Thursday, April 9, 2015

When Did We Stop Being Inquisitive?

I can still remember much of my childhood, so most of my readers should be able to remember theirs, as well. Childhood has its phases. There is the "no" phase which usually occurs somewhere around age 2 or 3 in which it doesn't matter what our parents say, we answer "no." A bit later on, there is the "why" phase in which in doesn't matter what our parents tell us to do, we ask "why?"

At the time, I'm certain that all of those whys were very annoying to our parents and for those of us who have been parents in our own right, they were annoying to us too.


Sometimes, asking why is a good thing, perhaps not to the extent that a 5-year old might do it, but oftentimes asking why gives us perspective into what we really need to do.

This extends itself into the benefits world as well.

Let's consider a not particularly made up hypothetical situation. A client informs their consultant that they want to change their 401(k) plan to make it a safe harbor or to make target date funds their QDIA. Or, on a different topic, they say that they need to move to a high-deductible health plan. If we, as consultants don't ask, but the client chooses to volunteer some information, we might learn that they read about the increasing popularity of whichever of these that it was or they heard about them at a conference.

There are several approaches that a consultant can take to that request. Sadly, the one that we often jump at is 'we can help you with that' as we salivate knowing that we just sold a new project. So, we're going to do what the client asked us to do not what the client needs us to do.

Let's suppose.

Let's suppose that we asked why.

Why do you want a safe harbor plan? Why do you want to use target date funds? Why do you want a high-deductible health plan (HDHP)?

Perhaps upon hearing the client's answer, we'll know that they are headed in the right direction. On the other hand, perhaps they are not. Because everyone else is doing it is not always a good reason.

Suppose we focus for a moment on the high-deductible health plan (I haven't written about health care for a while). When we ask why, the client tells us that her company's health care expenses have increased to rapidly and that they need to reduce that cost. Introducing an element of consumerism, she tells us, will make employees part of the buying and spending decisions and save the company money.

Strictly with respect to the health care plan, I expect that she is correct. In total, she may be correct. But, if cost is the issue, isn't it important that she understands the secondary and tertiary savings and costs?

Some data on HDHPs suggests that employees in those designs are more likely to skip certain medical procedures. In some cases, that's good. The procedure might not be necessary and not having it performed will save money at no personal risk to the employee. On the other hand, the procedure might truly be advisable. But, since the first $5,000 of cost may be borne by the employee, he may decided that is not money that he wants to spend. He chooses to forgo the procedure.

What are the non-primary effects of that decision? Here are a few potential ones:

  • The employee should have had the procedure and develops a more severe condition later on that is far more expensive to treat.
  • The employee, when that more expensive procedure becomes absolutely necessary, will be out of work for an extended period of time generating another significant cost to the company.
  • The employee may become disgruntled with the employer because this new plan design "forced" him to not have his advisable procedure. Disgruntled employees are usually either less productive or they quit, or both.
These are all meaningful costs, but they are not ones that we can truly predict. We know that some of them will occur, but, in my opinion, the best that we can do is to model some scenarios and see where they might fall out. Perhaps understanding the full picture will help our client to better understand the decision she is considering.

But, we'll never know how to paint that picture if we're not inquisitive.

Don't forget to ask why.

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