On Aon

38: On Aon’s Balancing of Inflation and Employee Benefits with Dave Guilmette

Episode Notes

As we emerge from the COVID-19 pandemic, the health and wellbeing of employees is top of mind for employers, with many looking for ways to enhance their benefits programs. With inflation and rising costs, employers are faced with the challenge of balancing those costs and employee wellbeing. 

On episode 38, host and Aon’s Senior Vice President, Chief Broking Officer and National Leader, Growth and Client Engagement, Joey Raheb, sits down with Aon’s Chief Executive Officer, Health Solutions, Dave Guilmette, for a conversation about the impact of inflation on employee benefits. 

Additional Resources:

2021 Global Wellbeing Survey

2022 Global Medical Trend Rates Report

Inflation is Influencing Business Risk Management — Take Steps to Mitigate its Impact

Q&A: As Inflation Surges, New Business Strategies Emerge

Aon’s website

Tweetables:

Episode Transcription

Voiceover:

Welcome to On Aon, a podcast featuring conversations between colleagues on well, Aon. This week we hear from Dave Guilmette on the impact of inflation on employee benefits. And now, this week's host, Joey Raheb.

Joey Raheb:

Hi everyone, my name's Joey Raheb, and I've been at Aon since 2015, currently working as Aon's Growth and Broking Operations Leader for Canada Health. Today with me is Dave Guilmette, who has been at Aon since 2019, and is our Global Health Solutions Chief Executive Officer. Dave has unique insights on today's topic, health benefit inflation, through his more than 35 years supporting clients with the implementation of innovation and impactful healthcare and employee benefit programs. Thanks for being with us today, Dave.

Dave Guilmette:

It's great to be with you today, Joey, looking forward to the discussion.

Joey Raheb:

Oh, me too. Before we get started, let's just ask a bit of a softball question. How are you today and how'd you spend your weekend?

Dave Guilmette:

I sure hope I can answer that one right. I'm doing really well today, thank you. And how did I spend my weekend? That's a really interesting question. I happen to live in a part of the globe that is susceptible to hurricanes, and so my weekend was spent preparing for Hurricane Ian, which actually hit us, and I was very fortunate to not have any damage. But nothing like being prepared for the worst and maybe hoping for the best, which is exactly what happened here.

Joey Raheb:

So, maybe why don't we start in on an initial question, as we think and as we emerge through the pandemic, health and wellbeing of employees is top of mind for employers and organizations. Many are looking to enhance their benefit program. They want to make sure that their employees and their families have the support they need as they come through and as they take care of their overall wellbeing. I'm interested to understand what trends you're hearing about in client conversations and around Aon offices.

Dave Guilmette:

Let me start with maybe a way of framing the challenges that we see employers facing all around the world. We call it The Great Convergence, and what do we mean by that? It's sort of the convergence of the changing nature of work and where and how people work, right? So, we've seen a massive shift as a result of the pandemic that's having a lasting impact on people coming into offices versus working remotely versus some kind of a hybrid, right? So, you have that. You have what is still a very tight labor market around the globe, so competing for talent is super challenging these days, and it's further challenged by the increased cost of wages, labor increases. Expenses are on the uptick in a very meaningful way. And then the third one is really around just making sure that the programs that are in place, the employee benefit plans specifically, are the right ones and that are affordable for the employer, the one who is providing the benefit and the beneficiaries who should be benefiting from these. And with, again, inflation being as challenging as it is, that's becoming a very, very difficult balance.

When I take it to kind of another level down, how does this play out? We're seeing for employers a very, very strong level of interest around the resiliency of their workforce. So, what do we mean by that? It's making certain that individuals can quickly recover from adversity, right? So, either they're not resilient and they need to increase their resilience, or if they are, they need to maintain that level of resiliency for the next challenge that may be forthcoming.

And it plays out in new and different spaces, like the duty of care and the workforce safety are now paramount in things that are being discussed among senior executives. And without a doubt, the wellbeing of employees and families and the concern that the pandemic and the safety issues that we've seen in different parts of the world are weighing on the wellbeing and the emotional and mental wellbeing of employees and families. And we've seen this play out in all different ranks in an organization.

And so, at one point it used to be something that was not spoken about very often, and now it's something that I think is top of mind and is recognized by senior executives. Mental health and wellbeing and financial wellbeing are super important and you've got to focus your attention on that.

Joey Raheb:

Dave, that's all super interesting. And when I think about the things you're talking about, I've not been doing this as long as you have, but early on in my career, benefits were looked at as an expense line item on the CFO's radar. The things you're talking about sort of translate benefits from an expense item to an investment item in my mind. I don't know if you agree with that.

Dave Guilmette:

I most definitely agree with it. I've been doing this a long time as you indicated at the outset, and for a long, long time, those of us in the profession were wishing that employee benefits and health benefits were a C-suite issue. We have what we've been wishing for. It is without a doubt a discussion, certainly at Aon, among our executive committee, which I'm a part of, we talk about this regularly. We assess the wellbeing of our workforce. We assess the resilience of our workforce, because it has a massive impact on our ability to do our job and to deliver value to our clients. And we're not alone. We're seeing a lot of clients really looking to focus on wellbeing and health in particular as areas to invest in to strengthen the resiliency of the workforce.

Joey Raheb:

Yeah. I love that. And as somebody who is still fortunate enough to work with clients today, that shift in conversation has become very imperative and it has raised, as you say, on the minds of the C-suite, CFOs, our CHROs, thinking about how they can translate that.

If I shift then to kind of the broader inflation point that you'd made and we think about the employee benefits landscape and looking at it as an investment, central banks are trying to rein in inflation with rising interest rates. This creates challenges for organizations in terms of slower economic growth and then that also has ripple impacts in terms of what that means to employee benefits. Will you share with us the impact you're seeing of inflation on employee benefits?

Dave Guilmette:

Yeah, certainly, Joey. Let me first go back to something you said earlier about healthcare cost or employee benefits being a cost to be managed as opposed to an investment. I would suggest it is going to be both, right? So, without a doubt, it is becoming in a bigger proportion of total rewards for companies.

And so, as employee benefit costs take up more of that portfolio and you're starting to see an increase in basic wages, inflation in the wage space, you really find yourself in a situation where you've got to strike the right balance. So, it's going to require, like any investment, that you understand what you're looking to drive, what's the outcome, and be able to really assess that carefully, because healthcare inflation and employee benefit inflation in general is on the uptick, significant uptick. So, it's going to mean these programs, even if you don't enhance them, and many employers are going to want to enhance aspects of their employee benefit programs, even if you don't enhance them, the costs are going to go up at levels that are probably not acceptable to the business in general because we're kind of staring at a potential recession of some sort. So, as your ability to grow as a business starts to be constrained, you've got to manage your expenses even more carefully. So, we're going to see an uptick in healthcare costs without a doubt, a significant uptick.

Our most recent survey in the U.S. showed healthcare costs for 2023 coming in at 6.5 percent up from 2022. That number on its own may not be startling, but it was 3 percent in '22 over '21, so it's more than double of the rate of increase. That's startling. And a lot of the cost drivers underlying healthcare inflation in the U.S. are lagging, because of contracts that have been placed for a period of time or pent-up demand for services not playing through yet in terms of fundamental utilization. Those things are on the horizon. So, we're looking at 6.5 percent in still a relatively muted inflationary environment. We could see scenarios where that number broaches double digits going into 2024.

So, clearly, the healthcare cost piece of this will become unaffordable for the employer, and they'll be having to balance the pressure of looking to make investments to strengthen certain aspects of the employee benefit programs, right? So, spend more in areas to bolster what's being made available to employees, such as in the mental health space.

You also have cost in general on the rise related to the expenses that people experience for daily living, right? So, while the wages may be going up, those wages are getting eaten up by inflation, leaving a growing affordability gap for employee health in particular. In fact, we see really startling statistics. Employers, and we're talking about employers of all sizes here, but people who have employee benefits offered through their employer, we're seeing statistics now that show 25 percent of those employees today are considered underinsured.

What does that mean? They don't have the ability to cover an upfront deductible or an out-of-pocket expense that would not be covered by the plan. They don't have the ability to be able to do that without borrowing or without cutting back in another part of their daily living. Thirty-eight percent of Americans, according to a recent Gallup poll, are cutting back on basics to pay for healthcare. So, we have a significant and serious affordability gap. Over 50 percent of employees would not have the financial means to pay their deductible and their cost share.

So, when you start to put these pieces together, Joey, what you find is the fundamental costs are increasing for the employer. The employer is not going to be able to absorb that increased cost, just given the general business climate that they're facing. And the opportunity to cost shift is essentially gone, so you've got to find new and different ways to be able to trim the total cost to be able to make it all work.

Joey Raheb:

So, how do they do that, Dave? We talked a little bit about thinking that it is an investment. We talked a little bit about the rising costs and the unsustainability of it and the affordability of it. So, what are some things that employers are thinking about today to help manage or stymie the cost of healthcare inflation, but at the same time take care of their employees' wellbeing, mental health, et cetera?

Dave Guilmette:

The first place that we would turn, and it may sound pretty basic, but it is essential, and that is to look to drive efficiencies in the programs that are offered today so that you're able to take down overall costs, right? So, performance improvement of the current plan of benefits, and that can be done only with deep performance assessment and predictive analytics. And so, the more you actually spend your time and attention really looking at what's working today and what's not working today, retain what's working, potentially even invest in those parts and start to take out the things that are not working, those could be vendors, those could be programs, those could be plan designs or all of the above. But really getting a foundation established with facts and the ability of what we now have with our predictive analytics to start to tell you where you think your costs are going to go going into the future.

2023 plan designs are set. Employers aren't going to be able to change those now. For the most part, they're thinking about 2024. We still have time to do that deep analysis to understand what we think 2024 is going to look like and make the appropriate adjustments to your current portfolio of benefits. So, that's fundamental. That has to happen.

Secondly, we've got new and modified plans that may make sense to pursue. These exist today. These are not something on a drawing board, these are in production. And what am I talking about? Digital solutions such as virtual first plans, health plans. We saw, as a result of COVID, a serious impact on the supply chain. People could not get to their primary care physicians. People couldn't go to dentists. People couldn't go to emergency rooms for long, long periods of time, and they still had healthcare needs. So, what happened? We saw the technology that had existed for a long, long time, the form of telemedicine, the utilization of that go through the roof.

And while it's subsided some, it's changed. So, it used to be that telemedicine was a sort of third-party point solution kind of thing that you might think about if it's available to you. And now, it's increasingly being integrated into primary care physician practices and specialty practices and into the health plan offerings fundamentally.

So, how do you really drive much more usage of alternative forms of care, like virtual, much more efficient? You can increase the benefit value as a result of doing that. You can drive better steerage to high performing providers through that mechanism as well, and you can save a good deal of money. So, that's a big area of focus that we think we're going to see a lot of employers paying attention to and introducing in meaningful ways in 2024.

It can also be communicating and shoring up what we would think about as more of the low-cost benefits that are probably underutilized such as your employee assistance programs, right? When you think about all the different services that are packed into an EAP plan, pretty remarkable, and yet the utilization of those plans is minuscule, right? So, first of all, do we have what makes sense in those plans? Can we enhance them? And can we make them more available and make sure people understand how to use them and when to use them?

Financial wellbeing would be another area that I would focus on, discount platforms, ways to help employees purchase things that are fundamental to their everyday lives that may not even be thought of as employee benefits but are enormously valuable in helping the employees with their financial wellbeing and basically to save money.

And then, the last area would be around voluntary benefits. So, these could be critical illness or hospital indemnity accident kinds of programs that really complement a high deductible plan because many people are going to be healthy all year long, but if something were to happen and they were faced with say a $3,000 deductible, these plans could actually help offset that cost in a pretty meaningful way. And they do not cost a lot to enroll in and to pay for in a per pay period basis.

Joey Raheb:

Thanks, Dave. I really like the focus on efficiency and maximizing what we already have, right? So, we don't necessarily need to go out and put the newest thing into the system if we haven't already maximized the value of what we already offer to our employees. That concept resonates really well I think with employers. And then, the last bit around utilizing those benefits that are underutilized but provide high return like EAP, those are great solutions for employers.

What if we shift our focus now to employees? You made a comment earlier around the affordability of plans. How can employers provide support for their employees while balancing the rising business costs?

Dave Guilmette:

I would go back to making sure that whatever you're offering, that the employees truly understand them. And that's not so much like a one-time communication. Of course, that needs to happen, and that's especially important when you're looking at an annual enrollment choice. So, making sure that you clearly communicate the plans that are available if you're promoting or looking for folks to consider something that's truly different, an alternative to the traditional medical benefit, for example, in the U.S., like a virtual plan, to sort of over-index on describing what that plan is, how it works, why it would make sense for people to seriously consider.

And I would even go further to say de-average that conversation, right? So, instead of trying to target a message to all employees, think about the cohorts of employees that you have. If you are in retail or fast food, you have lots of workers who are making a lot less money than say if you were in financial services or investment banking, right? Now, financial services companies are also going to have lower wage workers as well as high income earners. And so, really understanding what messages are going to resonate most effectively to subsets of the population to get them to behave and to get them to understand and to get them to actually enroll in the benefits that make the most sense for them. And then, there are ways you can do that using digital communication tools and messages and such that could be really efficient.

And then, I would also really urge employers to think that in some cases the benefits in particular, the voluntary benefits, are not a one and done thing. They can happen all throughout the course of the year. We have something that we call Everyday Benefits that help employers actually facilitate individuals buying voluntary benefit programs all along the year as opposed to once in the fall when it's an annual enrollment selection process, because your needs are going to change as an individual or for your families. So, really thinking about sort of understanding the cohorts that make up your employee population, the different needs that those cohorts are going to have and making sure that you have the right benefit offering that make sense for each of them, and then help to steer them to an answer that makes the most sense for them personally.

Joey Raheb:

I do love the continued focus on education and communication, thinking it now down to the employee level. Being a Canadian, and we do have public healthcare here in Canada, costs sometimes are not on par with our U.S. counterparts, but that doesn't mean that affordability becomes less of an issue. And so, we're notorious over-insurers in Canada because we don't like to pay out-of-pocket at point of sale. So, we do like to spend time talking with our employer clients around, "How do you educate your employees on how to make the right choices too during enrollment?" Right? That we're not choosing the plan because you want to buy the Cadillac, but you're buying a plan that's more suited around your needs so that affordability can be managed. I really do like that.

David, I think we're almost at time. The conversation's been great, but I do want to bring us back to a bit of a more personal level and get a little bit more well-rounded in terms of viewpoints. Tell me what excites you most about Aon's future?

Dave Guilmette:

We have, I guess you would call it a saying, but it really is more our mission, which is Aon United and delivering value to our clients by really working effectively together and bringing the best that Aon as a firm can bring to our clients. That makes me super excited, because we have capabilities and expertise that is unsurpassed in the market and highly, highly relevant to our employer needs, be that on the risk side of their business or sort of the people aspects of what they deal with human resources. And when we put our teams together and we bring our capabilities to our clients in that way, we are adding value that far surpasses what we would do if we were trying to sort of work independently in our particular areas of expertise. So, Aon United is our path forward and I'm super excited about that.

Joey Raheb:

Yeah, me too. It's really exciting, especially when we onboard new employees and we talk about it. You can see it light up in their eyes in terms of the opportunity and how we focus. Aon United is not a product that we're pushing, it's a culture we're building. It's a solution that focuses on the client's needs. I really love that. How about something more personal? What's the last book you read?

Dave Guilmette:

Last book? So, I'll answer it in a couple of parts. So, there's a couple of business books that I read actually at the same time, so I don't know which one I finished first, so I'll tell you both of those. One's called The Voltage Effect, and it basically looks at the principles of momentum and how you could lose momentum in particular around innovation. So, the voltage effect, meaning the charge actually starts to diminish. It's a fascinating book to really help you understand how to get innovation right.

And then, the other one is The Human Element, and that one is really all about sort of fuel and friction, really interesting concepts, right? So, think about trying to get an automobile to go faster. Do you need to put more fuel or strengthen the engine? You might, but at some point it's not about how powerful the car is, it's about how much drag is slowing the car down, right? So, this notion of balancing fuel and friction, super important. So, those would be highly recommended for me on the business side.

I also just finished reading a novel, actually, it's an autobiography called Unrequited Infatuations. And before you let your imagination run wild, this is Steven Van Zandt from the E Street Band, and the Sopranos' autobiography and it's a fascinating read. He's a fascinating guy. And I'm a bit of a classic rock and roll fan, so I've tried to read as many of these autobiographies as I can, because I just love kind of getting inside their heads and seeing what those lives have been all about.

Joey Raheb:

It's been a great pleasure speaking with you and getting to know you a little bit more, Dave. Thank you very much. Thanks for your time and any closing remarks for our listeners?

Dave Guilmette:

I've really enjoyed the time, and as I've said all throughout this, this is a time to act, right? This is a time to dig in, understand how your programs are working, and truly is a call to action as you look out to 2024.

Joey Raheb:

Thanks, Dave.

Dave Guilmette:

Thank you.

Voiceover:

This has been a conversation On Aon and the impact of inflation on employee benefits. Thank you for listening. If you enjoyed this week's episode, tune in in two weeks for another new episode. To learn more about Aon, its colleagues, solutions and news, check out our show notes and visit our website at aon.com.