Its no secret that benefits administrators have a lot on their plate these days. There are a lot of moving parts to coordinate in order to create a benefits program that works for both employer and employees. One of the most important considerations when designing a program is the dollar amount the employer will contribute to their employees healthcare coverage.
A contribution strategy is the foundation of a benefits program and is a major factor in determining plan satisfaction. Therefore, its imperative that the benefits administrator and their insurance broker develop a sustainable contribution strategy that makes sense for the employer and workforce.
A lack of strategy around employee contributions can have a significant impact on the overall benefits package. This can happen as regulations change or various groups of employees are grandfathered at a certain contribution level. The result can become an unwieldy and ungovernable mess.
I recall onboarding a new client that had previously adopted just about every contribution strategy imaginable: salary-based, tenure-based and plan-based. The company had multiple levels of seniority and it also had deployed account-based health plans. As a result, more than 30 different contribution strategies were in place, which created a huge recruiting and retention issue. New hires paid significantly more for health and welfare benefits than longer tenured employees.
Dont let that happen to you.
While benchmarking plans and contributions against other employers is a key piece of managing a benefits program, it is equally important to remain aware that your health care spend, demographics, organizational philosophy and total compensation package should also drive a contribution strategy.
Today, salary- and tenure-based strategies are less popular and defined contribution strategies are taking hold, which leads to increased discussions about private insurance exchanges. Some employers are structuring their defined contribution plans by creating base plans, and then layering in so-called buy-up plans (in which they require employees to buy up to higher levels above the basic package).
While defined contribution is still somewhat new, its overall approach is reminiscent of the days of cafeteria plans, which were based on this model. Today were seeing defined contributions and private insurance exchanges gaining traction as employers look to control their liability while offering greater options to their employees. The Affordable Care Act requires employers to eliminate different plan levels based upon organizational hierarchy; this also impacts a contribution strategy.
How to build a smart contribution strategy
Figure out the long-term strategy that works best for your unique situation. If a contribution strategy is not designed correctly, employee satisfaction with the plan will suffer, and the overall success of the program will be compromised. While its valuable to evaluate and be aware of benchmark norms with regard to employer contribution, this should not be the only driver of a long-term plan for your organization. Before you begin, ask yourself:
- How do we want to shift costs?
- Where do we want to shift costs to?
- Should we place more financial responsibility on employees?
- Do we want to drive enrollment into a certain plan like a high-deductible health plan?
From there, youre able to dig deeper:
- Is it our goal to transfer risk, or to absorb it?
- What are our workforce demographics (average age, gender, educational level, etc.)
- Is there a total rewards strategy?
Note: This is especially important for non-profits who cant pay larger salaries.
- Do we have a strategy to engage employees in health and wellness... if so, what incentives are offered?
Note: Its critical to educate and incentivize employees as benefits shift to a new model. This is particularly true if youre going to hold them accountable for their health. Any incentive programs relating to wellness will also impact the overall contribution strategy.
- Do we know what percentage of the actual claim costs are being absorbed by plan members through co-pays, deductibles and other out of pocket costs?
A contribution strategy is critically important to the success of your health plan. A lack of strategy creates all kinds of problems and will continue to do so as the ACA increases its impact on benefit plan offerings.
Theres a new mindset for employers, and its beginning to be understood by employees. This is being driven by a combination of the ACA spurring a move toward defined contribution models and private exchanges, and a focus on member engagement and increased responsibility. For the employer and employees, these are major shifts. Thats why its critical to establish a strong strategic foundation to create certainty and understanding around the important issue of cost.
Then there is the eventual release of nondiscrimination guidance and the whole Cadillac Tax proposed for 2018 but thats another discussion for another day.
Kelly Pustizzi is vice president of Corporate Synergies, a national group employee benefits insurance broker.
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