Path becoming clearer for defined-contribution benefits.

What do cost management, employee wellbeing and the needs of the workforce have in common? All are top priorities for plan sponsors in the coming years, according to the Willis Towers Watson 2019 Benefits Trends Survey released in December 2019. And all three point to the growing relevance of a more defined-contribution (DC) approach to health benefit plans, say industry experts interviewed by TELUS Health.

“The time is right to get creative and meet employees’ individual needs, rather than keep the same program that’s existed year after year,” said Marilee Mark, group benefits strategist, Marilee Mark Consulting. “The technologies are there to more easily support things like taxable spending accounts and more flexible plans, and leverage benefit dollars for things that may not fit into a traditional plan.”

“We’ve talked about defined contribution in benefits for decades but only now are we really able to get at it,” noted Wendy Poirier, managing director, Willis Towers Watson. Technology is certainly one of the drivers, as is a changing workforce.

In fact, the term ‘defined contribution’ is probably not enough to capture the coming evolution of plan design. On the one hand, “we’re talking more about the marketplace concept or system for health benefits, where an employee can go in and have a modern-day, Amazon-type shopping experience, complete with decision support tools,” explained Poirier.

And on the other hand, we’re talking about millennials. “Millennials are taking over the lion’s share of the workforce and they are really pushing us to look at how organizations work,” said Poirier.

More meaningful connections.

Employee experience is today’s buzzword, she continued, which ties into the rise of social enterprise and the concept of sustainable human capital. “If we want our employees to have a sustained good experience in the workforce and be engaged and productive, we have to really understand where they are at in their lives and how we can help meet their needs. That includes their need for a sense of purpose. To do that, we have to look outside the box a bit.”

In the past few years Poirier has noted that more employers have been applying the lens of employee experience to other aspects of total rewards, such as work-life balance and talent development. “Now they’re turning their attention to benefits,” she said.

Results from the Willis Towers Watson 2019 Benefits Trends Survey back this up. Plan sponsors’ top five priorities for health benefit plans link directly to employee experience:

  • Incorporating wellbeing into benefit strategy (82%);
  • Aligning benefits with market norms and employee wants and needs (64%);
  • Enhancing work policies (e.g., flexible work) (64%);
  • Adding/enhancing flexibility and choice (56%); and
  • Incorporating inclusion and diversity into plan designs (55%).

When then asked to choose from a list of specific actions that will be their focus for health benefit plans for the next three years, plan sponsors’ top three responses were:

  • Managing costs (93%);
  • Addressing the specific wants and needs of the workforce (87%); and
  • Building a culture of inclusion and wellbeing in the workplace (86%).

Cost management can be regarded as a perennial focus of action—as it is for most areas of a business, noted Poirier. What’s most notable is the growing priority placed on workforce needs and a culture of wellbeing, which have overtaken priority actions of the past three years (i.e., benchmarking and aligning benefits with the business culture).

A key takeaway from these results is the possibility that addressing employees’ needs and wellbeing can result in more successful cost management. “Employers may think it’s more complicated than perhaps it is to get the triple-win in all of these areas,” said Poirier. “Identifying what employees value and focusing resources on those priority areas may help to manage costs by redirecting dollars to benefits that will get more traction, while improving employee’s wellbeing and productivity, and increasing engagement.”

Essential ingredients for DC benefits.

Personalized benefits is another term to describe the DC approach. Currently, the main design tools available are flex plans, spending accounts (i.e., health spending accounts for CRA-eligible, non-taxable items and wellness accounts for taxable items) and voluntary benefits.

Flex plans are on the rise, according to the Sanofi Canada Healthcare Survey of plan sponsors. The 2019 survey reported that 34% provide a flex plan, up from 23% in 2018 and 19% in 2017. Thirty-three percent of plan sponsors offer health spending accounts, according to the 2018 survey, and 14% offer wellness accounts, according to the 2017 survey.

Wellness accounts for taxable items appear to be generating the most buzz today, according to advisors interviewed by TELUS Health. “Clients are trying to free up budget, because everybody is asking for customization,” said Sandra Ventin, associate vice-president, Gallagher Benefit Services.

Hybrid accounts are another recent trend among large employers, so that employees can allocate funds between an HSA and a wellness account. The main thing is the availability of a wellness fund for a wide range of health-related items, such as virtual care and sports equipment. “It may be a taxable benefit, but the employee feels good that their employer has paid for their running shoes, for example,” observed Ventin.

Poirier couldn’t agree more. “I was skeptical when I put in the first spending account that is taxable for a client. But employees loved it, and since then clients will often say it’s the biggest positive change they’ve done. It is like a guilty pleasure for employees, and they feel valued.”

The same can be said for voluntary benefits, for things like pet insurance and identity theft insurance. Even though employees usually pay the full costs (possibly from their wellness account), they appreciate the convenience and, in most cases, the savings. “The employer’s role is to aggregate and curate, and get a group rate,” said Poirier.

Personalized benefits certainly help meet the objectives of a total rewards program; however, a bigger advantage could be their contribution to employee wellness or wellbeing.

“The biggest reason for this evolution in benefits is really around total wellbeing, so employers can fill a gap in the market and cover items not covered under defined plans. And they don’t have to be so prescriptive in what they’re covering, since wellbeing is such an individual matter,” said Joy Sloane, vice-president, benefits consulting, Morneau Shepell.

Increased engagement and accountability are two other important advantages of personalized or DC benefits. “There is an opportunity for employee education, which is really around joint accountability. Rather than employees feeling entitled to benefits, they can take pride and shop for benefits the way they do for anything else. Their attitude shifts to making the most of what’s available and being accountable,” explained Sloane.

All three advisors agreed that more of their clients would go the personalized-benefits or DC route if they could. Budget is often one barrier, though with time and planning that can usually be overcome. Another barrier, at least for now, is finding the right solution that delivers a positive, modern-day employee experience.

“I’ve had CFOs say, ‘If it’s not on my phone it doesn’t exist.’ They’re looking for a full digital experience that’s simple for employees, that takes people through a personalized benefits ecosystem throughout the different stages of their life,” summarized Sloane.

Evolution of group insurance.

The past few years have seen insurance providers improve upon user experience, and it’s likely just a matter of time until plan members can enjoy a fully digital, personalized “ecosystem.” Equally important, providers recognize that a fully realized DC benefits world signifies an important evolution in group insurance.

Essentially, personalized or DC benefits would lead to an unpacking of traditional benefits, to distinguish insurance from everything else. “Life insurance, disability insurance, insurance for catastrophic drug costs: those are true insurance and you want all plans to continue to have those as core offerings. But ultimately, we can monetize a lot more of the other current offerings and let employees choose levels of coverage that make most sense for them,” said Poirier.

That’s a new business model for the health benefits industry, and that takes time. On the other hand, “insurers know that the world changes constantly, and if you don’t move with it you get left behind,” added Poirier. “The next few years should be interesting.”

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