Author: Brian Lindenberg
Employee benefit plan design has changed very little over the last several decades. Sure, there have been subtle tweaks over the years, but the basic plan design fundamentals have stayed the same.
Recently we’ve seen some innovation in the areas of plan management, increased plan flexibility and a greatly enhanced employee experience, but in many respects the underlying benefit promise has remained remarkably consistent over the years. We still define benefits within a relatively narrow context of life, disability, health and dental.
So, given the lack of change, does this mean – after all these years – we’ve still got it right?
I would submit that we are way past the time for change. Employee benefit plan design has withstood the test of time and, along the way, delivered reasonable protection to covered employees and their dependents. And from an organizational perspective these plans have been, by and large, affordable – although not without concerns related to cost escalation along the way.
While reasonable protection and an affordable cost doesn’t immediately seem like a recipe for change, it’s absolutely necessary if you believe the future will look significantly different than today. The status quo really doesn’t work.
1. The risks of today and tomorrow are larger and different.
At its core, an employee benefits program is a mechanism through which an employer can manage/fund a number of different risks. These risks include organizational and individual health, employment risks, repetitional risks and compliance risks. And these risks are getting much larger. For example, employee benefit plan design really never contemplated the payment of high-cost prescription drugs.
2. The employment deal is changing.
Increasingly, both employees and employers are driving a different employment deal, one that isn’t measured in decades of service but rather in months or a few years. Also, contract employment is fast becoming the norm – within the next decade or two it’s expected that a significant percentage of the workforce will be contractors.
The recently published 2015 Mercer Inside Employees’ Minds survey concluded that 35% of all employees are seriously considering leaving their jobs despite being reasonably happy with their organization, career opportunities and the overall employment proposition. In some respects, benefits don’t matter. And certainly benefits that guarantee long-term financial stability – such as disability – seem somewhat misaligned with the increasingly transient nature of the workforce.
3. The changing focus of healthcare.
We have seen impressive developments in the areas of digital health technology, including wearables, genetic testing and personalized medicine focused on behaviour modification and ultimately on the prevention of future injury/illness. Yet, today’s healthcare plans are still primarily focused on responding when someone is sick rather than proactive health management.
4. The workforce is increasingly diverse.
This diversity is driving an immensely varied perspective on what’s important in terms of a benefits program. Some cultures do not value life insurance, for example. And there are many generational biases with respect to the importance of, say, disability coverage versus massage therapy. We attempt to address this diversity through concepts such as flexible benefits; however, most flex plans do not go far enough.
5. The rising power of the individual.
Benefit plan design in some respects is based on the premise that the needs of the collective is greater than the needs of the individual – i.e., through the efficient pooling of risk, costs will remain affordable. This assumes some sort of bulk buying on a reasonably consistent/homogeneous basis to reduce administration costs. However, individuals are increasingly motivated to buy highly customized products/services that meet their own unique needs in a way that suits them.
So, what does all this mean for employee benefit plan design? Change is necessary.
We need to be thinking in terms of offering benefits that are appropriately designed for the emerging risks. For example, why do we still cover the cost of chronic medication that, for the majority of people, is affordable and potentially limit the cost of high-cost medications that can dramatically improve someone’s quality of life in a truly catastrophic situation?
And should we continue to provide long-term income replacement in the event of a disability for someone who has no long-term employment commitment to the employer? If the nature of employment is moving towards more contract/short-term employment, why provide employer-sponsored benefits at all? Perhaps facilitated access to individual contracts of insurance is all that’s necessary?
It’s time we challenge some long-held beliefs about employee benefit plan design. It’s time that we look beyond the relative comfort of “status quo” and understand the profound market trends that will shape risk, cost and needs/wants/expectations in the near future. It’s time that we say goodbye to benefit plan design as we know it today – and open our eyes to the possibilities of tomorrow.
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