You may be paying too much or not offering the right incentives to retain your employees if your company isn’t benchmarking its benefits program annually.
“It’s important to see where you’re stacking up in terms of offering competitive benefits compared to employers that are recruiting and attracting the employment base that you recruit from,” says Daniel Meracle, Employee Benefits Consultant and Wellness Adviser with Benefitdecisions, Inc.
Smart Business spoke with Meracle about the benchmarking process and how it can help in planning business strategy.
What is benchmarking?
It’s comparing the benefits your company offers employees to those of like employers in similar industries, geographic regions and of similar size.
You can compare just about every feature of the benefits, from employee contributions, both as a dollar amount and as a percentage of the overall premium, to total out-of-pocket cost per employee or per family. You can also get into details of the plan regarding deductibles, co-pays, out-of-pocket maximums and so on. Once you have made these comparisons, you can evaluate how your company stacks up relative to your peer companies. Your company may have a specific strategy around benefit levels and can use the benchmarks to determine if you are meeting this strategy. The benchmarks can also tell you where you are out of line with competitors in terms of costs or benefit coverage, or if you’re not offering a benefit that is now common.
Medical cost, coverage and plan design are typically the largest portion of a benchmark analysis because medical insurance is the biggest cost component of an employer’s benefits package. However, you can look at all the ancillary lines, such as dental, life, disability, 401(k), pension plans, wellness programs — even incentives and features within wellness programs.
How are the results used?
The benchmarking analysis helps you strategize about what level of benefits you want to offer. Do you want a richer benefits package to improve retention, or is it time for a change that aligns you with your peers?
It also helps you come up with a plan of action rather than just be satisfied with getting a 4 percent increase in health insurance premiums instead of a 15 percent increase. If you have a much higher cost per employee per year than the benchmarks are showing, that means you either have richer benefits or some higher-utilizing employees in your plan. You can then change the benefit plan to shift more costs to the high utilizers, or justify the cost for investing in and launching a wellness program. It’s a strong encourager of wellness programs when you can show that medical costs are 20 percent higher than the norm, for example.
Where do you get the information?
There are benchmarking reports put out annually by various insurance carriers, industry associations and brokers. These reports compile statistics in numerous categories and drill down into plan design and features. For example, reports will show how many employers cover bariatric surgery and what kind of co-pays they put on emergency room visits.
What information is needed for an analysis?
Usually just a copy of your medical plan summary of benefits, the most recent month’s health insurance bill and the schedule of employee contributions.
Can companies do this by themselves?
Usually a broker or benefits consultant puts together the reports and the analysis of your company’s plan relative to the benchmarks. Often there are recommendations for plan, contribution or benefit changes resulting from the analysis. The analysis may also confirm you are achieving your benefits strategy.
It is important to benchmark using the same data source and around many of the same categories each year so you can evaluate changes and progress.
By monitoring benchmarks annually, you can evaluate your plan design to ensure cost-effectiveness, that your benefits’ objectives are being met and you’re providing competitive benefits for your employees.
Daniel Meracle is a Employee Benefits Consultant and Wellness Adviser at Benefitdecisions, Inc. Reach him at (312) 376-0433 or email@example.com.
Insights Employee Benefits is brought to you by Benefitdecisions, Inc.