Four Ways Employers Can Spend Less On Health Insurance;and Still Provide Great Benefits For Employee
The journal Health Affairs recently reported that health spending growth in the United States from now until 2025 is projected to average 5.8 percent. That's faster than growth in the gross domestic product! So what can employers do to get out of the vicious cycle of increasing health care costs? Buy less insurance.
Sure, you have the option of buying no medical insurance at all. (I cover that in a previous article.) But if you come to the conclusion that you want to retain health insurance in your compensation package, here's how to buy less:
1. Spend less on premiums, more on compensation
Instead of paying high premiums, why not cover a smaller portion and put some extra cash in your employees' pockets through compensation? Don't base your contribution to insurance premiums on a percentage of your employees' cost of coverage, but instead contribute a flat dollar amount each month. This gives employees more flexibility in how they spend their compensation while you can tie cash compensation to clear business incentives. In the past, rich health benefits have often hidden a large chunk of compensation from being tied to such incentives
2. Offer options for employees to buy less insurance
Most employees don't realize that 73 percent of the population spends $500 or less on medical expenses per year. Eighty-two percent spend less than $1,000. That means lush insurance plans pay for coverage that won't be used by the majority of employees. Instead, offer options that have higher deductibles, only offer access to a limited network of hospitals, or both. When educated adequately, many employees can pay less in premiums and get the coverage that suits their lifestyle. In addition, offer a wide array of policies to let them shop -- at least three, and perhaps as many as six. Help them out by giving them human- and technology-based resources so they can see which plan is right for them. If they want the richest coverage, provide an option for them to buy up to that plan, or let them buy supplemental policies like critical illness, accident or hospitalization coverage.
3. Buy employees HELP, not more insurance
Most employees don't need more insurance -- they need help when they use their insurance. People are receiving much higher medical bills -- $400, $1200, even $3,000 – because of higher deductibles. They don't know where to go to get quality care at the lowest cost. (A corn maze is easier to solve than the health care pricing puzzle!) And most claims are processed incorrectly by either the carrier or the hospital, so that $780 bill is most likely wrong. For all of these scenarios, an employer can spend less than $10 per employee per month to buy health advocacy, bill negotiation, price comparison and telemedicine services. Spend your money on something that will have a positive effect on your employees' health care experience.
4. Consider self-insurance or alternative funding
Lastly, buy less insurance by going self-insured or some other type of alternative funding. The details of how to go self-funded are too lengthy for this article, but at its core, this option allows you to peel away some of the cost associated with fully insured products, including 3-4 percent in taxes applied to fully insured policies. The more employees you have, the more likely this option is good for you, but even "sharing risk" has become available for employers with as few as five employees, which can reduce costs. For small employers (less than 50 workers) who were forced into the ACA age-banded, community rates, it is imperative that you at least get underwritten for a level-funded plan to see if it saves money.
Overall, for even the most cash-rich businesses that can afford an impressive benefits package, I offer this advice: Just because you can afford it, doesn't mean it's the best use of your money. And for small and mid-sized employers: Remember to analyze if you still need to offer medical insurance at all.
Chris Van Buren is a partner at Embrook Benefits & HR Services, which helps small and mid-sized companies to select and administer the ideal employee benefits plans for their businesses, in compliance with the Affordable Care Act.
Embrook is an independent broker of group insurance, wellness programs, administration services and integrated HR, benefit and payroll systems.