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Creative Cost Savings for Cash-Strapped Companies

In the face of the global economic downturn, Canadian small business owners are showing dogged perseverance when it comes to rewarding their employees. While April's American Express Small Business Monitor found that 60% of Canadian small business owners are cutting back on expenses, eliminating employee benefits doesn't seem to be on the table.¹

According to a LIMRA survey of more than 1,000 small, mid-size and large employers, only two percent of employers surveyed had dropped a group insurance, health care or retirement benefit within the last 12 months.² And the outlook for the next 12 months was roughly the same. But that doesn't mean that businesses aren't searching for creative ways to save money when it comes to employee benefits. In fact, judging by the requests we are receiving for plan reviews, small business owners are quite open to thinking outside the box.

Employers recognize that they have assumed an increasingly important role in the social safety net as the amount of public assistance wanes. They don't want to pull the rug out from under their employees, but they're also faced with the stark reality of trying to keep the lights on.

Quite often we find there are cost control tools available to group benefit plans that aren't being used to their full potential. Take prescription drugs, for example. A recent survey sponsored by Manulife indicates that the annual private sector drug spend for 2007 rose by 7.1% to $655 per claimant—up from $621 in 2006 and $573 in 2005.³

Fortunately, there are innovative ways to use plan design to control usage and cost per prescription. Lately we've been working with a small business in the technology sector. In a competitive market for talent, they were interested in fine-tuning their plan in subtle yet palatable ways. We suggested adding modest member co-pays and a drug dispensing fee cap to the plan. Both tools—which require employees to underwrite a small portion of the cost themselves—encourage employees to become wise consumers and to choose a pharmacy that will help minimize out-of-pocket expenses. Industry research shows that companies can save up to 20% just by adding these two features.

But sometimes, now matter how hard you try, hard choices must be made. Last month, a manufacturing firm we work with was forced to make sweeping cost reductions due to the loss of a major contract. They had to sacrifice their "top-of-the-line" plan, but wanted to minimize the impact on employees. We recommended a healthcare spending account—funded by the company—that could be used at the discretion of employees. The workforce was given the option to use the spending account to pay-as-you-go or sign up for an individual plan that offers full health and dental coverage to employees who have recently lost their coverage. This move resulted in a nearly 60% annual cost savings.

At the end of the day, there are as many solutions as there are plans. All it takes is a little resourcefulness.

¹American Express Small Business Monitor, April 22, 2009.
²A Subtle Shift: Examining Employee Benefits in the Midst of Economic Uncertainty, LIMRA International
³ESI Canada 2007 Drug Trend Report, Manulife Financial



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