Effective and Efficient Benefit Plan Design (Benefit Tips ® - © 2001)

While many employers view benefits as a critical component of total compensation, diagnosis they struggle with assessing the value of their employee benefits program.

Value can be assessed in terms of how effectively a benefits plan meets employee and employer needs, as well as how efficiently it concentrates the budget on achieving those results.

Effective Benefit Plan Design

Ideally, benefit plans are designed to accomplish specific human resource objectives. It is important to assess your labour market competitors, as well as which benefits will attract and retain the best staff. You can also explore ways to differentiate compensation in order to attract, motivate and retain various groups within your human resources.

The first step is to imagine the benefit plan design from the employees’ perspective. Each benefit feature should be related to employee needs so that you can identify which aspects of the benefit program are valuable to them. Benefit features that cannot be linked to employee needs should be flagged for careful review. Opportunities to utilize benefit features that will satisfy employee needs can be illustrated using a diagram such as the example provided in Figure 1. This exercise should be repeated for each segment of your workforce.

The next step is to assess the benefit plan design from the employer’s perspective. The process outline above is repeated, with the employer being the focus of attention. An example of the resulting diagram is provided in Figure 2.

The final step is to introduce benefit features that satisfy both employee and employer needs, assess the viability of features that satisfy only one party’s needs and eliminate features that serve no purpose.

The key to an effective benefits program is to intentionally develop a plan design that specifically meets both employee and employer needs.

Efficient Benefit Plan Design

A second aspect of benefit value relates to how efficient the benefit plan is at concentrating the benefits budget on directly satisfying employee and employer needs. Claim payments and expense charges that do not satisfy needs could be considered waste and eliminated. You can improve the cost-effectiveness of your benefits program by scrutinizing supplier agreements, risk management, plan design and claims adjudication practices. The following techniques can produce long-term cost savings by reducing the leakage of funds to inappropriate claims, excessive charges and unnecessary services. Actively manage your supplier agreements to produce immediate costs savings:

  • Unbundling the services of suppliers empowers you to purchase only the ones that you require and decline all unnecessary services.
  • Utilizing the benefit delivery channel with the lowest markup reduces costs.
  • Selecting niche suppliers that provide superior products and value.

Manage the financial risk of your benefit obligations to reduce and stabilize costs:

  • Assessing underwriting and cash flow risks in order to retain those that are reasonable, based on your capital and cash flow capacities.
  • Limiting liability for changes to the pubic programs allows you to strategically expand coverage.

Use the plan design as a filter which allows items that are important to your staff while minimizing waste:

  • Utilizing plan design features such as multi-tiered formularies and dispensing fee limits can encourage cost-conscious consumerism.
  • The strategic use of benefit maximums can minimize inflationary pressure as well as the need for catastrophic risk insurance.

Implement claims adjudication practices that further reduce waste:

  • Utilizing a pharmacy benefit manager can limit the cost of drug claims without affecting employees’ coverage.
  • Requiring special authorization for expensive therapies can ensure that they are provided only when warranted.
  • Profiling providers can help identify fraudulent claims.

The key to an efficient employee benefits program is managing both claims and suppliers.