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Why (Most) Group Benefits Designs Don't Work & How Zorro is Fixing Them
By Guy Ezekiel & Maya Perl
offering health benefits today do so using the so-called “group chassis”. This means they purchase group plans from a single carrier that offers them a price quote based on the “average” risk across all of their employees.
Group plans are notoriously unpredictable in terms of budget, even if just a single employee experiences a significant medical event one year, the premiums for the entire company go up the following year. Moreover, group plans make employers select a generic, one-size-fits-all plan on their employees’ behalf.
In this post, we’ll dive into why the current employer-sponsored health benefits model is outdated and dysfunctional—and how we at Zorro aim to offer a new solution powered by personalization and smart technology.
For small-and medium-sized businesses (SMBs), the cost of a group benefits plan is out of the employer’s control and has increased at an exorbitant rate over the past decade. If a single employee falls ill or experiences an accident that requires an expensive specialty medication or surgery, the premium for the entire organization goes up drastically.
Even without such extreme scenarios, prices of group plans generally increase year-on-year. Health benefits spending can be one of the largest cost items for an employer, yet its drivers are opaque and uncontrollable. Shopping around to get quotes from competing carriers is nearly impossible. Other carriers base their pricing on an employer’s claim history, and trying to obtain your claim data to gain clarity can be extremely difficult.
Rigidness & Lack of Flexibility
Group plans are designed to cater to the single, common denominator. They require employers to make tough decisions around what’s in or out of scope and leave little room for customization. This is why 75% of employers offer only a single plan option (and the rest typically offer two or, at a maximum, three). In many cases, SMBs end up overpaying for coverage employees don’t actually need–simply because the network, formulary and cost-shares are set in advance.
Moving to a self-insured model to pick and choose benefits means undertaking a huge business effort (not to mention financial risk). Moreover, group plans have participation minimums that are hard to meet with certain employee demographics. This means that employees could be under- or over-insured–with huge implications in terms of retainment, job performance, and employees’ quality of care.
Imagine a world where instead of deciding on benefits for employees, employers decide on a budget and then let employees choose the rest–while still supporting and guaranteeing the quality of coverage. Such a world is possible–and it’s the one we’re building at Zorro! We are leveraging a new regulation that allows employers to give employees a stipend to purchase individual medical insurance policies (and other benefits). By switching to such a model, employers can avoid many of the inherent issues in the “group chassis”. Zorro also provides an end-to-end insurance management solution that offers a single, comprehensive platform making administering benefits seamless and effective.
Meanwhile, a family of four with a cancer predisposition should really invest in a low-deductible medical plan and good dental overage. And yet, both the single individual and the family are forced to participate in the same plan. In our culture of personalization, there’s no longer an excuse for “one size fits all” group plans that don’t address the highly personal needs of each employee.
With Zorro’s model, employers create a top-down predictable budget and benefits allowance per employee (or group of employees). Employers know that the budget can stay the same next year (while covering the same level of benefits for employees). Since individual medical policies are not subject to medical underwriting, extreme or costly health situations do not lead to premium increases. On the aggregate level, too, individual medical policies have increased more slowly than group rates in recent years.
In addition, this brings the real-world value of benefits to the forefront. Just think–how many employees today wouldn’t be able to even guess the cost of all the benefits their employer gives them? These are hidden behind cost-shares of group plans, and the full price and value of a benefit is almost never emphasized.
Zorro creates a product journey out of this–a virtual wallet pre-loaded with a budget that concretely communicates how much money an employer is providing and, for the first time, puts a value on benefits strategies.
Recognizing diversity & empowering employees
With Zorro, employers empower their employees to personalize the entire benefits journey. Employees pick the medical carrier and plan that is right for them as well as a range of supplemental benefits, all based on a smart analytical model. Instead of the need to conform to a single design, employers give their workforce choices.
This model brings equity to employers’ people strategy–employers select a budget (which can vary by family situation, geography and several other factors) and all employees of the same type get the same budget. This flexibility and choice are commensurate with the increasing importance of diversity. It allows employers to recognize the fact that employees have different preferences and needs depending on age, origin, orientation and many other factors.
And what about employees? Another key stakeholder in all of this are employees. Making sure they understand the model defined contribution model and are educated about benefits is critical to success. And that’s why we at Zorro are paying particular attention to it.
Click here to read about why personalization is important for employees–and how our technology is enabling it.
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