If you provide benefits to your employees, you could be losing 1 to 5 percent of your bottom line due to errors on healthcare carrier bills. By the time this slow drip of your company’s resources is discovered and shut off, you may have lost tens of thousands of dollars already. But damages don’t stop there, the consequences of benefits leakage are far reaching and can have long term effects that impact both your finance and HR departments.
Where Did the Leak Start?
Each month insurance carriers send their bills to businesses. Premiums are paid and accounting sits back comfortably. However, what accounting doesn’t know is that the carrier bill charged your company for a terminated employee’s health coverage. While the new information is recorded in the payroll system, no one takes the time to adjust the new premium rate with the carrier. Thus, the carrier continues to charge according to their records, and your company doesn’t realize those extra costs are slipping by, because there is no accountability for accurate record keeping.
Damages to Finance
When you ignore benefits leakage, the result can be a domino effect on your company’s finances.
First, your bottom line is impacted, and every month a small percentage is lost for unnecessary reasons. This waste of resources could have been better spent on developing company growth, but instead it has been lost in a financial void. The loss then creates unpredictable outcomes in the future and inaccuracies on financial records, making it difficult for finance owners to close the books. If your company doesn’t have accurate record keeping, carriers will send a retro charge for previous months. These retro charges can span anywhere from one to dozens of months and they demand payment for any changes, like new hires, that were never accounted for.
Everything Benefits, Inc. discusses more about benefits leakage and provides numbers for assumed losses. They determined that businesses pay an additional five percent premium overpayment, and that an average company pays an extra $69.75 per employee per year.
The process to reconcile benefits can take days for a finance owner to review, and weeks to resolve. It involves matching each employee’s payroll deductions with the carrier bills, discovering any discrepancies, determining who owns the variance, contacting brokers, and resolving charges. This lengthy process consumes time, and restricts a finance professional’s ability to effectively support your company.
Damages to Employees
It would be nice if once employees signed up for benefits the monthly deductions remained the same throughout their entire period of employment. However, marriage, children, divorce, disability and many other factors will require continual updates and changes to an employee’s benefits. These changes are recorded in the payroll system, but they often never get reported to the carrier. When this happens and an employee takes their child to the doctor, they’re coverage can be declined. Depending on the circumstances, this could negatively affect your employees’ productivity and attitudes towards your company.
Damages to HR
Retaining high-preforming employees is a top priority for HR departments. According to a study done by Compdata Surveys, the average turnover rate in 2015 was 16.4 percent. Every HR department’s goal is to have the lowest turnover rate possible. However, when benefits are poorly administered and employee’s coverage is being declined, your company’s turnover rate will spike higher than ever before.
While employees are receiving poor coverage, you will also be losing resources that could have been used to boost employee engagement and productivity.
Technology can Plug the Hole
A cloud-based technology solution is the resource a business needs to reconcile benefits. This solution needs to house payroll and carrier bill data and scan over all information so it can create a view that can be analyzed by experts for any discrepancies. This system will provide transparency into all carrier bills and payroll deductions so finance professionals will know where the leak is, how it got started, and who needs to resolve it. Businesses, like yours, that adopt this system have reduced administrative burdens and increased chances of detecting any current or future benefits leakage.
Losing one to five percent of your bottom line will cause more harm that just lost revenue. Those damages will extend to your finance and HR departments, and your employees. Your company’s finance owner should take the time to invest in an HR, payroll, and benefits solution that can provide the technology and processes your business needs to contain costs and scale effectively. The white paper, “The HR Minded CFO – Aligning Your Business Strategy with Your People Strategy,” is a resource that discusses how finance professionals can gain invaluable insight on how to work with HR departments, and how to choose an HR solution that benefits your company most.
About the Author
Gary is the Director of Finance for Zuman. He has over two decades of experience in finance from working in a variety of positions such as financial consultant and Sr. Director of Finance Operations. Gary holds a BS in accounting from San Jose State University.More Content by Gary Bryson