Canadian organizations got a modest reprieve from the increase in benefit costs in the past three years, but the relief will be short-lived — making cost containment and absence management the priorities for employers, according to a report by the Conference Board of Canada.
“Benefits represent a significant — and growing — cost for employers. Since growth in benefit costs has dipped in recent years, companies are more optimistic that they have learned to contain costs effectively,” said Karla Thorpe, director of leadership and human resources research.
“However, the short-term relief is coming less from the implementation of cost-containment strategies, and more because of external changes in the market such as prescription drug pricing. Not only might costs rise sharply, employers need to consider how they can cover new high-cost biologics and other therapies that are coming onto the market.”
Cost containment remains the top short-term priority for employers. In fact, the focus has intensified since the Conference Board last conducted this survey in 2009. The proportion of employers who rate containing benefit costs as a “very important” objective increased from 41 per cent in 2009 to 50 per cent in 2012, found Benefits Benchmarking 2012, which polled 350 employer across the country.
The average cost of providing benefits to active employees is 10 per cent of gross annual payroll, or just slightly more than $7,000 per full-time employee, found the Conference Board. Historically, it has not been uncommon to see benefit costs escalating at a year-over-year rate of 10 per cent. Between 2010 and 2011, costs escalated by an average of 6.2 per cent, still more than twice the rate of inflation.
The proportion of employers who rate themselves as either somewhat or very effective at containing benefit costs increased from 58 per cent in 2009 to 72 per cent in 2012. However, external market factors have played a role in the slower growth of costs.
Patents have expired for some widely used drugs, opening the door for more cost-effective generic alternatives. Generic pricing reforms have also led to a decrease in the cost per prescription.
Employers are expressing increasing concern about absenteeism, which currently costs Canadian employers an average of 1.2 per cent of payroll annually, or $7.4 billion in lost wages annually in Canada. Three-quarters of employers consider reducing absenteeism an important objective of their benefit strategy, up from 64 per cent in 2009. But only 41 per cent of employers rate their absenteeism strategies as effective, down from 43 per cent in 2009, found the report.
“Traditionally, employers have focused on achieving cost savings in their benefit premiums rather than focusing on reducing the number and cost of claims, which are driven primarily by the health of the employee population. Employee wellness programs and the impact of wellness programs on engagement will be a focus for many employers,” said Thorpe.
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