I used to wonder why airlines seats were so uncomfortable(1). Then I started to understand metrics like revenue per seat, that seats were a commodity, that industry consolidation had taken its toll on differentiation, and how cramped legs were used to push the well-heeled into first class. This increases cash flow and share prices.
Until a couple weeks ago, I was perplexed why annual open enrollment for employee health benefits was so cumbersome, why the not-so-humble 40-page open enrollment guide, replete with bicycling families, tables with networks and formularies, and tons of numbers, seemed to purposefully confuse you. Even seasoned actuaries, equipped with custom spreadsheets, wrestled with the idea of choosing a plan and understanding their benefits.
Then I thought about take-up rates. The take-up rate is the percentage of eligible employees who enroll in benefits. Rates average 80% and vary by industry according to the underlying data from the 2017 Kaiser Employer Survey (unsurprisingly retail has the lowest and government the highest). Employer-sponsored healthcare is an industry whose “best-practices,” the biggest levers of “innovation”, according to the 2017 annual Willis Towers Watson survey, lead with spousal surcharges and growing deductibles. Charge spouses more to push them off the plan. Shift more costs to employees. Lower take up rates then fit nicely within that model.
This actually isn’t a surprise. Its complexity is designed to confuse you. If open enrollment were perfect, simpler, and less like reading a user agreement, more people would enroll in benefits, and that is the easiest way to increase employer contributions to healthcare spending…to the tune of over $5,000 per single employee and over $14,000 per employee with family coverage for larger employers.
As an example, a company with 10,000 employees with 90% eligible for benefits and an 80% take-up rate could save close to $1M by dropping its take up rate by just 1%. That’s a much bigger ROI than what the ancillary vendors show–over 7x telemedicine’s salesy numbers. That too can boost cash flow in the short-term. But it’s not innovation and I doubt it’s top of mind for the next generation of innovative founders and CEOs. While the “best-practices” move to penalizing, right-sizing, confusing, prying, poking and prodding through intrusive programs, innovators will focus less on short-term costs, think beyond one calendar year, and more on the value of long-term commitments. That could lead to lower turnover, more engaged employees, and greater employee innovation. The stale practices will be highlighted in surveys, and will continue to be safe and conventional, but the true innovators are looking beyond that.
“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”
(1) Now we have economy seats that charge for the right to choose a seat and check a bag (and sometimes even for a carryon. Thanks Frontier).