Have you heard of the Pareto principle? What if we told you it’s also known as the 80/20 Rule? Ringing any bells?
The 80/20 Rule is a way of describing a distribution that we see all the time in nature, life, and business. 80% of results will come from 20% of the action.
- 80% of sales come from 20% of clients
- 80% of the world’s income is generated by 20% of the world’s population
- 80% of my driving is done on 20% of the roads in my town
- 80% of the time I wear the same 20% of my shoes
When you start looking, this shows up everywhere from computer science, to human behaviour, to sports.
But how, we hear you ask, does this all relate to group benefits?
20% of plan members make 80% of group benefits claims
It’s staggering, but when you look at a typical insured healthcare plan, you’ll find that about 20% of the plan members will make 80% of the claims. Said another way, 80% of your plan members just aren’t seeing the same value from their benefits plan.
Now that doesn’t seem fair, does it?
Let’s take a look at how these two group of plan members use their benefits plan.
The 20% super-users
These are the heavy users of your plan. They make a pile of claims for many different reasons. For example, they could have:
- High medical expenses, get frequent dental work, take regular prescription drugs, etc.;
- Many dependants (spouse, children) they are claiming for; or
- A desire to get as much out of their plan as possible.
Whatever the reason, 20% of plan members are taking full advantage of their benefits plan to reimburse as many costs as possible.
This, in turn, drives up your costs. As use of insured health and dental benefits increases, the insurer will increase your premiums. Remember, health and dental costs are transactional. There’s virtually no sharing of risk so the insurer needs to recoup what they pay in claims through your premiums.
The other 80%
This group doesn’t use the benefits plan very much. They might be:
- Healthy individuals who generally don’t need medical services;
- Single individuals with low household claims; or
- Unaware of how the plan works and its advantages.
The bottom line is, they aren’t using their benefits plan. This means they’re seeing part of their compensation (the premiums you pay on their behalf) go up in smoke. Worse, they might be sharing the cost with you and throwing more cash into a black hole!
How do we take care of both the 80% and the 20%?
As you can see, although premiums are paid equally for all participants in the plan, if a plan member doesn’t use their benefits, they aren’t seeing the value of that part of their compensation. As we know, a group benefits plan should provide value to all its members. Conversely, if a plan member claims as much as possible, they are getting more than their share.
So, what’s the alternative?
Glad you asked! Blended benefits can take the inequity out of healthcare coverage. When plan sponsors pay only claims + an admin fee they aren’t wasting money on benefits that aren’t used. Plan sponsors can also make fair and equal contributions to all employees.
Consider a few options:
Enhanced Health Blends (EHB)
With an EHB, plan sponsors pay claims as they come in, plus an admin fee. This means they aren’t wasting money on premiums for plan members who don’t make claims. This helps control costs and can free up cash to compensate plan members in other ways, or reinvest in the business.
HSA Classic
In an HSA Classic, the plan sponsor makes contributions that become the property of the plan member. Plan members can spend the funds (tax-free!) on eligible medical expenses as they please and can let funds accumulate for expenses down the road. It’s a completely fair (and tax-deductible!) way of compensating your team.
HSA Rollover
Another fair and equitable option is the HSA Rollover. With this feature, the funds in plan member HSAs are reset after a predetermined period. But, they don’t lose this compensation! We work with the plan sponsor to invest the unused funds in a Group RRSP on their plan members’ behalf. If plan members have medical expenses, the HSA is there for them. If they don’t, they’ll benefit in retirement. It’s a win-win!
Ready to give 100% of your plan members the plan they deserve? We can help!
Once you recognize that insured healthcare benefits don’t deliver the value they thought they did, it’s time to switch to a blended benefits plan.
Our Growth Team and Advisor Nation are standing by to help build the perfect group benefits plan for you and your team. Just get in touch!
