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Follow the Deductible! Small Business employee benefits. - May 4, 2009

Posted by: David Kirkup in Articles

I get annoyed when politicians shut down public policy discussions about health care by grinding on about"Socialized Medicine", totally oblivious that they have been enjoying premium benefits at the public trough for many years. If you want to know what a politician really thinks about health care - follow their deductible.

Employee benefits are perenially cited as an employer's worst nightmare - can't live with 'em, can't live without 'em. Costs are uncontrollable, employees are never happy, each year brings a round of plan surgery as the employer nibbles around the edges of the deductibles and co-pays, trying to keep benefit costs lower than their entire cost of goods sold. But why is this such an intractable problem? Are we faced with a continual escalation of costs that forces more and more employers to cry uncle and cease offering benefits? As a self-employed individual with an expensive policy, I know that employees typically place low value on their benefits, and frankly, don’t realize how lucky they are. As a B2B CFO^®, I know that clients hate dealing with EB and are caught in the middle.

I have a great deal of experience in the insurance/ PEO/ benefits field, so I follow the health care debate fairly closely. The basic problem with employee benefits insurance as it is usually done is this: “Today’s paradigm – where one entity pays the cost and another derives the benefit – has fostered inflation, inefficiency, and dissatisfaction for both employers and employees.” Here are some of the positive trends in small employer benefits that are starting to happen:

Defined Contribution: The employer sets a contribution based on affordability and competitive need. It makes it easy to budget, it begins to remove the employer from the EB maze, and focuses on a simple annual financial decision. It’s as different from traditional plans as the 401K is from the old IBM pension. Defined Contribution vs Defined Benefit!
Large Group Underwriting: I don’t think this part of the model is perfected – partly due to insurance regulations – but employers need to become part of a much larger pool at least in terms of group purchasing power. This is the buying power that will ultimately reduce premiums significantly. In a larger sense this is a philosophy that insurance has to be based on large numbers. So I think this will continue to develop to the benefit of small employers.
Consumer Driven Healthcare: Provide the employee with more choices and allow them to spend their money the way they want to. Statistics show that employees are much happier when they can customize their benefits plan to suit their particular needs. It also focuses employees on the COSTS of their benefits and makes the health care market more transparent.
Employee Education: Employees should have a range of services to help and advise them to select plans, model spending outcomes, price comparative services etc. These are the kind of services I have seen with large Fortune 1000 company plans, and they are now coming to this market.

Unfortunately, you won't hear about this type of plan unless you dig deeper. It's a real departure from business as usual, with great potential for employers and their employees.

For more information on Defined Contribution benefits plans and Consumer Driven Health Care, and how an affordable benefits plan can help improve profitability and build corporate value, contact David Kirkup, B2B CFO^® on 770 845 6897.