Monday, January 16, 2012

DEFINED CONTRIBUTION STRATEGY - PART 2 - AN EMPLOYEE BENEFITS FIX FOR THE OVERALL BENEFITS DESIGN

Defined Contribution (Def Con) - Part 2

BenefitPlace.biz and BPTradeShow.com present their 2nd Installment of a discussion about an Employee Benefits Strategy,  Defined Contribution (Def Con), as it applies to the Employers overall Employee Benefit Plan design.  This strategy can provide a methodology for 2012 and Beyond!  

Employers, Employees, Brokers, Consultants, and Service Providers can enjoy a "winning" opportunity in these times of Industry Turmoil!  Your questions, input and thoughts will be of value as these discussions continue.  Email max@benefitplace.biz to contribute. 

Background - Nearly 20 years ago we co-sponsored a "Think Tank" outside of Philadelphia to discuss the future of Insurance and Benefits.  It was after the debacle of the Clinton Health Plan in 1993.   It seems approprite and fitting to renew these discussions as the Insurance and Benefits Industries grapple with continued rising costs and Obamacare/PPACA.

The Problems - While we covered a variety of problems facing the Insurance and Benefits Marketplace, Seven (7) Problems came to the forefront:

1. Market Segmentation - The lines of separation between Core and Voluntary Benefit Plans were no longer clear because all benefits were becoming Voluntary. Traditionally these Plans had been divided into: :
  • Core Benefits (true group plans), ie. Health , Dental, Vision, Long Term Disability (LTD), Term Life Insurance, Accidental Dismemberment (AD&D) and
  • Voluntary Plans (Worksite Payroll Deducted Plans), ie. Short Term Disability (STD). Accident, Cancer, Universal Life, Critical Illness, Legal Plans, etc.
2. Skyrocketing Premiums - The Employers, and specifically the CFO, could no longer accept the skyrocketing increases in the premiums for Health Insurance Coverage. There were no budgetary controls and the double digit increases were unacceptable.

3. Overburdened Human Resources - The HR Departments had become overburdened with the process of selecting Benefit Plans and the Employee, Education, Communication, and Data Management Processes - as well as the Claims and Eligibility of new hires among other benefit related responsibilities.  Many felt that the HR Departments Function should be Hiring, Training and Retaining Employees.

4. Multiple Enrollments - Given the market segmentations - Core Benefits, Voluntary, and Retirement Plans - the Employers and Employees often faced three separate Enrollment Periods and Effective Dates. The Variety of Choices, and the Brokers representing the Plans, were vying for the Employers and Employees “Invested Benefit Dollars”.

5. Tax Advantaged Plans - The introduction of Tax Advantaged Plans, such as Section 125 POP Plans, Medical, Dependent Care, and Transportation Reimbursement Accounts - while potentially beneficial and cost-saving for the Employer and Employees - were often confusing and generated penalties.  In addition, these Plans often required an addittional TPA for Managing the Plans.

6. Confused Employees - The Enrollment Process had become a nightmare. The Employees were confused and did not understand their Choices.  There was little or no method to show Employees how the various plans integrated.  Though only in their developmental stages, and as a factor in reducing the Health Insurance and Workers’ Compensation Plan Costs, Employee Consumerism and Wellness Initiatives were gaining acceptance. The major questions about these plans seemed to be: What is the ROI and How are Employees provided incentives for Participation and Results?

7. Broker Involvement – Much like the Benefit Plans mentioned in (1) above, Brokers generally offered either Core Benefits or Voluntary/Worksite Plans - not both!.  Most of the Voluntarty/Worksite Brokers represented one Insurance Company and were regulated as though they were Captive Agents.

A Solution - While in the "Think Tank" we discussed each of the seven problems above, and came up with a number of possible solutions for each, we only developed one line of discussion that seemed to embrace all seven (7) with One Solution. This was a Defined Contribution Design (Def Con) - Sometimes referred to as a “Full Flex” or “Cafeteria” Plans.

Definition of Def Con - We will further define Def Con and the fine tuning of these plans in further discussions. We are defining Def Con as an Employer sponsored Employee Benefit Plan that stabilizes the annual Benefit Budget paid by the Employer by offering the Employees a Fixed Dollar/Credit Amount to support the Employee’s “Self-Directed” Benefit Choices and Portfolio.  Employees can add personal funds through payroll deduction for added “Risk Protection” and meet their needs.  Employers, working with their Brokers and Consultants, select a Menu of Benefits - Plans, Programs and Services - and allocate a credit pricing value to these Choices.  Benefit Eligible Employees are provided an all inclusive one time per year Education, Communication, and Enrollment period where they are “Empowered” to make informed and Integrated Decisions.

Solutions to the Above Problems - While I will further discuss the positive and negative attributes of Def Con in ongoing discussions, the following briefly points out the Solutions Def Con provides for each of the above Seven (7) Problems:

1. Market Segmentation - Def Con categorizes all benefits as Voluntary. The Employees select the Plans, Programs, and Services they and their families need within their “Price Points”.  Credit Price Values may differ from the actual Dollar Cost.  The Credit Price Values are assigned to each different Plan, Program, and Service.  This differentiation in "Pricing" can be utilized to create intentional ”Migration” from one Plan, Program, or Service to another.  The reasons for and utilization of “Migration” will be a topic in a future discussion.

2. Skyrocketing Premiums – While Def Con cannot have an impact on the year-by-year premium increase, it does permit the CFO, or financial decision-maker within the Employer's operations, to budget the amount they will spend on benefits year-by-year.  Because the Employees see the credit or dollar cost of the Plans, Programs, and Services, they may become better Consumers.  If multiple carriers are utilized within any given category of Benefits, there may be some consumer driven pricing pressure on the Insurer.

3. Overburdened Human Resources The HR Department can substantially reduce the time involved in the benefits decision-making process and return to Hiring, Training and Retaining Employees.  HR Departments, working with the CFO, should be encouraged to focus on selecting qualified Broker/Consultants and capable Enrollment Companies for building and delivering a Menu of Benefits to meet the Employer's / Employee's Needs and "Price Points".   We will discuss “Selecting Brokers”, “Building a Menu of Benefits”, and “Selecting an Enrollment Company” in future discussions.

4. Multiple Enrollments – With the possible exception of retirement plans, the entire Benefit Plan should be enrolled and share one Effective Date. The Education, Communication and Enrollment process is scheduled and presented at a time convenient to the Employer and Employees.  A capable Enrollment Company is selected that has no financial incentive to promote one Plan, Program, or Service over another.

5. Tax Advantaged Plans – As long as they remain available under IRSC Regulations, these Plans provide an opportunity for Employees to enjoy a reduced net cost for qualified Benefit Plans, Out-of-Pocket medically related costs, Dependent Care, and Transportation Costs.  In addition, the Employer also enjoys savings by the reduction in taxable payroll. The Enrollment Company that is selected must have the capacity to thoroughly explain these Plans to the Employees and provide the Employer proper documentation. These Tax Advantaged Plans fit perfectly into a Def Con design.

6. Confused Employees The above Solutions to Problems 1-5 combine to take most of the confusion out of the Employee's decision-making process.  The selected Enrollment Company must have the capacity to not only Educate and Communicate during Enrollment but offer Employees, as well as the Employer, an ongoing capability of assisting with questions and concerns on a timely basis.

7. Broker Involvement – For Def Con Plans to gain traction it is imperative to assist Brokers in gaining an understanding of the Def Con Plan Design as well as to financially justify their implementation.  A well orchestrated education process should be initiated to gain an understanding in the Brokerage Communities and among the Insurers.  The inherent value to the Employers, Employees must be understood.  We will discuss the Broker's potential Compensation – Commission and Fee Based - in a later discussion.

The above introduction to Der Con should be creating many questions, and possibly objections, among all parties involved in the Benefits Decision-Making Processes.  As we experienced during our "Think Tank" meetings every Party brings in a diverse background, set of experiences, opinions, and concerns.  As we continue these discussions, we will do our best to address questions, objections, and concerns.  I invite all interested parties to send their questions, objections, and concerns to phil@benefitplace.biz.  We will get back by Reply, Email, or during the ongoing discussions.

We invite all parties to Join our Linkedin Group, Insurance Forum, for additional Discussions and to Participate - Go To - http://linkedin.com/groups?about=&gid=2762200

WELCOME TO BENEFITPLACE!

BenefitPlace hopes you will use this forum to respond to posted comments and share your ideas, questions and expertise related to the overall Employee Benefits and Individual insurance marketplace. Thanks for joining us!