Open Enrollment & Human Capital Management: Managing Costs for the Savvy CFO
The cost of health care provision for organizations has been steadily rising. In fact in the United States health care coverage is currently the largest employee-related expense that employers will take on. It is estimated that organizations will spend an average of $8,669 per employee, per year on health care coverage. With this increase in costs to employers it is no surprise that Open Enrollment period and its associated elements have transitioned from being the sole concern of the Human Resources (HR) executive to also being of interest to the Chief Financial Officer (CFO).
The human capital management (HCM) aspects of Open Enrollment often come to the attention of CFOs looking to reduce costs. Considering that an organization’s workforce is its most valuable (and expensive) asset it is evident why CFOs would be turning an eye towards Open Enrollment period. ROI of a company’s benefits and health plan comes into sharp focus during this period, raising questions on where cost savings can be attained.
So what is a savvy CFO to do to maximize savings while not hampering the employee attraction and retention aspects of the organizational health care plan? Whether it is a longer term health care and benefits plan strategy or specific tactics for the technology and implementation side of Open Enrollment there are a number of measures that CFOs can take to curtail excessive costs. Looking at cost effectiveness from the HCM perspective and slant can maximize savings and also shine light on more effective cost reduction tactics.
Going the HSA/HRA Route
One route to consider is the adoption of a health savings account (HSA) or a health reimbursement arrangement (HRA). Under the umbrella of Consumer Directed Health Plans (CDHP) one of the most common offerings is a high-deductible health plan (HDHP) combined with a HSA, with 80% of employers with CDHP’s offering it to their workforce. When employees are shopping for which plan to go with during Open Enrollment HSA or HRAs are a cost effective choice to give them as HSA or HRA can carry costs of about 25% to 35% less than a traditional plan. However there are a number of factors to consider beyond simply cost savings when switching to or adding on HSA/HRA options to your plans.
Firstly liaise and work with your HR executive(s) to communicate why you’re pursuing the HSA/HRA option. Present your reasons for why you as the CFO have taken the decision to change/adjust the company health plan and what HR’s role is/will be in that decision. Having HR buy-in is key for moving forward with adopting HSA/HRA’s in a timely and effective manner. Once HR is on-board it is important to work with them to start an effective plan for communicating the changes to your workforce. This is crucial as effectively communicating the benefits to employees of the new HSA/HRA options for them ensures that they fully partake in the plans, reaping their advantages and hence optimizing their health and wellness to in turn be productive at work. Thus the ROI of your new HSA/HRA more often than not depends on the accurate and effective communication of its positive aspects to your employees.
Secondly assess the expertise on-hand in your organization. Having staff on the team who have the technical expertise which will be required to configure your existing systems will be an advantage. In the case of an HSA, for example, having a HSA administrator who is tasked to deal with the added files and greater number of integrations which come with HSAs will be ideal. If you do not have employees equipped to handle the changes HSA/HRAs will bring then consider hiring an experienced team of technical consultants who can come in and implement the new health insurance plan options with ease.
This can be an ideal option for organizations which do not know about the details specific to adopting HSA/HRAs. For example in the case of HSAs the vendor or bank (or sometimes both) will require your employees to open an HSA specific bank account which will have to have money deposited in it. Does your Payroll or HR team have the knowledge or time/bandwidth to handle the influx of information and employee details associated with this? Will your organization be ready to set up the administrative aspects of these new bank accounts? These are only a few details of changing over to HSA/HRA’s which will need to be considered by senior leadership who are advocating for the switch over.
Looking at HSA/HRAs from a human capital management methodology perspective it’s important to remember the employee attraction and retention aspects of your company health care plan. It can be tempting to cut costs by increasing the share that employees pay by a significant amount. But consider the impact on your ability to attract top performers and keep them and avoid significant employee turnover. Benefits and health insurance are a significant part of why candidates may choose to work with you. If a competitor offers lower co-pays what is stopping potential employees (and current star-employees) from choosing them over you?
As such take the smart approach with a focus on optimizing your company health care plan to maximize employee performance and productivity rather than simply cutting costs. This can be done by pairing lowering of health care provision costs with an enhanced employee health care experience. Provide services such as telehealth services, onsite/near-site health centers and ‘concierge’ services/tools to guide employees through the complexities of the health care system. Focus on such initiatives is growing. It is projected that 66% of organizations will offer medical decision support and second opinion services in 2018, up from 47% in 2017. Also 36% of organizations will offer ‘concierge’ services in 2018, increasing from 28% in 2017. Providing such services and tools will help your employees find the benefit plan which suits their unique health care needs, one which they will actually find useful. By helping your employees navigate the often complex and confusing world of benefits plans through concierge services etc. you increase the chances of them choosing the benefits that will truly be useful to them. This maximizes the effectiveness of the benefits you offer and offsets any increased out-of-pocket costs for the employee.
Optimal Benefit Plan Design and Delivery
Your overall benefits plan should be designed with an eye towards efficiency and effectiveness as well as cost savings. As mentioned above aggressively increasing your employees’ out-of-pocket costs could negatively impact workforce retention and attraction. While initiating health care/benefits provision services can offset an increase in costs to employees, implementing human capital management technology and strategically designing your company’s benefits plan will also enhance efficiency and result in cost savings.
Firstly don’t see benefits as an inevitable cost which must be shouldered and accepted in any way they are presented to you. Instead see your plan as something which should be designed with your organizational needs in mind from the get go. A design or redesign should and can consider these following elements/tips:
- Negotiate: Large organizations can have negotiation room when it comes to their premiums. Instead of accepting the premium cost your broker presents assess whether any changes in your workforce could result in some savings. Change factors could include the overall health of your workforce improving or employees who usually have large claims leaving your organization. (Consider using the workforce data and analytics which your HCM software can pull up to find any relevant data trends). This is the type of information which you can arm your broker with when he/she meets with your insurance company. Prompting your broker to negotiate a better price for you may result in a certain amount of cost savings.
- Self-Fund: Instead of paying premiums to an insurer which are usually based on your organization’s projected claims (and transferring the risk to the insurer) consider a self funded plan. When self-funding your organization creates its own plan based on its unique health care needs. As such you choose the coverage your employees need rather than paying for features they do not utilize. Again using data from your HR team as well as analytics from your HCM software will help glean which features are being used and which ones under utilized. With a self-funded plan organizations pay claims with plan assets and limit their risk and self-protect from above-average claims by buying stop-loss coverage that reimburses claims that are beyond a predefined limit. If claims are higher than expected the stop-loss coverage will pay the excess claims. Also an important point to consider is the increased time and manpower required to administer and manage this type of plan.
- CDHP: A Consumer-Directed Health Plan (CDHP) design prompts employees to make impactful behaviour changes in regards to their health. These behaviour changes often result in significant reductions in health plan spending. A CDHP usually combines a high-deductible health plan (HDHP) with a tax-advantaged HSA or HRA (discussed above) to help your employees pay for out-of-pocket medical costs/expenses. Such tax-advantaged plans enable employees to access funds for the purpose of covering higher cost-sharing provisions in exchange for lower monthly premiums. As employees have a stake in the cost of health care services they may be inclined more critically assess the need for high-cost health care options. Being more prudent in their choices would lead to cost savings for both them and the employer. This type of plan design is growing in popularity with nine in 10 employers stating that they will offer at least one CDHP in 2018 and 40% of employers offering a CDHP as the only plan option in 2018.
When initiating significant changes to your employees’ health care plan options (such as adopting CDHPs) it is especially important that the Open Enrollment period go smoothly at your organization. Not only will HR and payroll have new processes to deal with but also an influx of employee questions regarding their new health care options. HCM technology not only ensures efficiency, but reduces the risk of errors, non-compliance fines and the excessive use of HR employee hours to implement changes.
For example HCM software will clearly display your organization’s plan information (such as medical, dental, life and disability insurance etc.) and present it in an easy to understand and comprehensive way. As such employees can make informed decisions by looking at all the plans available to them in their ‘dashboard’ and assess which coverage type and rates apply to them. This will lessen the chances of your human resources team being tied up by excessive questions coming from your workforce and free them to do more analytical or strategic work.
During enrollment after your employees have made decisions, elections can be done within your HCM software. Many software can be configured to have notifications go HR and Payroll teams once enrollments are complete. For larger employers insurance carrier connections will automatically transfer completed enrollments to carriers on a set date. Also consider that deductions can be updated in the payroll system. If your organization needs help with selecting the right HCM software for you contact a team of experts such as Covalence Consulting Inc. for vendor selection services.
Beyond this the Affordable Care Act (ACA) is still in effect and this law comes with employer mandates and a required tracking and reporting process. The right HCM software (combined with a team of HCM software implementation specialists) can ensure your organization stays compliant as well as record employee benefits information, have key information in a dashboard and even generate, update and transmit 1094-C and 1095-C data to the IRS directly. With a streamlined Open Enrollment process via a HCM system and using HCM experts who can handle system configurations and changes needed for this period your organization avoids costly man hours used to process paperwork or manage disparate systems. In this way your new plan design is implemented more efficiently and effectively.
Consider Implementation Cost and Quality
To maximize cost savings aim for implementation success during Open Enrollment. That is, strive to have your organization achieve a timely and high quality implementation which negates excessive spending and avoids larger costs in the long run.
It may be tempting to look for the lowest price available when implementing your HCM software as it relates to Open Enrollment. This can be a costly mistake. Whilst the comparable cost between different implementations should always be weighed, a quick and low quality implementation can create issues for HR and payroll in the future, expose you to non-compliance and foster longer-term costs.
There are many crucial details which can be overlooked if an implementation is rushed as not enough time was factored in between choosing a carrier or new health care plan design and the actual enrollment of employees. Some specific examples would be if HSA deductions are not set up to be tax-free due to a hurried implementation, incorrect timing between Payroll and new bank account set-up, mix-up in the sending of the demographic file and deduction/deposit file of each employee and much more. Adapting new plan design adds a layer of complexity which must be considered in addition to pricing concerns.
So how do you ensure a successful implementation and avoid these costly errors? Firstly have an implementation plan which is created with the consultation and buy-in of HR, Payroll, IT and even your own Finance team. Establish a clear budget and focus your plan on cost containment. Critical to include in this plan is an attainable timeline or project calendar. Leaving too little time to implement due to last minute negotiations with carriers or extensive short-listing and picking of a carrier will result in errors and a less than stellar implementation. Also in this plan consider and define what will be in-scope and out-of-scope with an eye towards limiting scope creep which can unnecessarily lengthen implementation time.
Also work with your vendor and a recommended team of HCM implementation specialists (such as Covalence Consulting Inc.) to ensure a smooth Open Enrollment period. To get the most out of make sure you communicate the current and ideal future state of your HCM program, including Open Enrollment and beyond. Remember the right team of HCM experts can also provide strategic advisory services on how to use human capital management methodology to enhance workforce productivity, attain HR transformation and more – so use this useful resource adequately. Beyond this it will be key to have dedicated resources available for training, testing and go-live as well having developed scenarios for testing your go-live requirements.
Remember adhering to these best practices will help ensure that your HR team does not have to deal with time consuming error corrections in the long-run. Needless to say successful implementation also impacts how effectively your workforce is enrolled and set-up to receive their benefits.
If you would like more insights on how to effectively manage costs for Open Enrollment and beyond as it relates to contact Covalence Consulting Inc. for a no-obligation and complimentary phone conversation. With 20 plus years implementation experience with enterprise-level clients we have the significant expertise in ensuring your implementation success.