Balancing Benefits Cost-Savings with Disruption

Business leaders often strive for “efficiency,” and this word is used so often that we can sometimes forget how much nuance is packed into this singular idea. Efficiency is the careful balance of time, resources, performance, and cost. Each of these elements is important to a profitable business, but if you optimize any of them in isolation you may actually harm the business. If you try to execute a task as quickly as possible, you may sacrifice performance quality, waste resources, and ultimately increase costs. If you try to use as few resources as possible, you may slow production, overload employees to the point that their performance suffers, and end up losing revenue overall as you struggle to meet demand and fail to deliver quality products. And so on and so on. You already know this balancing act as a business leader, yet many organizations fail to apply this same careful thinking to their benefits plans. And the results can be serious.

The Siren Song of Subsidies and Lower Costs

We have talked to businesses who have heard this strategy recommendation for advisors: Cancel your benefits plan and send your employees to the exchange to unlock subsidies and to cut all of the costs that usually go toward administering your benefits plan (like your internal HR person). Yes, this approach will immediately lower the spend for a business, but is it actually efficient? Does it achieve the purpose behind offering benefits, many times recruitment and retention, or does it diminish employee perception?  Does it actually represent a long-term win or does it ultimately create new, and bigger problems for the business? It is important to understand the impacts of these decisions broadly in your organization though both cost and employee culture. Your benefits plan is more than a static business expense. The right plan with the right execution brings a series of advantages to the business that you lose if you think only about costs. For example:

• With a benefits plan, employees can come to a central source to have questions answered and to use their coverage. If everyone is on the exchange, everyone has to fend for themselves.
• Benefits plans naturally include an advocate for your people, which can be an internal HR representative or an advisor who is motivated to fight for your employees, making sure they are treated fairly and get access to the care they need.
• The lack of uniformity can create tension. With every employee choosing their own plan–often based on their personal financial situation–you could breed tensions over who has procedures covered and who does not, even though they made those choices personally.
• The employee experience can be awful. One of the top considerations for job candidates is the benefits plan, so forcing everyone to the exchange removes that bargaining chip and also transfers more responsibility and frustration to the employees themselves.
• Relying on subsidies handcuffs compensation. If you increase wages based on merit, the hit from payroll taxes and the potential loss of a subsidy can mean that a raise has little material value and may even hurt the business and the employee financially.

Being cognizant of how your changes impact the greater experience is important. As you can see, the real goal for a benefits plan should not simply be to get the lowest rate possible. The real goal should be to make the benefits plan effective and efficient, finding balance between all of your goals and the needs of your stakeholders.

The “No Surprises” Approach

To be completely clear, there is nothing wrong with looking for cost-savings opportunities in your benefits plan. You should always be looking for ways to use your benefits spend more effectively. Those changes will always come with some level of disruption, but the real key is to keep the big picture in mind so that your changes are manageable, scaleable, and practical.