Benefits ROI versus Value: A Continuous Journey

Woodruff Sawyer’s “Mission to More” series leads you through today’s Benefits news and serves as a guide for everything from competitive programs to compliance. In this blog post, Walt Winter describes how to evaluate not just the return-on-investment (ROI), but the value of your employee benefit program.

Employers are in the midst of evaluating their benefit plans, preparing for another surprise. Will the cost of their benefit plans go up again? And if so, by how much? Increased financial pressures beg the question, "Is it time to change our benefit plans?"

The average employer now spends over $7,739 annually for a single employee and $22,221 for family coverage. But, as employers watch healthcare costs rise, do they know what they are paying for and how it impacts their organization?

In our Mission to More series, we discussed how employers support employees with well-being benefits and a human touch, offering a holistic package for a spectrum of employee health needs. In addition, we’ve provided information on innovative solutions, improved price transparency, and the untapped potential of benefits data analytics for employers.

However, having all the tools at your disposal will not tell you when to make a benefit plan change. You will need to look for indicators inside and outside of your company to identify what your employees need and ensure that it aligns with your company’s value proposition.

As our business environment continues to change, we can see shifts that challenge leaders to think differently about their employees and the benefits they desire. Before companies make changes to their benefits offerings, they should ask new questions and define new outcomes. For instance:

• Do our benefits enhance our recruiting and retention efforts? Do they impact our tenure?
• Do our plans reflect both our corporate and employee values for respect and well-being?
• Can our employees afford the plans we offer, or will they seek another employer with more affordable plans?
• Are our benefit plans optimized for our budget and for utilization?
• Do our benefits help our employees carry out our value proposition to our customers and support our corporate mission?

High-performing companies invest in their people, having established metrics to evaluate the success of their program. Leading companies develop measurable outcomes, holding their carriers, consultants, and themselves to an organizational ROI, using these metrics to drive strategic C-suite conversations.

Knowing when to change plans is not often straightforward. Given today's volatile business environment, inflation, and continued tight labor market, making changes to benefit programs is an ongoing journey, not a once-and-done event.

Too often, a robust benefits package is misunderstood due to the complexity of options, expense, and lack of consumer knowledge. For example, one study indicates that over half of consumers (51%) of people have inadequate knowledge of basic insurance terms, and few have knowledge of annual out-of-pocket costs. In addition, nearly half (48%) of those studied are not confident in how to use their insurance to access healthcare. At most risk are young adults, women, Hispanic ethnicity, non-US citizens, unemployed, uninsured, low-income, and lower levels of education.

The onus is on employers to supply valuable, appropriate benefits and the education on how to use them. Too often, employees only use benefits when they need them most or do not use them at all, even if they were available. This lack of health benefits knowledge and insurance literacy costs employers expensive surprises. Additionally, considering that employees view health benefits as the reason for changing employers, current employees need education as much as prospective candidates.

A comprehensive benefits plan requires supporting education to remove the veil of complexity. Employees should also understand how benefits tie into their overall compensation. Likewise, ancillary benefits must be clearly explained, so they are more easily understood. Employers can provide more value by pairing healthcare literacy with benefit plans, enhancing knowledge, utilization, and outcomes.

Employees need their employers to walk their talk. If the company is proud of its "family-friendly" reputation but fails to offer family-friendly benefits, it isn't aligning its benefits and culture.

People want to work for employers with consistent values. Employees spent two years re-examining their values, professional needs, and work-life balance, and they look for employers who support those goals. Tying employee benefits into a company's culture is a natural fit but requires transparency and education to ensure employees enjoy the benefits offered.

For instance, one of the most underused benefits is PTO. With burnout rates at all-time highs, companies must encourage their people to disconnect and take time off. Over half of employees (57%) left an average of 6.8 PTO days on the table in 2018, amounting to 768 million days. Additionally, as employers strain to hire more staff, they must also remember to allow their existing workforce to use vacation time to refresh and relax.

Each employer has a unique workforce demographic mix, though there are common themes among peer groups in specific industries. Considering the generational mix is essential, but employers must consider how their benefits meet the needs of each generation.

For instance, the average student loan debt is now over $32,000, making loan payoff assistance a critical benefit for employees with debt. However, employees who desire tuition assistance for themselves or a child will want a different type of benefit. Understanding the demographics of these two unique groups will help employers provide demographic-specific benefits.

Regarding medical plans, it is vital to understand the utilization by spend. The 80/20 rule commonly drives healthcare costs: 80% of the plan cost comes from 20% of the population. ACA mandates established a ceiling for employee’s cost share on catastrophic claims, but providing education and right-size coverage options will appeal to employees who have no or low utilization of medical plans. Helping employees make a budget-friendly decision is more than just traditional demographics. Data analytics can help firms focus on valuable utilization data.

HSAs can also offer a beneficial return for employers and employees. According to Kaiser Family Foundation, approximately 22% of all companies offer an HDHP/HRA or HSA plan. However, over two-thirds of large companies offer this benefit and over half of medium-sized firms, with only 20% of smaller firms providing this benefit. The tangible benefit of having funds invested in an HSA is too commonly overlooked and ultimately undervalued by employees but offers a triple tax advantage for employees.

Each workforce is unique, made up of people with various benefit plan needs. Delving into the data that makes up demographics allows employers to explore creative options that their workforce will use.

CMS data reveals that the US spends $12,530 per capita on healthcare. On average, other countries spend less than half as much per person. But who gets the most value? Do employers and employees get what they pay for?

The days of 100% company-paid benefits are mostly behind us. However, since employees frequently share the cost of benefits, both parties must make sure they are getting value from their benefits investment. For instance, helping employees "right-size" their coverage to meet their health and budget needs maximizes financial value and makes employees more loyal, providing a competitive advantage for employers.

Companies have even better reasons to define the financial value of their benefit. As healthcare consumers, we are poorly educated, with 75% of people understanding how to use available healthcare pricing tools. Nearly 90 million Americans have low health literacy, resulting in 4X higher healthcare costs. However, new federal laws, including the No Surprises Act, aim to help healthcare consumers, but employers must delve deeper to provide more value. Questions employers should ask include:

• Does the medical plan squeeze away healthcare waste and insurer profit?
• Does the plan use an aggressive network to control claim costs?
• Do our vendors provide employee tools to find quality providers and lower costs?

In addition to traditional medical plans, there are also innovative benefits of an excellent financial, cultural, and personal fit for today's workforce. New solutions include telehealth, stipends, pediatric mental health, and home care options that provide exceptional value for employees and their families.

Benefit options, improved health literacy, and right-sizing options for employee needs has a greater ROI, but also more value to existing and future employees.

Unbeknownst to most employers, they have a strategic card at their disposal. Their benefit funding source can significantly impact the bottom line, align with their culture, and improve employee satisfaction. As a result, employers no longer must stick with a funding solution out of habit and can now explore more beneficial alternatives.

Many of the most sophisticated employee benefits solutions traditionally were only available to enterprise-sized groups. However, these alternatives are now available to middle-market employers, allowing companies with smaller headcounts to take advantage of them.

For example, alternative funding solutions, such as captives, provide month-to-month protection and have sustainable renewals for a mid-size company. Switching the funding type from fully insured to self-insured can be an imposing step but doing so allows companies to plug and play best-in-class solutions that bring value to a company's unique demographics and fits their culture. Moving to a self-insured medical plan minimizes taxes, reduces carrier profit margins, and returns pharmacy rebates to the plan sponsor. But most importantly, it gives the company the flexibility to customize plan design, build on solutions, and monitor actual utilization.

Choosing the right funding source puts employers in the driver's seat, helping them maximize their investment value.

Your benefits program is more than a part of overall compensation or a budget line item. Benefits are an investment in people and provide value, not just ROI. That value is what attracts and retains the talent you need to serve your customers.

The last two years taught us that people drive our organizations. While tools and data are critical, we have moved beyond analyzing success purely by the growth of our bottom line. High-performing companies gather continuous insight into their benefits performance to reveal the value and the ROI their programs deliver.

A benefits consultant can help you explore both ROI and value options. Woodruff Sawyer has the expertise to evaluate workforce demographics, funding sources, and ways to provide even greater value to your workforce. Reach out to us if you have questions.