Given the current state of the economy, it is more important than ever for businesses to carefully evaluate their employee benefit programs to find ways to manage cost. Double digit health insurance renewal increases should not be an automatic annual ritual. There are many options available that can save companies money without compromising the quality of health care offered to employees.
As open enrollment season approaches for many employers, the timing is right to consider the following tips from HUB International on how to better manage company health care costs:
Explore the insurance marketplace for competitive proposals
Even though there are only five or six major health insurance companies in the marketplace, it is always a good idea to obtain a professional opinion from an insurance broker or consultant. While insurance premiums provided by carriers don’t vary by broker, having another advisor evaluate your plan may provide fresh ideas that translate into cost savings.
Provide employees with multiple health plan options at various cost levels
Over 75% of all companies currently provide multiple health plans to their employees, which is typically done with the same carrier. Offering “High/Low” options is an outstanding way for an employer to both manage its cost of insurance and provide alternative coverage options.
Review alternative contribution strategies
401(k) plans typically have a waiting period before an employee is fully vested. Consider a similar approach for health and other welfare benefits. After obtaining advice from a governmental tax authority, many employers have decided to provide different levels of benefits to their various classes of employees.
Extend your plan’s waiting period and to bridge the gap, add a lower cost plan option (i.e., Limited Medical Plan)
Most employee turnover occurs during the first six months of employment. However, most employers provide benefits after 30 to 90 days of employment. By extending the waiting period, a company can decrease the potential for ex-employees to elect COBRA continuation coverage under their health insurance program, thereby lowering premiums and reducing an administrative burden. During the waiting period, Limited Medical Plans can be used as an inexpensive way to provide basic benefits as the premiums typically are only 20% of those of the major medical plan.
Investigate adding a Health Reimbursement Account (HRA)
An HRA is authorized by IRS Code Section 105, allowing an employer to fund an account that can be directed towards an employee’s out of pocket costs. One cost saving strategy that greatly reduces premiums is for an employer to purchase a health plan with increased co-pays, deductibles and co-insurance. The employer can then set up a “shadow plan” for its employees by funding an HRA. The HRA provides a debit card for each person to pay for qualified medical expenses between the shadow plan and the actual insurance plan. The risk is minimal for an employer and the savings can be as great as 20%.
Consider utilizing a Professional Employer Organization or co-employment arrangement
A Professional Employer Organization (PEO) offers small and mid-sized employers the opportunity to offer the same type of HR, payroll, and health insurance services that large corporations provide to their employees. A PEO bands thousands of employers together, enabling them to achieve economies of scale that could result in cost savings for all employee benefits, including health insurance.
Bundle multiple lines of coverage with one insurance carrier.
Insurers offer significant discounts when a company purchases more than one line of insurance from them. By combining Dental, Life and Disability together or with Medical, companies can realize significant savings on all of their premiums.
Separate your prescription plan and investigate self-insuring through a third party vendor.
Pharmacy is a major profit center for insurance companies. By driving employees to pick drugs within a formulary (a preferred list of prescription drugs covered under the benefit plan), insurers receive millions of dollars in rebates from the pharmaceutical manufacturers, yet they rarely share these savings with employers. Employers with as few as 100 employees may wish to use an outside vendor for pharmacy. Outside pharmaceutical management companies may provide as much as 100% of the rebate money back to an employer, which could translate into as much as 1% of a typical company’s premium.
Shift a portion of the plan costs to members through benefit changes
Consider redesigning plans to accurately represent the expenses incurred by various medical providers. The average normal office visit to a Primary Care Physician is $70 while the average ER visit costs over $500. Health plan co-pays need to appropriately reflect this cost differential so that employees will think about the best place of treatment not only for quality, but for cost.
Educate your employees on becoming smarter and healthier consumers
Employees must take charge of their own health by quitting smoking and losing weight. Smoking is the leading cause of preventable death in the U.S. About 127 million adults in the U.S. are overweight and 60 million are obese. Obesity has a direct correlation to heart disease, stroke, high blood pressure, blindness, kidney disease, nervous system disease, pregnancy complications and diabetes. Consider offering your employees access to smoking cessation and other wellness programs that promote and support a healthier lifestyle.
By proactively identifying ways to reduce the overall cost of your benefits program without compromising the quality of the coverage offered, employers and employees will be satisfied.
HUB International is a leading insurance brokerage providing a broad array of property, casualty, risk management, employee benefits, investment and wealth management products across North America. HUB is dedicated to helping businesses and individuals manage their insurance needs and plan for the unforeseen. For more information, visit www.hubinternational.com.
This information is provided for general information purposes only. It does not constitute professional advice and does not create a broker-client relationship. Please consult a HUB advisor about your specific needs before taking any action.