A blueprint for selecting employee benefits partners

Good partnerships can make or break an organization. And when it comes to designing a competitive employee benefits package, you’ll definitely want the best partners you can find. Any HR department that’s worth its salt will know this. However, it may not always be clear where one should start when looking for the best partners.

Speaking as someone with over 30 years of experience in advising organizations on their benefits, I feel I can offer a seasoned perspective. To kick off, it is crucial to recognize that there are two primary partner categories: the benefits broker and the vendor partners. Vendor partners can then be subcategorized into two types: insurance vendors, responsible for insurance-related benefits, and service vendors, focusing on wellness benefits.

Combined, these three partners will set the stage for an organization’s benefits package. Yet they all have different functions to play and what traits make one a good partner might not apply to the others. As such, HR departments should take care in understanding the role of each partner and the nuances that distinguish them.

The crucial role of benefits brokers

The most critical partner is the benefits broker. These individuals negotiate the rates between the employer and the health insurance carriers. That takes a lot of skill, so make sure you choose a broker with many years of experience and plenty of references to back them up.

Once you’ve identified a potential broker, make it clear that you prefer a fee-based compensation model over commissions for health insurance. The reason for this is that all group health plans for organizations with 50 or more employees are underwritten based on the number of claims. The more claims there are, the more the rate goes up. This means a broker on a commission model would gain a pay raise for every rate hike, which is a bad incentive from an employer’s perspective.

The better course of action is a fee-based model. However, I would recommend against linking the fee to the number of employees per month, which is what most organizations are doing. This practice can lead to compensation fluctuations that unfairly hurt the broker during workforce changes. Instead, an annual negotiation based on key performance indicators (KPIs) is advisable. For example, “You keep my rate increases for the health plan under X amount and I’ll pay you this much.”

Navigating the insurance vendor landscape

When it comes to choosing your insurance vendors, there are two types: health insurance and ancillary insurance, i.e., life, disability, vision, and dental. Your choices for health vendors will be pretty limited due to the federal mandate that the health insurance provider selected by an organization must have its main office or headquarters situated in the same geographical location as the organization itself. Regardless of what those choices are, your benefits broker will be responsible for choosing the best available option, so leave that to them.

When choosing the ancillary vendors, you’ll have a lot more options in the marketplace that you can compare side by side. Competition in this market tends to be fierce, so you’ll want to use your broker to drive further vendor rivalry and secure the best deal possible. Also, make sure not to overlook supplemental health benefits such as accident, critical illness, and hospital indemnity benefits. These can provide essential coverage for employees at a time when out-of-pocket expenses are at an all-time high.

As for broker compensation, make the ancillary benefits commission rather than fee-based. The reasoning here is that you want the broker to sell as many ancillary benefits as they can to your employees. Greater participation in these ancillary programs means a more satisfied workforce, so give your broker all the encouragement you can to promote these products.

Choosing the right service vendors

Service vendors handle a wide range of non-insurance-related benefits, such as wellness perks, health reimbursement arrangements (HRAs), child care assistance, and many other bonuses. The main thing to understand when choosing the right service vendors is that costs are not something to be concerned about. They’re all inexpensive, so it really doesn’t make sense to waste time trying to negotiate their prices down. You’re not going to remember how much you saved but rather how well they delivered the service.

To that end, pay close attention when assessing these vendors. They’re going to have a lot of close contact with your employees, whether through wellness services, personal training, or handling HRA money. As such, you’ll want to make sure they’re going to work well with your employees. This means checking their references and looking for performance guarantees. In short, do your due diligence when assessing the quality of your service vendors.

Read more: Transforming the provider partnership: Begin with culture

More often than not, service vendors are a last-minute thought. Organizations tend to spend so much time on health insurance renewal and ancillary benefits that they don’t give service vendors proper due diligence. Don’t let your organization make this mistake. Find some good service vendors and once you have them, hold onto them even if they increase their rates the following year. The hassle of switching is greater than the price of a minor increase.

Final thoughts

In conclusion, crafting a competitive employee benefits package hinges on selecting the right partners. Of these partners, your benefits broker will be the most important, so place special focus on finding a highly experienced one. They’ll have a critical role to play in both negotiating the rates for your health plan and getting a good deal for your ancillary benefits. Lastly, don’t overlook the importance of finding high-quality service vendors. Their role may seem minor, but don’t underestimate the impact they’ll have on employee job satisfaction.