field and find the best possible deal. Benefits consultants draw from their experience helping others to assist. We feel that we can provide the advice necessary to keep costs under control without sacrificing quality.

Our mission is to make life better for hard-working employees. We think it is a mistake to eliminate benefits entirely without first looking at some of the possible ways of maintaining a tight control over costs. This can include the use of other benefits such as wellness programs, effective use of benefit audits, and getting the right premium deal. Not every decision-maker in a small or medium-sized organization understands how to negotiate benefits. We have a few suggestions that can save a lot of money.

Singapore’s economy is in constant motion and employees are highly productive. They deserve the rewards of the convenience of a good benefits program. An employer who offers a good package is not necessarily going to go bankrupt in doing it. It requires a cost-containment program that eliminates frivolous expenses. We can point out those parts of a benefits program that are not cost-effective.

My team and I know the importance of controlling costs and still providing great benefits. I work with small and medium-sized organizations in developing employee benefits programs. Decision-makers can rely on us to offer viable alternatives for keeping medical expenses reasonable. We have done this for our clients numerous times and we encourage you to look at our references.