For employers, it’s been an ongoing battle to keep health insurance costs down without cutting employee health benefits. According to a PwC report, healthcare costs will remain a challenge in 2016 as costs are expected to outpace general economic inflation with a 4.5% growth rate.
There is no single culprit in the battle against rising healthcare costs; rather, there are many drivers contributing to the increase. Soaring prices for medical services, new costly prescription drugs and medical technologies, paying for volume over value, unhealthy lifestyles and a lack of transparency concerning prices and quality are all factors contributing to the spike in premiums.
So what can you do?
It can be a difficult juggling act to keep your health insurance premiums from financially squeezing your business, while also providing a robust benefits package for your employees. However, you may have more options for controlling your company’s healthcare costs than you realize. With the right knowledge and planning, there are ways to keep health insurance costs from derailing your company’s profits while also providing your workforce with the benefits they need.
Here are five strategies to cut costs without minimizing the benefits offered to employees:
1. Level-funding company healthcare costs.
In between a traditional fully insured plan and a traditional self-funded plan lies an innovative solution known as level-funding.
Traditional fully insured plans are contracts between the employer and the insurer where the employer pays a predetermined and fixed amount per employee per month (PEPM) and the insurer assumes the financial (claims) risk, net of employee co-pays and deductibles.
Traditional self-funded plans are one in which the employer assumes the financial (claims) risk for providing healthcare benefits to its employees. In practical terms, self-insured employers pay for each out-of-pocket claim as they are incurred, and the model is almost always is packaged with stop-loss insurance in case of large claims.
Level-funding is a hybrid of the two aforementioned plans, whereby the plan is filed as a self-funded plan, but the employer is billed each month a fixed and unchanging premium per employee per month, and after a year or two may qualify for a refund of premium if claims were lower than expected, or receive a proposed increase to premiums at renewal if claims were higher than expected. Since these plans are filed as self-funded, they are typically exempt from state taxes and many of the federal healthcare law’s health insurance taxes, but subject to a modest annual transitional reinsurance fee.
Additionally, according to data from the U.S. Department of Health and Human Services, nearly 30% of employers with between 100 and 499 employees self-insures their benefits, and over 80% of employers with 500 or more employees self-insure their benefits.
2. Provide a proactive wellness initiative.
Health and wellness programs have become popular ways for employers to manage healthcare costs — and some companies are finding that employees are more engaged in these programs when they’re offered incentives, rewards or even disincentives for participating or attaining certain health-related goals. Some companies are also seeing an impact of incentives on their program ROI.
For wellness programs to be effective, they need to be robust and allow for individual needs and interests. Wellness programs need to be comprehensive and tailored to individuals; meeting them where they are and helping them keep their healthy goals and ambitions in check with robust resources.
One other important aspect of having an effective wellness program is measuring employee engagement. By determining their level of inclusion, employers can understand how to implement incentive-based initiatives for the future. And remember, leading by example is important to make your employees feel comfortable.
3. Implement tax-advantaged programs.
Tax-Advantage benefits programs allow for a reduced cost of living for employees by handling expenses using pre-tax dollars. This method ensures the use of money that is valued at 100% of a wage or salary, instead of paying with funds that are devalued due to taxation.
There are four major types of programs that utilize this method: flexible spending accounts (FSAs), health savings accounts (HSAs), health reimbursement arrangements (HRAs) and premium offset lans (POPs). Each program offers a different process for healthcare payments that involves both employers and employees, and can lighten the burden of rising medical expenses.
4. Use a flexible contribution arrangement (FSA).
Elaborating further on the aforementioned benefit programs, FSAs enable employees to collect and store money that can be used for medical expenses tax-free. FSAs may be funded by voluntary salary reductions with an employer, and there is no employment or income tax enforced.
Another benefit of FSAs stems from the ability of employers to make contributions towards an account that can be excluded from an employee’s gross income. From an employee’s mindset, an FSA allows for flexibility and a metaphorical safety net in case of a medical emergency.
5. Use deductible exposure mitigation vehicles (HRAs).
A health reimbursement arrangement is another tax-advantaged employer health benefit plan that can trim your tax bill and reduce the cost of medical services.
HRAs are an employer funded medical expensed reimbursement plan for qualifying medical expenses. These plans reimburse employees for individual health insurance premiums and out-of-pocket medical expenses. They allow the employer to make contributions to an employee's account and provide reimbursement for eligible expenses. All employer contributions are 100% tax deductible when paid to the participant to reimburse an expense. They are also tax-free to the employee.
Based on the plan design, HRAs can be an excellent way to supplement health insurance benefits and allow employees to pay for a wide range of medical expenses not covered by insurance.
What works, what doesn’t
It’s crucial to educate employees on available tools and programs — by doing so you can control costs, while simultaneously providing appropriate benefits and employee engagement. To make the most out of a conscientious business decision, take the time to understand what is and isn’t working for you on your current plan, and what your other options are.
By adopting these new healthcare benefit strategies, you are engaging your workforce and enabling them to have an active role in determining an appropriate course of action.
A proper benefits partner maintains track of legislation and regulatory changes, advocates for small to mid-sized businesses and has the expertise to prevent violations from unforeseen rules and laws. By enabling these programs and using the right benefits partner, you can see your company’s healthcare costs lower substantially.
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