Talking About Financial Matters That Affect You and Your Organization
Employee Benefits: How Bundling can lower (or eliminate) the cost of health and dental benefits
Feb 7th, 2018
“Price is what you pay, value is what you get”
One of my favourite all time quotes. I think it was penned by Warren Buffet but I’m sure it’s been used by many.
The Employee Benefits market is about to be plunged into the deep end of this value proposition.
In Canada, particularly in the Small and Medium business sector – a large segment of the brokerage/advisor community has played the price game for a long, long time and have made a good living doing so. That’s about to change with fee/commission disclosure, in some form, on the horizon.
For another large segment of this community (of which we at Selectpath would consider ourselves a member) – disclosure won’t be a massive issue. This segment plays the value game and should have no issue matching value with cost. Brings to mind another great, but simpe quote – “You get what you pay for.”
Employee Benefits Advisors/Brokers do a lot of things. Executing the transaction itself (getting a quote/price) is the least value-filled of all of those things. Unfortunately, for the “price” focused segment – this is where the value likely stops – offering nothing more than an exchange service (i.e. access to providers). This is why there is appeal, albeit superficial and short-sighted, to a direct model – cutting out the broker and going direct to the provider. A topic for another post, but needless to say the direct model only has value if the only value provided is the transaction.
Value based advisors focus on providing advice, strategic planning, education, administrative support and scaled negotiations (i.e. buying power) in addition to the transaction exchange. The transaction happens last and is the least important in the value chain.
That being said – even value focussed advisors will be forced to provide more in the face of disclosure. Clients who have not previously known the exact amount they are paying for advisor/broker services may ask for more – even if they are very satisfied. This potentially is going to create some headaches for advisors, but in reality, should benefit the best of the best.
There are 3 ways Employee Benefits advisors can add value to their current and prospective clients:
1) Offer more products and services for the same price
2) Find ways to lower total costs, without sacrificing quality, sustainability or otherwise reducing coverage
3) Find ways to grow revenues for clients
The first 2 focus on the cost side of the value equation, the last on the revenue side.
While a case can be made for assisting clients with revenue growth (i.e. helping them attract and retain top talent, which in turn helps them generate revenue and grow their business), it’s an indirect benefit at best and not a linear connection (do A, get B).
#1 is straight-forward – get more bang for your buck, or at the very least expect more than executing the transaction.
I believe #2 – lowering total cost - is a broad topic with many branches. For the purpose of this post – I’m making the case for a “bundling approach.”
As a value advisor, our goal is to help clients with total cost, over the long-term. In the Employee Benefits market – there is far too much smoke and mirrors presented to employers – most, if not all being sales tactics versus beneficial strategies for clients. Every day we see brokers manipulating and spinning this deal or that deal hoping to trick a prospective client into something that rarely delivers as promised. It’s a shady side of our business and comparable to a carnival snake oil sales approach.
To me, transparency and honesty rules, even if it’s not all sunshine and roses. I’d prefer to solve the problem, rather than hide it and defer it to another day or have it show up somewhere else.
A bundling approach looks at the total cost of Employee Benefits – the direct costs (what you pay in premiums) + administrative costs (the time spent administering the plan) + indirect costs (items not normally considered in the total cost like legal fees).
Direct costs NEED transparency. I won’t explain here what that looks like – but it’s not complicated. Direct costs are easy to calculate and can be managed/reduce/controlled through proper planning.
Administrative costs are hidden for the most part – buried in the day to day “work” of running a business. Having the proper policies and procedures in place minimizes administrative costs (i.e. don’t reinvent the wheel every time). HRIS software can also minimize administrative costs (if done properly) – streamlining things like onboarding, payroll, employee data management, communications, time and attendance and more. Finally – partnering with an advisor AND carrier that have a robust service model also reduces administrative costs – spend less time getting answers and information.
Indirect costs are almost never factored into the equation and most certainly are always ignored by price-focused advisors. However – Indirect costs often account for the biggest piece of the total cost pie. They are infrequent and high dollar amounts. Most employers know what it costs to hire a lawyer to handle a situation that has blown up. As a value advisor – our approach is to help clients proactively prevent (through policies and procedures) or cost-effectively manage (through HR consulting) employee situations. Most employers will incur these scenarios on a semi-regular basis. A few rounds with the lawyers can exceed the entire annual cost of the benefits plan, escalating dramatically if the employer is in the wrong.
So true bundling involves an assessment of the TOTAL COST of direct + administrative + indirect costs. For many small and medium businesses – the pitch is always on the direct cost only. A value advisor that provides solutions for the administrative and indirect costs can often save those businesses big dollars, dramatically offsetting (or sometimes eliminating) direct costs – permanently and transparently. That’s true value.
Hello bundling. Good-bye snake oil.
Questions? Contact me at firstname.lastname@example.org.
I am a bringer of solutions. Small and medium businesses are the cornerstone of our economy. Awesome employees are the cornerstone of those businesses. I help small and medium businesses build integrated talent management strategies and then bring solutions to the table to execute on those strategies. If it relates to attracting and retaining the best possible employee talent - I can help.
I also wear a very technical hat - I'm an Employee Benefits Specialist. I work with small and medium business to make sure their Employee Benefits plans matter to their employees, are cost-effective and sustainable and are much more than an after-thought. I take Employee Benefits seriously and blog about topics that are relevant to small and medium businesses, a woefully under-serviced segment that deserves better.
Selectpath specializes in Employee Benefits, Pensions, Wealth Management and Human Resources for small and medium business. We are a one stop shop for anything related to managing employee talent. We help close to 1000 businesses just like yours build, manage and administer their Employee Programs. These businesses rely on our expertise to make sure their programs are competitive and cost-effective, now and in the future. Our size and scale allows our clients to secure pricing they cannot get elsewhere. As a result we help our clients attract, recruit and retain the best possible employee talent to their business.