Are You Covering Both Angles?
by Gordon R. Hart, GBA, REBC, RHU
Employee Benefit & Pension Specialist
Canadian healthcare costs continue to rise, and there is no indication that trend will change. A recent study conducted by the McKinsey & Company on behalf of Sun Life Financial reports that if left unchecked, healthcare spending will reach 17.3% of Canada's gross domestic product in 2025 (was 9.9% in 2005). This will result in healthcare expenditures exceeding 50% in Provincial budgets which many insiders say is the maximum government would be willing to spend. In an effort to curb public healthcare spending, governments will likely continue to shift an even greater share of the cost to the private sector. At the same time, employee absenteeism and presenteeism costs are expected to continue rising beyond a level that is affordable to plan sponsors.
These facts present two key areas of focus for organizations to manage their workforce healthcare costs:
- Supply Management: How—and how much—should plan sponsors facilitate access to healthcare services for their plan members?
- Demand Management: What role should plan sponsors play in promoting health improvement, to prevent and control the health risks that are driving healthcare costs and disability absence costs?
Supply Management
At a macro level, all stakeholders—insurers, advisors, plan sponsors, and governments— must continue to work closely to ensure there is a clear, common understanding of the implications when healthcare policy and budget decisions are being made. At a plan level, it is important for plan sponsors to clearly define their benefit plan strategy and where the benefit spent will be focused (e.g. on day-to-day expenses, or on protecting against catastrophic risk or some combination) and then develop an innovative program to support those goals. To build those strategies, meaningful data and information on which to make decisions must be made available, Currently some of this data is available from various sources, but there is a growing need for more comprehensive, integrated analysis to provide 'the big picture'.
- For high-cost areas such as drug plans, plan sponsors may wish to consider opportunities such as generic substitution, member co-pays, multi-tiered formularies and drug intervention programs (such as prior authorization and trial prescriptions) to maximize their spending.
- Faced with more responsibility for covering their own healthcare costs, plan members will increasingly be looking for information and advice on a variety of levels. Today, plan members look to their plan sponsor as the primary source of benefits. But there is also a growing demand for access to an (employer-approved) advisor through the workplace, so members can obtain reliable advice about meeting their additional coverage needs.
- It will become increasingly important that benefit plans are designed to encourage and accommodate workers who choose to continue to work beyond normal retirement age. It will be critical that benefits not become a barrier to retaining these valuable employees.
Demand Management
It's well recognized that an effective workplace health management program will help reduce benefit and absence costs; improve productivity; and get employees engaged in reducing their health risks. Plan members need education to be better healthcare consumers. In addition, less than 50% of Canadian plan members understand the true cost of their benefits as outlined in the 2007 sanofi-aventis healthcare Survey, and most do not have a real understanding of what the government does cover. Currently there are some tools available to assess and report prevalent health risks, but supporting data and usable interfaces are not prevalent. Most employers do not expend much energy on reporting the costs and coverage of their benefit plan to their plan members.
Some Considerations
- What is the health status and what are the prevalent health risks within their employee group?
- What level of programming is feasible and affordable, and what internal and external resources will be required to implement and sustain it?
- What kind of return does their organization expect to realize on their health investment, and how will that return be measured?
Equally important is the need to engage plan members in taking ownership for their own risk management and financial planning. The importance members place on dental and drug benefits (and for Gen X employees, on 'lifestyle' benefits such as fitness centres and paid sabbaticals) speaks to the need for better education around the intrinsic value of financial risk protection. Coordination of information between the Plan Sponsor and Plan Provider is key to delivering thorough plan member education.
