The CFOs Guide to Healthcare Benefits - [CFO Weekly] Episode 13

February 2, 2022 Mimi Torrington

the CFOs guide to healthcare benefits

This week's topic: The CFOs Guide to Healthcare Benefits.

Healthcare. Isn’t that an HR thing? Well, when it’s the second or third item on your balance sheet, it’s a CFO thing too. And although it may not be top of mind, perhaps it's time to take a look at how your healthcare plans are affecting the financial standing of the business.

To help CFOs get a better understanding of healthcare benefits and medical plans for employees, we talked with Cory Yeager (Benefits Advisor) and Travis Sartain (Sr. VP) of Marsh & McLennan Agency on this episode of CFO Weekly.

In this episode, the two benefits experts get into specifics about:

  • Why CFOs need to care about healthcare plans for employees

  • First steps to understanding healthcare expenses

  • How to apply data to make better decisions about medical plans

"A second or third expense on CFO's balance sheet should be not only an HR issue but a CFO issue," Sartain said.

Why Should CFOs Care About Healthcare

second or third expense

There are three main reasons why CFOs need to be concerned about employee healthcare benefits: the current state of the world, the budget and employee retention. Travis and Cory take a deep dive into all three.

Cutting Costs in Trying Times

You’re probably sick of reading about COVID-19 by now, but it’s one of the principal motives for CFOs to start looking into healthcare costs. The uncertainty of our future directly affects the fluctuations of the healthcare industry. Financial execs should be watching those trends closer than ever. The quality of your employees’ healthcare and the costs associated with that care should be your priority.

Regardless of the state of the world, healthcare is normally towards the top of your budget. There’s no question that you should have a grasp on the plan you’re delivering, how it’s being utilized, and its forecast. It’s impacting your bottom line, after all.

Moreover, healthcare continues to increase year over year. The CFO should be regularly reevaluating the costs the company is absorbing as well as what the employee is taking on.

Benefits Impact Employee Retention & This is A Finance Issue

Are you losing talent because of your organization’s healthcare package? That’s more money for hiring and onboarding you could potentially be saving by offering a more intuitive benefits package. The CFO and HR department need to collaborate in order to keep workers happy and healthy because no one likes a high turnover rate.

So how to get a grasp on healthcare expenses, retain employees and lower your overall budget? It's not always easy. Healthcare can be a slippery topic. The first step CFOs should take to get a better hold on medical expenses is benchmarking.

Benchmarking Your Current Healthcare Costs

Travis Sartain

There are five major categories that need established benchmarks. These benchmarks will give you a better idea of how your benefits package is serving your workforce.

  • Your industry: What kinds of packages are others in your industry offering their employees? There are different requirements of blue-, white-, and gray-collar workforces — benefits should reflect those nuances. What’s normal for your industry?

  • Your competitors: In the same vein, it’s good to get an idea of the packages your competitors offer their employees. If your company isn’t offering a competitive benefits package, it’s likely affecting your employee retention.

  • Your geographic location(s): Expectations for healthcare packages vary from region to region. For example, on the East Coast, you’ll find more trade unions that set requirements for benefits. Are you a multi-state employer? Your benefits need to be competitive in multiple regions. Find out what the norm is for the area(s) you’re operating in.

  • The employer/employee contribution balance: Do you know how much your company is contributing to healthcare compared to how much the employee is? This is a critical benchmark to establish and reevaluate to stay aligned with moving trends.

  • Company demographics: Workplaces are multi-generational and those generations value different benefits. Is your healthcare package meeting the needs of all the demographics you employ? Could you be saving money in one area and putting more towards another?

Valid benchmarking data is essential to making strategic decisions in any aspect of a business: from HR to marketing to accounting to the C-suite. Determining these benchmarks will help your company move forward with informed decisions.

"A CFO absolutely has to be concerned about the benefits package, the importance of the benefits package as viewed by the employees, and the ever-rising cost of healthcare," Sartain said.

Creating Data-driven Healthcare Packages

By benchmarking the major aspects that affect your benefits package, you’re on track to a data-driven healthcare plan. To offer an intuitive plan, you also need to take biometrics into consideration.

You owe it to your company and to your employees to keep an eye on healthcare trends throughout the year. One very efficient way to stay in-tune with trends is to partner with an agency that offers biometric synthesis. Agencies like Marsh & McLennan collect health data and make it useful for organizational decision-makers.

For instance, if complications from hypertension (heart attacks, kidney disease, stroke) are common in your industry or your region, you’ll want hypertension testing and treatment to be a focus in your company’s healthcare plan.

Pharmaceuticals can have a large effect on budget. In fact, pharmacy costs have recently been accounting for a large chunk of healthcare spending. In the last 24 months, pharmaceutical costs have grown from 12-14% of healthcare expenses to 24-26%.

Because of these major fluctuations, Cory and Travis advise companies to avoid negotiating for contracts over 12 months. Just like the prices in pharmaceuticals, you want to stay aggressive and tactful — that means not being stuck in a two or three-year contract.

"Specialty drugs are about 1% of claims and make up about 45% of costs," Yeager said.

Additionally, make sure you’re auditing your pharmacy contracts every year. This is such a fast-moving market, you don’t want to be caught on your heels.

Get Involved With Your Benefits Program - The CFOs Guide to Healthcare Benefits.

It’s a smart move for CFOs to get in on the benefits conversation. If it affects the bottom line — which healthcare does — it should be in your line of focus.

Make it a priority to keep your people (and your budget) happy and healthy!

To hear all the episodes of CFO Weekly, subscribe on Apple, Spotify or wherever you get your podcasts. Have a topic you'd like to discuss? Get on the calendar of our host, Megan Weis to join us as a guest.

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