Editor's Note: This is the second article in a series provided by HR Department Unlimited, a human resource and training consulting firm.
It's no secret to business owners that the cost of providing health insurance benefits has risen to the point where it is now not only the most expensive benefit, but it may be one that's seriously straining budgets and business stability.
According to a survey of 2,100 various sized companies conducted by the Kaiser Foundation, the average monthly premium for a single employee in 2006 increased by about 9 percent, and stands at $353 ($4,242 per year). The average premium for a family in 2006 amounted to $957 or $11,480 annually.
The percentage of growth of health care spending has outpaced the rate of inflation and the increase in wages every year since 1999.[1] This means that health care expenses are occupying an ever-increasing portion of every employer's budget and each employee's paycheck.
Naturally, business owners have developed strategies to cope with this difficult trend. Some have been forced to abandon providing benefits to retirees, or even current employees. Since 2000, the percentage of businesses offering health benefits to employees has decreased from 69 percent to 61 percent. The trend is even more pervasive in the smallest companies (three to nine workers). This decrease in coverage is contributing to an already existing national crisis, as these uninsured workers are forced to rely on government sources for care.
Here are several suggestions to help you develop short and long term solutions to control health insurance premium increases.
Work with Your Broker
All brokers are not created equal. An experienced and knowledgeable agent or broker should be able to provide business owners with alternatives to terminating health benefits as well as strategies to control health care increases and ways to continue to provide a sound benefit package to your workforce.
Agents and brokers are in the service business, and as such, need to deliver fresh ideas and sound strategies. Experienced agents will help you understand the industry trends and let you know what strategies similar companies might be employing. Many business owners are not aware of the plan designs that are available. Agents should be prepared to "shop the market" and give you quotes from a variety of companies.
In addition, the agent should arrange employee meetings and explain any plan changes in a way that helps employees understand the need for such change and assures them that the benefit package is a good one. Without proper communication, even the best plans may fail.
Communicate with Employees
The fact that health benefits are increasingly expensive should not be a secret to your employees. Let them know that changes may have to be made, but that you are working to make sure they get the best benefits the business can afford. Some of our clients develop focus groups of interested employees to help examine the available options. People appreciate explanations for change, and if the company has a history of loyalty toward employees, the employees are likely to reciprocate.
The communication should continue with education throughout the year focusing on the benefits provided and the most prudent ways to manage and use these benefits. Many studies support the principle that communication of benefit packages is more likely to ensure employee satisfaction than the actual benefit package itself.
Understand Your Objectives
Is your objective to assist with all of your employees' medical costs, or to make sure they are covered in the case of a catastrophic medical condition or accident? Catastrophic coverage usually ensures that employees won't lose their homes or have to declare bankruptcy in the case of an extreme medical condition, but might not pay for routine procedures, prescriptions or treatments.
Employers need to develop a strategy that will allow them to meet goals and the mission of the company and to ensure that the benefit package is consistent with the vision of the owner. Benefit packages are important tools for recruitment and retention-this may also need to be considered.
Make certain that the objectives are consistent with what your employees want. It may be beneficial to offer two options-this is an option for businesses as small as ten employees. Some employees may opt for more luxurious plans while others may value catastrophic coverage alone.
Establishing and understanding objectives should be combined with the budgeting process to make certain the two processes compliment each other. Obviously, budgeting is an integral part of business planning; looking at potential premium increases will allow owners to evaluate options instead of scrambling once an unfavorable renewal is delivered.
Increase the Employee Contribution
Most companies share the costs of benefits with employees. Over three quarters of employees with single coverage and 90 percent of employees with family coverage make contributions to their premiums.
The average contribution for a single employee among the Kaiser participants was about $52 and $248 for a family of four. Increasing the contribution amount will help immediately but will be the change most readily felt by your employees because their paychecks will shrink accordingly.
Again, if the company is able to offer two options, we usually suggest basing the employer's contribution on the less expensive plan and allowing the employees to "buy up" to the more expensive plan.
Change the Plan Options
Plan design options should be based on a mutual satisfaction of employee and employer objectives. In addition to increased premium contributions, companies can reduce their health insurance premiums by adjusting certain plan options. Current strategies include the following:
- Employee Cost Sharing-In addition to employees' premium contributions, most employees make additional payments when using health care services. The three most common mechanisms of cost sharing involve copayments, co-insurance and deductibles. Copayments are fixed dollar payments that cover certain services, such as office visits, pharmacy costs and emergency room costs. Deductible amounts refer to expenses that must be met before any benefits are paid. Co-insurance is a percentage of costs paid by your employee after the deductible is met until it reaches an out-of-pocket maximum. In most plans, copayments amounts do not apply toward the deductible or maximum out-of-pocket expense.
Increasing the amounts of any of these variables will decrease overall premium costs. At the same time, provision of certain tax-favored accounts may help off-set the increased cost sharing burden on the employees. Your broker should be able to provide you with details and projection for various scenarios.
- Consumer Driven Health Plans-This term applies to plans that combine a high-deductible health plan ($1,050 or more for a single and $2,100 or more for a family in 2006) with a tax-favored health savings accounts (HSA's) or employer-related health reimbursement accounts (HRA's). HSA laws are constantly evolving in an effort to make them more consumer-friendly.
Consumer-driven health plans are founded on the principle of consumerism and the notion that people are apt to be more frugal when spending their own money than they are in spending others' money. The reaction to such plans has been mixed and is largely dependent on employee education and communication.
One mechanism used to reduce the risk associated with these larger deductibles is to allow employees to voluntarily purchase critical illness or disability insurance policies through the company in order to offset the higher deductible. State laws and interpretations on this strategy vary, so consult your broker or financial advisor about this.
Based on the Kaiser Foundation findings, approximate annual premium savings obtained by instituting a high deductible health plan amounted to between $576 and $1,066 for a single employee in 2006.
Consider Self-Funding
The concept of "self-insuring," or self-funding, is an issue too complex to do justice to in this limited space. Basically, self-funding is a practice employed by companies to directly pay for employee's health claims. Although this practice involves more risk than being fully insured, companies as small as fifty employees are beginning to look at self-funding or limited self-funding as viable options. Experienced Third Party Administrators (TPAs) can provide you with cost projections and details for those owners interested in assuming some risk in the interest of cost savings.
Plan for the Future
Employees need to understand their benefit packages as well as what is required for the company to grow and continue to offer these benefits. This involves attempting to control future cost increases in a variety of ways. A notable avenue for future risk management involves the use of wellness programs. Wellness programs consist of screening and interventional services aimed at improving the general health and wellbeing of the workforce.
While the United States claims the highest per capita healthcare spending in the world, twenty-eight countries have healthy life expectancies greater than that experienced in our country[2]. In addition, our rates of diabetes, hypertension, heart disease and cancer are considerably higher than those of other industrialized nations.
These differences in mortality and disease, as well as the aforementioned cost increases are largely attributable to the unhealthy lifestyles and personal practices characterizing Americans today. Wellness programs improve employees' health by encouraging, educating and rewarding healthy habits such as exercise, proper nutrition, smoking cessation and proper preventive and health screening behaviors.
Wellness programs have been repeatedly shown to reduce health costs and increase productivity and decrease absenteeism[3].
Health care costs are clearly becoming increasingly difficult for businesses to manage. In the past, some owners have viewed health care costs as fixed and beyond their control. There are, however, a number of potential solutions to combat these problems and continue to offer your employees attractive benefit packages and options for healthier and more productive futures.
Construction Business Owner, March 2007
[1] Kaiser Family Foundation Health Research and Educational Trust, Employer Health Benefits 2006 Annual Survey, Kaiser Foundation, 2006.
[2] United Health Foundation and American Public Health Association Annual Report, Presented December, 2005
[3] Chapman LS. Meta-evaluation of worksite health promotion economic return studies. The Art of Health Promotion. 2003;6(6):1-16.
