Many employers look at employee benefits as a commodity, bidding out their plans annually -- and who can blame them? Rising health care costs coupled with a challenging economic environment have forced many human resources decision-makers to focus heavily on cost.
Organizations of all sizes struggle to find a balance between cost considerations and a strategy-based approach to benefit planning. Creating a competitive benefit plan, though, can directly affect employee acquisition, retention, productivity and training, all of which significantly impact employer costs.
When choosing group health insurance, companies often go about it in one of two ways: The Request for Proposal (RFP) approach or the Two Step Process.
The RFP Approach
In the past, a company would put out an RFP to many brokerage firms. Each broker would take that information and send out quote requests to various carriers. Brokers would then return with a list of potential options for the company that sent out the RFP.
There are several pitfalls that can occur with this type of selection process.
One concern with the RFP process is that the information used for this often lacks depth and only includes census, claim, and plan cost information. There is a shift of focus from your "total cost of risk" to your premium. A premium is a small portion of a company’s total risk. A premium does not take into account your company’s human resources department and how the different benefits will affect staff. After all, most companies will agree that their biggest assets go home at night.
Just focusing on the premium increases creates the potential of coverage deficiencies. It can actually have a detrimental effect on your company's ability to secure the best rates from a carrier. When an insurer receives multiple quote requests for the same company, it can create the appearance that the business is being “shopped.” Because of this, the willingness to work hard or negotiate on the quote may diminish. In addition, and perhaps more importantly once an insurer has established a rate for a given census/claim/plan/cost information set, each broker will receive the same quote, negating the potential benefit an employer was attempting to achieve by sending multiple brokers into the market. It actually limits the negotiation power of your advocate/broker.
It is possible to mitigate this appearance of shopping around by assigning each broker to a specific market segment or set of carriers. However, this is also not without risk. The likelihood of matching the brokers and carriers based on who has the best relationships with which carrier is highly unlikely. This puts the broker at a disadvantage by limiting the full range of their contacts, and puts your company at a disadvantage by not allowing the brokers to leverage the more aggressive quotes against one another.
The Two Step Process
I suggest that the ideal process for benefit advisor selection is only two steps. One, choose your advisor. Two, with the help of your advisor, select the carrier and benefits plan that provides you with the greatest value and return on your investment.
The best way to go about this selection process is through a structured evaluation of the two individual pieces. First, you want to evaluate what the advisor can bring to you.
There are several things to looks for:
- Follow through and accountability
- Quality and depth of support personnel
- Quality of service
- Ability to communicate clearly and concisely
- Scope of support services and solutions (e.g., technology, HR, compliance)
- Program design and innovation
- Market knowledge and relationships
Additionally, look for strategies for health risk management and total compensation, proactive approaches for controlling future costs, willingness to disclose total costs, and your company's personal rapport with the account team.
In a separate evaluation, you want to look at the carriers. They can be evaluated on a number of criteria as well.
- Financial strength and stability
- Coverage terms and conditions
- Provider networks
- Customer service capabilities
- Available tools and resources to support employee communication, education, and engagement
- Knowledge of the buyer’s industry and business