At some point in your business growth you reach the daunting task of having to offer benefits to your employees. Having been through it ourselves, we understand the process very well. First you complain: “Why can’t it be like how it was when we were smaller?”. Then you get confused: “When did I become a benefits expert?”. Finally, you accept your lot: “We have to pay how much?! Well, at least it’s over. So that’s something.” And benefits is changing year-to-year: HSAs, HRAs, high deductible accounts. It’s easy to get lost and make bad decisions. But you don’t have to make bad decisions. And, the process of buying benefits doesn’t have to be so painful. You just have to follow the three keys to buying benefits plans. So, let’s go through them one at a time.
Don’t Buy on Fear
How much you and your employees pay for benefits often comes down to how you feel about “What ifs.” What if half of our employees get a long-term illness? What if we underinsure our high-insurance-use employees? Poker players and economists are great at buying benefits. How are they the same? They’re both very good at assessing risk. In business, as in poker and game theory, decisions made out of fear cost far more than decisions made through analysis and 8th grade math. And when you take fear out of the equation, you get a better solution and you get the peace of mind that you’re not overpaying.
Optimize for the Majority, not the Outlier
Allaying fears is the best part of our job: by looking at your history, demographics, and size, we can choose the appropriate plan for your employees. Once you take away the “What ifs,” your decision becomes much more of an analytical one. A good rule-of-thumb to follow is the 80/20 rule: your benefits should cover 80% of your employees while protecting the other 20%. Most companies buy low co-pay, low deductible plans because they’re an easy sell to your employees and offer the most protection. Who doesn’t want to pay less when you go to the doctor? But only a small fraction of your employees need that much coverage. And, your employees end-up paying more in premiums than they ever would in higher co-pays. Here’s what we know: insurance companies think that behavior will change with higher deductible plans (meaning you’ll go to the doctor less). The result is that they give you the best possible rates for those plans. What we do is simple: we show your employees how to not modify their behavior but still reap the benefits of those low rate plans.
But, what do you do about individuals who use every bit of their coverage every year? That’s easy: consumer driven healthcare. HSAs and HRAs are the perfect solution for high-use individuals because they pay the same as they pay for a low deductible plan. Your typical employees, though? They see big savings because the money that would typically go to premiums goes to their own investment vehicle.
Many companies take the empowerment angle: let’s let each employee choose what’s right for them! This, it turns out, is a mistake. First, your employees are more valuable to the company doing their job than investigating your benefit options. Second, they’ll make the same mistakes above: buy on fear, and optimize for catastrophe rather than what’s most likely. So, do the work for them. Give them only the options that are relevant. Show how the options on average play out. Giving blind choice isn’t empowering. Giving informed choice is.
We’re Here. Use Us!
Your outsourced benefits administrator (broker) should be doing this work for you. But they either don’t know these rules or they choose to ignore them – because while most brokers are well-intentioned, your incentive and their incentive may not line up. As long as everyone at the table understands this, you can make the right choice. But this shouldn’t be about anyone’s incentives but yours: you should be getting the best benefits package for you because it’s the right thing to do for you and your employees. It’s what we believe, and we’ve found it yields the best results for our clients. Sound good? Get in touch!