Strategies to Reduce Your Employee’s Health & Benefit Costs
If you’re looking for ways to reduce the cost of your employee health and benefits plan, you’re not alone. Over the past ten years, employer premiums have risen 39%, and you can expect a further 6-10% increase next year.
The cost of healthcare is outpacing inflation, and against the demographic backdrop of an aging population, this isn’t likely to change soon.
Exploring your options, particularly with the assistance of a benefits advisor, can save your business money.
There are a range of funding options available to staffing companies looking for more cost-effective plans. One such option is the level-funded plan, which was covered at length in a webinar earlier this year.
In short, a fully insured plan has a fixed premium and limited liability, but no benefit for a period with low claims. With a self-insured plan, you only pay the actual costs, but liability is essentially unlimited. A level funded plan provides the assurance of fixed premiums and limited liability, but also the possibility of reimbursement if claims are low. For more information, you can find the webinar recording here.
When looking at ways to make your health and benefits spend as cost-effective as possible, there are three main plan types to consider, each with their own pros and cons. “There are differences between a PPO, an EPO, and an HMO,” notes Brian Drummond, CEO of Kasa, “primarily in terms of the rate and also the accessibility to your group.”
Preferred Provider Organization (PPO)
With a PPO, in-network copays and coinsurance costs are generally low. A PPO also offers greater flexibility to access out-of-network providers (at a higher cost, and additional paperwork). Generally, no physician referral is required to see a specialist.
However, a PPO’s premiums are higher than those for an EPO or HMO.
Exclusive Provider Organization (EPO)
With an EPO, there is more flexibility for organizations to choose their healthcare providers, but insured employees are required to use in-network providers. Generally, plan members can see a specialist without a physician referral.
Premiums for an EPO are moderate: lower than a PPO, but higher than an HMO.
Health Maintenance Organization (HMO)
With an HMO, premiums and deductibles are lower than other options, and copays are fixed. However, only in-network providers are typically permitted without significant extra costs. Plan members see a primary care physician for routine visits and must be referred by that physician to any specialists.
A health and benefits advisor like TechServe Alliance’s Tommy Poulin can help you understand your options and choose the best one for your business.
Consumer driven health plans are another way to make your health and benefits investment go further. With these plans, employees become active participants in their healthcare plans. They’re empowered to make better decisions, and they’re informed about the benefits of making those better choices.
The three primary types of consumer driven health plans are the Health Savings Account, the Flexible Spending Account, and the Health Reimbursement Account. The table below provides a comparison of these three types of plans.
|Health Savings Account (HSA)||Flexible Spending Account (FSA)||Health Reimbursement Account (HRA)|
|Who Owns It?||Employee||Employer||Employer|
|What Plans Must be Offered?||Qualified HDHP||Employer must offer group health plan and FSA must meet maximum benefit requirement||Employer must offer a health plan and the HRA must be considered integrated with the plan|
|Who may fund the account?||Employee and/or Employer||Employee and/or Employer||Employer|
|IRS Annual Contribution Limits||2023: $3,850 Ind. / $7,750 Family
2024: $4,150 Ind. / $8,300 Family
Catch-up contributions: $1,000/year (age 55 by end of tax year)
|$3,050 for plan years beginning in 2023||None|
|Uniform Coverage Rule Applies?||No||Yes||No|
|Can unused funds be rolled over from year to year?||Yes||Determined by Employer with limitations of 2½ month grace period allowed and up to $500(as adjusted for inflation) to next plan year||Determined by Employer|
|What expenses are eligible for reimbursement?||Section 213(d) medical expenses, including COBRA premiums, QLTC premiums and Health premiums while receiving unemployment benefits||Section 213(d) medical expenses. Expenses for insurance premiums are not reimbursable. Employer can define “eligible medical expenses”||Section 213(d) medical expenses. Cannot reimburse health insurance premiums for individual coverage. Employer can define “eligible medical expenses”|
|Must claims be substantiated?||No||Yes||Yes|
|May the account reimburse non-medical expenses?||Yes, but taxed as income and 20% penalty (no penalty if distributed after death, disability, or age 65)||No||No|
Working with the options above, there are other ways to provide a highly competitive health and benefit plan to your employees, while still saving money.
One such option, Brian Drummond suggests, is to opt for a less costly base plan but to layer a consumer driven plan over top.
For example, the ‘Gold’ plan offers low deductibles, and also a low out-of-pocket maximum. The employee premium is much higher, however, and so is your cost. The annual cost of such a plan for 50 employees would total $540,000.
At the other end of the spectrum, the ‘Bronze’ plan has a much higher deductible and a higher out-of-pocket maximum. Premiums are much lower for both the employee and the employer. Your annual cost for the same 50 employees would total only $288,000.
By ‘wrapping’ an HRA around the Bronze plan, you can realize significant savings while giving your employees a plan that feels more like a Gold plan. It works like this:
- The Bronze plan deductible is $5000
- The employee pays the first $750 of the deductible
- Your remaining deductible liability is $4250
- At 20% of employees, anticipated claims are $42,500 (actuarial statistics predict that only 15-20% of employees will have a deductible expense each year)
- HRA administration fees are $18,000
- Your total cost is $60,500
- Your base plan savings (Gold minus Bronze) is $252,000
- Your resulting net savings are $191,500
To further mitigate financial risks – both to the employee and the organization – additional steps can be put in place. “If employees know that they’re going to meet that deductible because they have certain medications or procedures that they have to have done,” says Michele Clarke, CFO and COO with TechServe Alliance, “you can set up a flex spending account so that pre-tax dollars can be taken out of their paycheck and used to pay for their share of the expenses.”
Other ways to manage health and benefit costs
Plan options and plan design are clearly important factors in the overall cost of your health and benefits plan. However, there are several other ways you can further control and reduce your expenses.
- Data is valuable. If you have low claims, you can use that as a negotiating point when renewing or exploring a new plan.
- A different provider network may be less costly
- Reference-based pricing may also offer cost savings.
Your benefits advisor can help you understand and explore these options.
Educating and informing your employees can also significantly reduce your health and benefit costs, by making them partners in their own decisions. This can mean showing your employees the savings that can result from:
- Using generic instead of brand name drugs, which offer the same effects
- Using Urgent Care instead of the Emergency Room (when appropriate)
- Using an in-network instead of an out-of-network provider
- Making healthier lifestyle choices (some employers even offer employee incentives to do so)
Health and Benefits savings? An advisor can help.
With so many choices and variables, the prospect of changes to your health and benefits plan can seem overwhelming. A good advisor is your best bet, and the time to reach out is now. “70 to 80% of employer health plans renew in December or January,” says Tommy Poulin, Health and Benefits Advisor with TechServe Alliance. “It’s a really busy time for carriers, and they sometimes don’t take the time to negotiate. It’s also more difficult for us to get the information we need to get the quotes back to you. So, it’s never too early to start the conversation.”
Tommy Poulin, Michele Clarke, and Brian Drummond presented this information – and more – to TechServe members in a recent webinar. If you missed the live presentation, you can find the recording here.