For the last five years Lafarge Canada has been fighting an uphill battle to try and rein in spending on benefits.
Across all of the organization’s many units, plans have been reviewed and consolidated, offerings changed and more limits put in place, said David Guptill, vice-president of HR. “We try to put caps on things that will impact the fewest number of people.”
In spite of those efforts, costs keep going up across the board. At the low end, some units have seen increases in the range of about six per cent per year. At the high end, increases are consistently close to 10 per cent, he said. Lafarge employs about 8,000 people at roughly 400 sites.
“Our target has been to keep benefits costs in check and to keep their escalation down near the rate of inflation. We have not been at all successful in that.”
Lafarge is far from alone. Many Canadian organizations are in the same perilous position — benefits costs march upwards in lock-step with employee expectations. As anxious as employers are to contain costs, employees are equally determined not to lose the benefits they have.
A recent survey of employers, conducted by the Conference Board of Canada, concluded the cost of health benefits grew from 3.2 per cent of payroll in 1990 to more than six per cent in 2003. By 2007, it will likely be eight per cent. At the same time, benefits have now surpassed wages as a bargaining priority for unions.
Another study, this one of plan members, found people are increasingly dissatisfied with the benefits they are receiving from employers. Only 58 per cent of the 1,500 respondents to the survey, conducted for Canadian pharmaceutical firm Aventis Pharma Inc., said their plan meets their needs extremely or very well, down from 73 per cent in 1999.
The silver lining to this dark cloud is that people so value their benefits coverage, many are willing to pay more to maintain coverage levels.
Asked what they would be willing to do if their employer was unwilling or unable to pay extra to maintain coverage levels, 50 per cent of respondents said they would pay higher premiums. Another 31 per cent are willing to pay more to actually use the medical service covered by the benefits.
The survey illustrates how much people value their benefits plans and the peace of mind the plans offer, said John Elliott, manager of external affairs for Aventis Pharma.
There is a large gap between what employees actually get out of the plan each year and the value they place on having the safety net in case of unexpected health problems, he said.
Given a choice between their current benefits plan and an annual payment of $8,000, 66 per cent of respondents would take their benefits. Even though $8,000 would far exceed the value of services an employee is likely to use in a year, people are willing to give that up for the peace of mind the plan provides, he said. “I think if we asked about $10,000, we would find a lot of people taking the plan over the $10,000.”
Robert Haynes, vice-president of HR at Regina-based SaskEnergy, said he is not surprised most people are unwilling to take cash to give up their benefits. Even if employees don’t fully appreciate the cost challenges facing employers, most of them understand they are better off being part of a group plan in case of unexpected of catastrophic health-care needs, he said.
When SaskEnergy introduced a new extended health benefits program six years ago, total premium costs were about 0.8 per cent of payroll. This year costs will be closer to 1.5 per cent and may even go above two per cent of payroll, said Haynes. (Depending on how it is defined, the total cost of benefits for the organization is anywhere from 33 to 40 per cent of payroll, said Haynes.)
“We are concerned,” he said. As the workforce ages, the costs of offering health benefits will only go up. “Premium costs continue to rise year over year, so we are looking at ways to mitigate those costs.”
The company has created an ad hoc task force comprised of union leaders, management and the benefit carrier to look at the benefit plan history and the forecast for future costs.
The choice is to either cut back on benefits or increase cost sharing. All avenues have to be considered, he said.
For the most part, union leadership understands the cost challenges because they have actually sat down with the provider and seen the numbers. But it is less clear whether the rest of the employees appreciate the difficult position the organization is in when it comes to benefits costs.
More employee education may help with that, said Haynes. If employees are aware of the costs of maintaining the benefits package, they would realize they can’t get everything they want or be more willing to modify their own behaviour.
People may want better benefits, but that comes at a cost, said Haynes. Some employees may say they want better vision care, for example. “Well it could be better but (they) have to be prepared to give something up,” he said.
One of the major causes for the unsustainable increases is prescription drug use, and in particular the continual introduction of new products, said David Guptill of Lafarge. This has led to some difficult decisions about what goes into the formulary and what doesn’t.
Some of the new products are only better for the user in so far as they are more convenient, he said. Something may come in a patch instead of a pill, for example. Products of that nature simply won’t make it into the plan, he said. Employees may not like it, but it enables the company to continue to cover new drugs that do have a meaningful impact on an employee’s life, he said.
From employee surveys and focus groups the clear message is that employees will give up some benefits so long as they are covered for unexpected and catastrophic problems. Employees are willing to give up massage therapy if they know they will be covered for expensive drug needs that arise from serious medical problems.
Insured sick leave has also been a major factor in escalating benefits costs at Lafarge, said Guptill. Here too the company has been taking steps and enjoying some success, he said.
A more thorough administration of disability claims and aggressive return-to-work programs have reduced short-term disability costs, allowing the company to keep funding benefits that employees place a greater value upon, he said.
“We have been much more rigorous in our asking for medical documentation on repeat offenders, and have an aggressive program of identifying repeat users,” he said.
The need to reduce sick time has inevitably led the company to look at steps to keep employees healthier and reduce the number of claims in the first place, he said. In the past few years, more preventive programs like weight reduction and smoking cessation have been put in place.
Taking a more comprehensive approach to avoid the health problems that drive up benefit claims and therefore costs may be employers’ best bet, according to workplace health consultant Chris Bonnett of Toronto-based H3 consulting.
“I think more employers are starting to realize that traditional approaches like cost-sharing and flex plans are just not doing it anymore. Costs are increasing despite those kinds of things.”
The only recourse is to put in place a management culture that helps employees live a healthy lifestyle, he said.
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