What if you could see the future of benefits in Canada? Good news: you can. We have a living example—the United States. This is especially true as it relates to employee benefits. What can we expect as the emergent trends here in Canada? Entitlement vs. consumerism, incentives, wellness, supplemental benefits and health spending accounts.
Canadians are an entitled bunch. The very nature of our health system has bred a nation of entitled consumers rather than educated consumers. If it’s free, why worry about the actual costs? This perception has driven costs into the stratosphere.
Consumerism is about engaging employees in the decisions they make related to their benefits plans—not just flex plans. It has to do with how employees make choices—what pharmacy they use and when and why they consume health products. An obvious example is dispensing fees. But less obvious is the practice of increasing employer contributions. That’s right—increasing contributions. Consider payroll deductions. Many employers ask employees to contribute to their monthly benefits costs whether they use the plan or not. If an employee spends $100 per month, she will need to receive equal or greater value on a monthly basis in order to actually feel the value. A creative solution is to replace the employee premium contribution with a large deductible. In the above case, if the employer were to contribute 100% of the premium and implement a $1,200 per family health deductible, everybody wins. Employees are now officially consumers of the services they use and employers enjoy the costs savings commensurate with a high deductible plan (not to mention happier employees).
Another factor to consider is the proactive vs. reactive argument. The Canadian and U.S. healthcare systems are reactive. Our benefits plans are reactive. Our employees’ attitudes towards healthcare are reactive. Most employee benefits plans would be better termed “sickness plans” than “health plans.”
A growing trend in the U.S. is to fund wellness initiatives designed to prevent sickness. Yes, this means spending more today to save tomorrow. This message is generally not well received by the already strapped employer. However, the proof is in the ROI—return on investment. Studies confirm that a penny spent on wellness today is a dollar saved in health care tomorrow. Forecasts predict that employee benefit costs will double and, in some cases, triple over the next 10 years.
Future healthcare costs will be driven by demographics, lifestyle expectations and newer, more expensive, therapies. We must find ways to contain these costs. Employers aren’t just hiring employees—they’re hiring their families, in terms of health costs. A growing trend in the U.S. is to make programs available (often using the Internet) to employees and their families, including smoking cessation, weight loss, good nutrition and stress management courses.
Holding even greater promise in savings is providing financial rewards and incentives to employees for adopting healthier behaviour. According to the 2005 Sanofi-aventis Healthcare Survey, “73% of employees agree that they have an obligation to help their employer control the costs of their employee health benefits plan.” Fully 54% of employees either strongly agreed or somewhat agreed that “the cost of employee health benefit plans should be higher for employees who smoke, don’t exercise or are seriously overweight.” In a study conducted by PricewaterhouseCoopers in the U.S. (Management Barometer), 48% of 150 CFO’s surveyed think that “employees who exhibit unhealthy behaviours (e.g., smoking, poor nutrition) should pay a higher share of health benefit costs.”
By providing financial incentives to employees to take ownership of their health, and by promoting healthier behaviour, employers in the U.S. are actually increasing contributions to their employees’ health plans. In a Watson Wyatt Worldwide study, 71 of the 1,000 largest companies in the U.S. froze or terminated their defined-benefit plans last year, compared to 45 companies in 2003. Sixty-three percent of the top 1,000 firms still sponsor a defined-benefit plan. That leaves us with health spending accounts. More employers will look at dismissing defined-benefit plans and adopting defined-contribution plans. These ensure a limit to an employer’s risk and allow the employee to choose how their contribution is spent.
Eric Shulman (eric@healthsourceplus.com), is a partner at HealthSource Plus, a benefits and pension consulting firm in Toronto, Montreal and Niagara.