Common wisdom tells you that you need to benchmark your key metrics against other companies to see how you stack up. I’m here to tell you that the common wisdom does NOT apply benefits.
Benchmarking your benefits is a waste of time – and this is coming from someone that loves data and numbers.
(Disclaimer: This advice applies to US benefit plans – the global marketplace for benefits is quite different and there is value in benchmarking)
Typical benefits benchmarking services recommend that you measure your benefits package to compare to others in your size range, industry, and geographic location to ensure that your offerings are competitive and cost effective. These services offer information on total cost, cost-sharing (i.e. – how much the employer pays vs the employee), plan design (i.e. – how much your deductibles and copays are), and what benefits are offered.
This gives you nice data points but provides you with little value.
Benchmarking Gone Wrong
Let’s give some real world examples here so that you understand where I’m coming from on this…
Example 1.
If the average age of your employees is 28 and the average age of your geographic area, industry, or similarly sized companies is 38 – then guess what? Your costs are going to look amazing next to their costs simply because the higher the average age – the more benefits cost. This is a pretty common issue with newer tech companies – they tend to have a younger population and benchmark data doesn’t adequately capture the lower costs simply due to the age distribution. When benchmarking against other tech companies, some of whom have been in business for a significantly longer period of time, their age distribution is significantly different (statistically speaking) which has a huge impact on health care costs.
Example 2.
If your company has super high deductibles and out of pocket maximums – say $5,000 deductible and $10,000 out of pocket maximum – then your costs are going to look super low compared to everyone else. While the benchmarking reports often include plan design information, most people cannot easily determine the cost increments associated with changes in plan design to arrive at a relative number useful for comparison terms. There’s a reason that people study actuarial science to be able to figure this stuff out.
Example 3.
If you benchmark against similarly sized companies, you tend to end up with specific data cuts that have wide variability in them. If you are a 200 person company, you will be lumped in with the 500 person companies. This may not provide you with a decent reference point as a 500 person company tends to offer a richer benefits package than the 200 person company. But both groups are lumped together. The stratification tend to be: 1-50, 51-100, 100-500, 500-3,000, 3,000-10,000, and 10,000+ (sometimes there is a number for jumbo employers who have 100,000+ employees) – and there is a lot of variability in benefit offerings if you look at size.
The problem is that at the end of the day, this information is useless.
Benchmarking information is a nice data point however, it doesn’t factor in the myriad of other elements that make up your total rewards strategy: plan design, employee demographics, compensation and rewards market position, company stage, etc.
After working in different industries in different geographic areas in different sized companies there is one universal truth that I have learned:
All companies are unique
Sure there might be some similarities – but if you get enough HR people together in a room – they will all have different problems that are unique to their organization and their organization alone.
So be unique – tailor your benefits package to the needs of your employees – not to benchmark data.
Agree? Disagree? Share your thoughts in the comments….
Your comments are spot on. Benchmarking is good macro data while your particular plan is micro data. At the end of the day the two have very little correlation. The thing about plan design is that it is very difficult to adjust for corporate culture and specific objectives. For companies of any size (even as low as 100 lives) is that the case will be experienced rated to a degree (credibilty) and this specific data will dictate most of the effort to cost containment not benchmarking. For the most part, benchmarking is a “nice to know” item but, makes very little difference in your risk management technique.