If you’re an HR executive, you want a market-leading compensation package that helps attract and retain top talent. But if you’re the CFO, you want to control costs by lessening the financial burden of health care on the bottom line. So, how does a company offer attractive benefits packages while controlling costs?
Attractive Health Benefits Packages That Also Control Costs
One answer lies in how you share the financial responsibility of health care expenses with your employees. As you look to manage these expenditures, here are five approaches being employed that you may want to consider. It may be that a single strategy will work best for your company, or perhaps a mix of strategies will be most effective. Ideally, the approach you choose will lessen your cost burden significantly without having too much of an impact on any one group of employees.
1. Higher Out-of-Pocket Costs at Point of Care
Plan costs for employers are affected by employee costs shares in the form of copays, coinsurance, and a deductible. PPO plans, such as Access PPO from Group Health, often allow employers to choose from different levels of employee coinsurance, from 10 to 50 percent (in network) for example. The higher the employee percentage of coinsurance, the lower the coverage premiums.
2. Smaller Contributions Toward Family Coverage
Under the ACA employer mandate effective Jan. 1, 2015, spouses are not considered dependents. So instead of offering full spousal coverage, many employers are shifting a portion of those costs to employees. Rather than single or family coverage, some employers are considering “unitized pricing,” where employee contributions are on a per-person basis. According to the consulting company Mercer, about 18 percent of large employers said they would increase workers’ payments toward family coverage in 2014.1
3. High-Deductible Plan Paired With a Health Savings Account (HSA)
One way to reduce plan costs is with a high-deductible consumer-driven or account-based plan. These plans require your employees to pay a significant amount of their health care costs—at least $1,300 for an individual in 2015—before their insurance kicks in. Many companies offset this approach by offering employees a Health Savings Account. HSAs allow employees to contribute tax-sheltered wages to cover medical costs. Many employers also contribute an annual amount to this employee account.
4. Defined Contributions and Private Exchanges
Private exchanges are web-based portals—often run by producers or brokers—that offer a range of health plans, either from a single carrier or multiple carriers, from which employees can choose.
Companies typically allocate a specific amount—a defined contribution—for employees to spend on health coverage. Workers can then choose from a menu of options, paying any difference in plan costs over and above the company contribution. Employers are shifting employees to private exchanges to control costs and reduce administrative burdens, and to give workers more plans to choose from.
5. Pay or Play
With the employer mandate in effect, employers with 100 or more full-time employees need to insure at least 70 percent of their full-time workers, and 95 percent by next year, or face a penalty. With this in mind, you may be wondering if there are circumstances where you’d be better off paying the penalties rather than providing health coverage for your employees and their dependents.
In 2015, for example, the penalty is up to $2,000 annually for each FTE, excluding the first 30 employees. If your total penalty is less than what you’d be paying in premiums, it may seem advantageous to drop coverage for your workers. But before you do, be sure to consider the unintended consequences and their costs: the negative impact on recruiting and retention, and the cost of high turnover, higher absenteeism, and lost productivity from sick employees avoiding the costs of care. Unhealthy employees can easily surpass the costs of health coverage—something to keep in mind when evaluating options.