Benefits benchmarking

By Dave Jones | July 29, 2010 | Last updated on July 29, 2010
5 min read

A generation ago, benefits plans were a different animal. One-size-fits-all plans were the norm and the offloading of health costs by governments had yet to begin in earnest. Employers offered simpler plans for a simpler world.

Fast-forward to today, and the benefits landscape has changed. Many costs have shifted from the public to the private sector and flexible plan designs have brought more benefits choice to employees. As a result, plan sponsors must manage benefits costs while continuing to provide a competitive compensation package for a workforce with increasingly diverse needs and wants.

While employers can have different objectives for their group benefits plans – to be a leader, to be competitive, to provide a base level of support – the one thing they all can use is reliable comparative information to determine if their plan is achieving its intended goal. And that’s where benefits benchmarking, and plan advisors, can play a key role.

Surveying the field

Benchmarking enables advisors to compare the features of a client’s benefits plan against a cross-section of other plans. The comparison group can be customized and based on a number of measures – companies of a similar size, ones in the same industry, or those in the same geographical location, for example. This information can provide employers with an immediate measure of how competitive their plans are against a comparative firm’s.

“There’s a steep learning curve when it comes to benefits, so clients are looking for two things: our subjective knowledge and opinion as consultants plus objective data on how their plans stack up,” says Faizal Mitha, a group consultant with ES3 Insurance Services Ltd. in Vancouver, B.C.

Paul Ethier, a consultant and partner at Ethicor Consulting Services in Longueuil, Quebec agrees. He says clients also want objective verification; “the hard numbers that we can put down on paper.”

In addition to providing information clients are demanding, benchmarking also serves as a tool for strengthening client relationships and adding value as a consultant.

“We already have the hard data, so now we can talk about how benefits fit into their strategy and where they want to be in terms of a quartile ranking,” says Mitha. “Then we look at ways we can give maximum bang for the buck in terms of supporting these objectives.”

Advisors and providers can assist clients as they work to address two key issues. The first is the growing importance of benefits plans in terms of attracting and retaining employees.

The second is the reality that price is an important consideration when there’s a finite pool of funding. Benchmarking can play a key role in helping clients maintain their competitiveness and making the best strategic use of their benefits plans.

For example, let’s say a client is contemplating a 3% pay increase for employees. Data, though, may show that allocating a portion of that increase, say 1% of pay, to improve highly visible elements of their benefits plan – such as drugs, health and dental – would move them from the 2nd quartile to the 1st quartile of their comparator group. This could be a huge selling point in terms of attracting and retaining employees. The client is left with options to consider in terms of how to best use their compensation dollars.

The rise in benefits literacy among employees, supported by the more participatory approach that flexible benefits plans and healthcare spending accounts demand, has also fuelled the need for employers to know how their benefits plans compare.

“Employees are very benefits-minded, and they’re putting pressure on employers in terms of benefits improvements,” says Ethier. “Employers can’t say yes to every demand, so they have to know where they’re situated in the marketplace to show the competitiveness of their plans.”

Zeroing in on claims costs

One other key benefit of benchmarking is the ability to compare a client’s claims utilization to other plans. This can be an excellent tool for identifying areas of possible cost containment, or helping a client take proactive steps, such as establishing a wellness program, to reduce the need for certain types of claims.

“We use benchmarking for many of our regular plan reviews,” says Mitha. “It helps clients sharpen their pencils and see the areas they may be able to save money or things they need to upgrade to remain competitive.”

Because benefits plan usage can change over time, benchmarking data relating to claims can be a valuable way to spot trends and ensure clients are aware of how their plans are being used by employees.

For example, some B.C. plan sponsors are starting to see the use of paramedical and alternative healthcare benefits creep above those of prescription drugs. Given it’s a generational trend that could broaden, benchmarking could be invaluable in helping these clients structure their plans appropriately.

Benchmarking can also help clients spot potential health issues within their own workforces. For example, they can identify drug claims that are above the benchmark norm. In so doing, they can review their operations to see if there are contributing factors in the workplace that can be addressed, and work towards reducing these claims.

Better benchmarking on the way

It’s one thing to be a benchmarking advocate and quite another to locate the data you need to carry out the task. Advisors who understand the importance of benchmarking have long faced the challenge of finding quality data with which to benchmark. “It’s a great concept, but it’s been a bit patchwork in terms of getting credible information,” says Bill Brown, senior vice-president at The Williamson Group in Brantford, Ont.

That’s changing. Responding to requests from advisors for benchmarking information, some insurance companies have now developed tools based on their own block of business data to give advisors direct access to powerful facts and figures. This data can be industry-specific, and provide a very high level of detail.

“We’re finally seeing tools that let us drill down to get very specific data,” says Mitha. “That’s the kind of information that’s of most value to both us and our clients.” These aren’t just statistics, they’re invaluable nuggets of information that can be used to help a client restructure their plan to save money, or make it more competitive within their industry.

Benchmarking is a building block, providing key insight to advisors and clients to customize their benefits plans to fit their budgets and employee needs.

And as access to benchmarking data improves, the demand and expectation for benchmarking services from advisors are sure to increase.

  • Dave Jones is vice-president, Market Development, Group Benefits, Sun Life Financial Canada . He develops and executes market strategies for Group Benefits in Canada and is also responsible for product and service development, customer research and insight, and marketing and communications.
  • Dave Jones