How to approach health benefits plans on a tight budget
Rob Wilson
President
Employco USA
The time to renew health benefits plans is upon many businesses. With all the cutbacks and troubling economic news employers have had to contend with lately, the option of varied benefits choices is a welcome one. The variety of plan structures and additional programs that exist allow employers and their employees to take greater control of a system where costs have historically been experiencing double-digit increases for some time now.
“When business owners face a health benefits renewal with an increase of 10 percent, even 20 percent, what can they do?” says Rob Wilson, president of Employco USA. “Neither the business owner nor the employees have discretionary dollars for that now.”
Smart Business asked Wilson about ways to lessen the impact of rising benefits costs by offering employees more choices.
How can business owners approach open enrollment season?
Employers can decide to absorb premium increases if they’re in the financial position to do so. If there’s absolutely no room in the budget for an increase in premium, they may consider passing it along to the employee. Another consideration may be to split the increase between the employer and employee so both parties can shoulder the burden.
Employers can also quote other insurance carriers. It is typical in the industry for carriers to have different sales strategies, depending on where they are in the business cycle. Premiums may be higher at certain times to increase revenue and lower at other times to obtain more market share. Since each carrier has its own approach, it may be possible to find the same coverage at lower premiums if you take the time to look. It is a good idea to compare rates with different carriers at least once a year.
What are different plan structures to consider?
It’s always beneficial to consider different plan structures whether you’re staying with the same carrier or switching. Do a comparison between a preferred provider organization (PPO) plan and a health maintenance organization (HMO) plan or consider offering both.
Conduct a thorough evaluation between plans in terms of co-pay, deductible, coinsurance, prescription drug card and pick the plan that’s best suited for your group and budget. You may be able to significantly reduce your premiums by increasing your deductible, co-pay, co-insurance and/or prescription drug card.
Keep in mind employers have the option to review their policies every year before renewal so changes are not permanent and may just be for the upcoming year.
Aside from the traditional PPO and HMO plans, are there other non-conventional options that can be considered?
The health savings account (HSA) is becoming more popular. It’s a high-deductible plan, so typically the premium would be lower. Other benefits of HSAs are:
- Tax deductions when individuals contribute;
- Tax-free withdraws for qualified medical expenses;
- Portability — the account belongs to the individual.
Another option to help employees with health-related expenses is a flexible spending account (FSA). An FSA account allows employees to put away pretax dollars that can be applied toward employee-chosen medical expenses such as premiums, copays, deductibles, prescriptions, over-the-counter medicines or even day care.
For example, if your employees pay $500 toward health care premiums, deductibles, etc., using an FSA, they can use pretax dollars instead of after tax dollars. That equates to a tax savings of $178 for every $500 of premiums paid.
Are there options specifically for small businesses?
Small to midsize businesses may choose to look into industry associations or partnerships with human resource organizations (HRO). By joining an HRO, businesses that might otherwise be too small to obtain competitive pricing can now get the same buying power as bigger companies. When an employer joins an HRO and bands together with all the other companies comparable in size, the number of the group increases exponentially to hundreds or thousands of employees. The buying power now lies in the hands of a much bigger pool, which, to insurance carriers, is more attractive. The pricing may be more competitive through an HRO than on a stand-alone basis since the insurance is bought in volume at a reduced rate.
How should employers communicate with employees about plan changes?
Employers need to communicate honestly with their employees during open enrollment time, especially if there will be changes in the benefits plans. If, due to the decrease in revenue, the existing PPO plan has to be changed to a HMO plan or the deductible increased, reassure the staff that these changes may not be permanent.
For more on this topic, please contact Rob Wilson at rwilson@thewilsoncompanies.com.