Plan sponsors should evaluate costs and the combination of services insurers can provide
There’s more to picking a benefits provider than the lowest price. Plan sponsors should evaluate not only costs, but the combination of services insurers can provide.
The first step is to clearly identify needs. Start by answering some basic questions. What do you like about your current provider? What do you dislike? The answers to these questions become the factors used to evaluate each insurer.
Plans can be evaluated in the following areas:
•Business strategy: One of the first things to evaluate is whether the insurer’s business strategy is compatible with your organization. For example, if employees do not have ready access to computers and the insurer is moving away from personal telephone assistance toward Internet-based services, this mismatch could cost you time and money.
The opposite could also be a factor. One software company declined to place its group benefits program with an insurer because the insurer had no defined Internet strategy.
•Stability: The collapse of Confederation Life introduced an insurer’s financial stability into the selection equation. As part of the evaluation process, be sure to check the published ratings by companies such as Standard and Poor’s, Moody’s and A.M. Best.
Similarly, insurers that go through mergers and acquisitions experience an integration process that usually results in service disruption. Keep an eye on the business press when choosing a provider, and use your personal network to investigate any rumours.
•Employee satisfaction: How important is employee satisfaction in your organization? Employee satisfaction is usually one of the key ingredients in any successful benefits program. Make sure that the insurer understands your organization’s commitment to employee service and satisfaction and ensure this is equally important to the insurer. Ask if the insurer has service/response standards for its call centre or claims payment area. Or education materials may be important to the organization. Whatever your requirements, make sure they’re explored.
•Cost: Group insurance costs are made up of items such as premium rates and pooling charges, administration expenses, reserve requirements, and interest crediting and debiting methodologies. New types of charges are also being introduced such as “cost of capital” charges which can increase the cost of dealing with an insurance carrier.
Given the consolidation in the insurance industry in recent years, the cost differential between providers has narrowed. However, price remains a factor in the new provider decision.
•Adjudication processes: Evaluating how an insurer adjudicates claims is an important step that is often overlooked. Don’t mistakenly believe that if one carrier can adjudicate your plan design, then all insurers can. In reality, claims administration technology and capability varies among the insurers. This can have serious consequences, especially in union environments where grievances have been launched because the new insurer did not adjudicate a claim in the same manner as the prior insurer.
If you have special claims needs, make sure the insurer can meet them.
•Technology and administration: Efficient electronic administration services can save time and money. Electronic plan enrolment systems and data interfaces between the insurer and an organization’s payroll or HRIS, for example, have cut back on data entry by HR staff and reduced the number of forms employees have to fill out. Some insurers have also begun to offer claims submission online, which provides convenience for employees and allows HR to concentrate on more strategic issues.
•Reporting: How important is functional reporting such as divisional premium and claims figures to your organization? Technology has greatly improved the choice of reporting options for plan sponsors. Modern reporting systems now allow for more timely review of plan usage. Depending on priorities, reporting may be a trade-off for cost. One non-profit organization chose a carrier with a slightly higher cost factor, but with the ability to provide special reports required for plan analysis.
•Value-added services: During the selection process, don’t forget to evaluate the importance of innovative products and services. Value-added services can be a deciding factor — a manufacturing company with sales employees in Canada and the United States chose its insurer not because of cost, but based on the ability to cover employees on both sides of the border.
In addition, make sure to ask who provides the insurers third-party services, such as pay-direct drug claims, travel assistance and employee assistance program (EAP). Do these services such as EAP need to be bundled with the benefits provider or can a firm without any alliance to the insurer provide these services?
•Commitment to relationship: The reality is there are fewer insurance companies to choose from today. During your search, look for insurers that are not only flexible and creative problem-solvers, but are also willing to work to build a long-term relationship.
Given the time and resources required to change benefit providers and to position the new plan with employees, it is in your best interests to cultivate a relationship that will work for you in the long term.
Jeremy Pereira is a benefit consultant with Buck Consultant’s Toronto Group Health and Welfare Practice. He can be contacted at [email protected] or (416) 644-9293.
Putting the quote in perspective
Insurance quotes need to be evaluated individually and reviewed for the short- and long-term cost implications. Sometimes insurers quote prices at significantly lower rates in order to obtain your business. They may also offer rate and expense guarantees. Make sure you understand that while the initial pricing may look tempting, your organization could face large cost increases in subsequent years.
On the other hand, in one instance, a carrier provided what appeared to be a “low ball” quote to a large forestry company, with guaranteed costs for two years. Though costs were likely to increase after two years, the short-term savings were too good to pass up and the quote was accepted.
The first step is to clearly identify needs. Start by answering some basic questions. What do you like about your current provider? What do you dislike? The answers to these questions become the factors used to evaluate each insurer.
Plans can be evaluated in the following areas:
•Business strategy: One of the first things to evaluate is whether the insurer’s business strategy is compatible with your organization. For example, if employees do not have ready access to computers and the insurer is moving away from personal telephone assistance toward Internet-based services, this mismatch could cost you time and money.
The opposite could also be a factor. One software company declined to place its group benefits program with an insurer because the insurer had no defined Internet strategy.
•Stability: The collapse of Confederation Life introduced an insurer’s financial stability into the selection equation. As part of the evaluation process, be sure to check the published ratings by companies such as Standard and Poor’s, Moody’s and A.M. Best.
Similarly, insurers that go through mergers and acquisitions experience an integration process that usually results in service disruption. Keep an eye on the business press when choosing a provider, and use your personal network to investigate any rumours.
•Employee satisfaction: How important is employee satisfaction in your organization? Employee satisfaction is usually one of the key ingredients in any successful benefits program. Make sure that the insurer understands your organization’s commitment to employee service and satisfaction and ensure this is equally important to the insurer. Ask if the insurer has service/response standards for its call centre or claims payment area. Or education materials may be important to the organization. Whatever your requirements, make sure they’re explored.
•Cost: Group insurance costs are made up of items such as premium rates and pooling charges, administration expenses, reserve requirements, and interest crediting and debiting methodologies. New types of charges are also being introduced such as “cost of capital” charges which can increase the cost of dealing with an insurance carrier.
Given the consolidation in the insurance industry in recent years, the cost differential between providers has narrowed. However, price remains a factor in the new provider decision.
•Adjudication processes: Evaluating how an insurer adjudicates claims is an important step that is often overlooked. Don’t mistakenly believe that if one carrier can adjudicate your plan design, then all insurers can. In reality, claims administration technology and capability varies among the insurers. This can have serious consequences, especially in union environments where grievances have been launched because the new insurer did not adjudicate a claim in the same manner as the prior insurer.
If you have special claims needs, make sure the insurer can meet them.
•Technology and administration: Efficient electronic administration services can save time and money. Electronic plan enrolment systems and data interfaces between the insurer and an organization’s payroll or HRIS, for example, have cut back on data entry by HR staff and reduced the number of forms employees have to fill out. Some insurers have also begun to offer claims submission online, which provides convenience for employees and allows HR to concentrate on more strategic issues.
•Reporting: How important is functional reporting such as divisional premium and claims figures to your organization? Technology has greatly improved the choice of reporting options for plan sponsors. Modern reporting systems now allow for more timely review of plan usage. Depending on priorities, reporting may be a trade-off for cost. One non-profit organization chose a carrier with a slightly higher cost factor, but with the ability to provide special reports required for plan analysis.
•Value-added services: During the selection process, don’t forget to evaluate the importance of innovative products and services. Value-added services can be a deciding factor — a manufacturing company with sales employees in Canada and the United States chose its insurer not because of cost, but based on the ability to cover employees on both sides of the border.
In addition, make sure to ask who provides the insurers third-party services, such as pay-direct drug claims, travel assistance and employee assistance program (EAP). Do these services such as EAP need to be bundled with the benefits provider or can a firm without any alliance to the insurer provide these services?
•Commitment to relationship: The reality is there are fewer insurance companies to choose from today. During your search, look for insurers that are not only flexible and creative problem-solvers, but are also willing to work to build a long-term relationship.
Given the time and resources required to change benefit providers and to position the new plan with employees, it is in your best interests to cultivate a relationship that will work for you in the long term.
Jeremy Pereira is a benefit consultant with Buck Consultant’s Toronto Group Health and Welfare Practice. He can be contacted at [email protected] or (416) 644-9293.
Putting the quote in perspective
Insurance quotes need to be evaluated individually and reviewed for the short- and long-term cost implications. Sometimes insurers quote prices at significantly lower rates in order to obtain your business. They may also offer rate and expense guarantees. Make sure you understand that while the initial pricing may look tempting, your organization could face large cost increases in subsequent years.
On the other hand, in one instance, a carrier provided what appeared to be a “low ball” quote to a large forestry company, with guaranteed costs for two years. Though costs were likely to increase after two years, the short-term savings were too good to pass up and the quote was accepted.
