We’re going to go out on a limb and tell you that the expert we're about to introduce doesn’t believe in the concept of employer-provided benefits. We know; the very idea makes us nervous, too. But Alan Cohen, chief strategy officer of Liazon Corp. (www.liazon.com), says there’s a better way to guard against our individual risks, not only as employees but also as people. And really, what are benefits besides risk management tools?
“The economic essential behind what Liazon does is in recognizing that peoples’ needs are different,” Cohen explains. He’s talking about the company’s Bright Choices exchange, a private exchange model that allows contracted employees to shop for the benefit package of their choice.
“I happen to work for a company that has 75 employees,” he says. “My needs are different than those of the other 74 people who work here. So the right health plan for me, the right financial vehicle like an HSA or an FSA, the right amount of life insurance, the right amount of disability insurance, is different for me than they are for the person in the office next door or the person who works out of his home. All of these things that we call employee benefits are really personal. They are personal ways to protect your assets, your income, and ways to build for the future.
“It just happens to be an historical accident that our employer is kind of in charge of that for us. But just as my employer doesn’t decide what car I drive or what shirt I wear or what mortgage I get, we don’t believe companies should make decisions about employees’ specific benefits, either. What companies should do is allocate the money they are willing to spend, and empower each employee to make the choices themselves, giving them both the right and the responsibility.”
A new way to look at defined contributions
If that “defined contribution” idea sounds familiar, you have likely been hanging around the world of employee benefits for some time. Cafeteria plans, the up-and-coming benefit program in the late ‘80s and early ‘90s, used a similar approach. While the differences between Liazon’s exchange concept and those early cafeteria plans seem subtle, they are very powerful. “In a way, you could think of an exchange as a cafeteria plan on steroids,” Cohen says. “We have far more choice in plans and programs now than we’ve ever seen before.
“We talked with a consultant a few weeks ago who said he put in the first flexible plans in New York many years ago, and they offered four medical plan options. We have clients now in California that have 35 medical options available to employees. His point was that, back then, there was no real difference. An employee could choose a $100 deductible, or a $200 deductible, or a $300 deductible. There just weren’t the distinctions you see now.
“Today,” Cohen continues, “obviously deductibles, coinsurance, and copays can be different. But also networks and the ways you use them can be different. Gated or nongated; whether or not you have out-of-network access; whether you have large, medium, or small networks; whether you use the network with three hospitals in it or the one with one hospital in it; etc.
“We are rolling out a program in Montana for a few thousand employees where there are four different networks. One is a big national managed care company. The broadest one has all the hospitals in the area, plus all the physician panels. The next one has only one of the major hospitals in it, but still the full panel of doctors. In the next one, you actually pick your panel because there are groups of doctors that predominate, so you pick the panel and the hospital you want.
“At each level of distinction you get cost savings. So if you’re willing to use a particular panel of doctors and a particular hospital, the costs are about 20% less than the national network, the one that says you can use everyone everywhere. That’s just one example.
“Beyond health insurance, our typical customers offer four or five different dental insurance choices. For disability insurance, there are many different choices. And there are supplemental plans, like accident insurance and critical illness insurance. So people can create a targeted insurance package that’s exactly right for them, given the risks they have in their lives.”
The technology is ready
Along with the much larger variety of networks and choices available today, the technology is much more able to handle the defined contribution concept. “We make technology the centerpiece of everything,” Cohen reports. “Just like we shop for most things in our lives now using technology, employees can do the same with their coverages through our Bright Choices exchange. Because of this technology, people can log onto a system that’s very easy to use, they can access videos about the plans and programs and things, and it takes them through a very intensive decision support system.
“It asks them a series of questions about themselves and their families that helps guide them, and it actually gives them a recommendation about what choices they should make. It will tell them, given all the choices you have available, this combination of health, life, dental, disability, and long-term care is the best fit for you, and here’s why. Then they can buy it or decide to make changes.
“And, of course, the administration of the plans is simplified because of the technology available now that wasn’t available then. Getting all the data to the carriers, carrying out the payroll deductions for the employees, doing full billing administration–back then flex plans were hard to manage.” Technology has made it easy today.
Will employees accept it?
Employer concerns about employee willingness to accept the dramatic shift to a defined contribution healthcare approach is largely unfounded, according to Cohen. “This is a big change,” he admits. “But it is a change that employees will adapt to very quickly, because it goes more to what people do every day–as Americans, we’re great consumers. So although this really is a dramatic shift in benefits, it’s a shift that your employees will adapt to very quickly. In fact, within a year the employees will be wondering why this didn’t happen earlier. We’ve had that happen. Employees said, 'I can’t imagine how much money has been wasted over the last 10 years because I wasn’t able to do this.'
“The amount an employer pays for benefits is surprising to most employees; they never realized they were getting as much as they are. For most people, on average, companies give $10,000 per year and the average employee contributes a couple of thousand dollars. So on average, the costs are $12,000 per year. For the vast majority of Americans, that’s the largest single purchase of the year. This huge amount of money has been spent on their behalf and has not been meeting their needs. Now they can make decisions about it.”
On average, Cohen says, employers save 10% when they make the switch to an exchange. “Once they see for themselves the prices of the different plans, they realize that people could get a really good plan for a lot less money than the company has been spending, because they are willing to make some sacrifices. Maybe they’re willing to use a network. Or they will agree to use a primary care physician. Or they’ll take a higher deductible. While it was difficult for the employer to make the decision for all the employees, because they knew there would be a subset of employees that would really complain, when the individual is making the choice for himself it’s different.
“Typically, the spread between the highest priced and lowest priced plans is 50% to 60%. That’s huge. And typically, the highest priced plan is what they’ve been buying for their employees. So when the employer looks at it they realize they’ve been paying $650 a month for single coverage, but there are plans available for $325, not to mention everything in between. We hear them say that they personally would pick the $400 plan and wouldn’t want to spend the extra for the $650 plan.”
It’s likely you’ll be hearing more about the defined contribution concept in employee benefits. While it was a good idea a few decades ago, the technology that would have made it usable just wasn’t there. The time is now, says Cohen, to take advantage of the idea. “Talk to your broker,” he advises.