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Same Benefits, Lower Cost?

Same Benefits, Lower Cost?

Employee Benefits via Yellowbrix

November 09, 2009

Providing the same benefits at a lower cost can simply be a case of making changes behind the scenes, says Tom Washington

In the theater world, a good stagehand should not be seen. Dressed in black, their task is to work in the background, shifting props and scenery to ensure maximum enjoyment for the audience. A similar role must be performed by reward professionals who are asked to trim benefits spend, even in the best of times.

Although making changes to benefits to save money is often a necessity, today’s savvy workforce is likely to look upon any reduction in perks disapprovingly, and morale and engagement will suffer.

PMI switch

In September, Punch Taverns revealed how it had saved pound 1 million on its reward spend without cutting benefits by assessing, then changing, the processes behind some of its benefits. One key move was to switch its private medical insurance (PMI) scheme for 1,000 managers from an insured arrangement to a health care trust. It also amalgamated the contracts for pensions administration, and actuarial and investment advice for its biggest pension schemes, prompting the provider to give a discount for handling all three services.

As Punch Taverns has demonstrated, there are several areas employers are investigating to make the reward function as cost- efficient as possible. Steve Clements, a principal in Mercer’s health and benefits business, says many employers are experiencing great pressure on expenditure in the current economic climate. “A range of cost-reduction strategies is available for employee health care and other insured benefits, and can be implemented quickly with immediate savings,” he points out.

Employers, providers and brokers alike are currently giving a lot of consideration to going out to tender for health care and group risk benefits to obtain more favorable premium pricing. Adrian Norris, managing director of Buck Consultants’ health and productivity division, says: “Employers are looking for cost savings and they do not want to go through the hassle of going through any change, be it on the front end of benefits or behind the scenes. They want to do it by taking advantage of the most competitive market there has probably ever been.”

Because of increased competition in the market and an ailing economy, conducting a market review can result in savings of up to 25% on premiums for employers. The entry of Zurich Corporate Risk into the group risk market earlier this year has fueled competition further, and Aegon’s exit from the market in June has left a feeding frenzy of providers fighting over its business.

The same goes for the corporate health care market. Elliott Hurst, senior consultant in Watson Wyatt’s health care and risk consulting division, says: "Employers do not want to change their excess, they do not want to change underwriting and they do not want to change their benefits, so the employee sees no difference in that sense.

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