HEALTH CARE: Staying afloat in the insurance tidal wave

Employee health insurance arose as a widely-offered fringe benefit during World War II, when employers were subject to wage restraints, and were not able to pay their valued employees more in cash.

This “invisible” benefit is becoming more and more visible to employers as they continue to see double digit increases in their monthly costs.

Many employers have recently expressed shock and dismay over the increases that are continuing to show up in their monthly health insurance bills, and want to know what they can do.

There are several things you can look at to actively manage your insurance costs:

Review your policy coverage

First of all, you should sit down with your agent and review the specific terms and coverage you’re offering to your employees. Work with your agent through several “what if” scenarios, such as: What if we increase our office visit co-pay…What if we increase our prescription co-pays…What if we change certain portions of our coverage? Good agents should be able to present several different options and how much impact a policy change would have on your company’s monthly cost.

Review these different options closely, and consider the nature of your workforce. The little changes are sometimes very big in the eyes of your employees, and if you currently have a high demand for your prescription drug plan, your employees may be more accepting to an increase in their portion of a monthly premium, rather than an increase in prescription co-pays.

Additionally, depending upon the size of your company and the nature of your workforce, you may want to consider some amount of self-insurance.

As an example, your company would agree to be responsible for the first $5,000 of health care costs per employee, and then claims above that amount are turned over to a third party for payment.

There are stop loss forms of these policies at both the individual employee and company level.

While not for everyone or all companies, with the right combination of workforce and insurance coverage, these can sometimes be a money saver.

Review your employee coverage

What is your company’s policy regarding health insurance coverage for employees? Are you covering employees immediately, or after 90-120 days of service?

Several companies do not make health insurance and other benefits available to employees until after a defined waiting period. Does your company cover just the employee, or the employee, spouse and family at no additional cost? More and more, companies are only covering their employees, and asking their spouses to seek insurance at their own employers.

Also, it’s not uncommon for company’s to ask the employee to pay for any policy additions, including coverage for a non-employed spouse or family coverage. If not asked to pay the full additional premium, at least consider passing along part of the increased cost to your employees.

While it’s important to offer an attractive benefit package to attract and keep quality employees, a too-generous package can be causing your company excess expenses.

Optional benefit plans

One way to soften the blow of asking your employees to pay more for their health insurance is to offer them a cafeteria plan. Sometimes referred to as a Section 125 plan, this is a benefit where the employee would elect to participate and contribute pre-tax dollars to a plan to cover certain medical expenses. Certain plans have also been set up to cover the employee portion of the health insurance premium.

These plans can also be attractive if they offer components beyond health care cost coverage, such as including items like child care expenses. These plans do often require contracting with a formal plan administrator, and require that time be spent educating the employees about what these benefit options are and how best to use them. These types of plans are often most attractive to larger employers.

Total cost of employment statements

Large or small, all employers should consider reviewing with their employees a “total cost of employment” statement. This is a document that combines in one place all the costs that your company had related to that specific employee.

These statements usually start with base wages or salary, then list out other specific items, such as paid vacation and sick time available, overtime premiums paid, and related items.

While employees are used to seeing these on their pay check stubs, they often do not see the invisible benefit costs of health insurance, workers compensation, employer-provided disability and life insurance, as well as employer-provided education benefits and–everyone’s favorite–payroll taxes.

Summarizing these costs and presenting them to the employee often makes it easier to explain a smaller increase in wages in light of a large increase in projected health care costs.

It also casts light on some of the invisible benefits, and explains to staff members their total compensation package, not just the amount they see on their paychecks.

As costs for coverage continue to increase in the future, employers need to become proactive in their management of these costs, and work closely with their professional advisors to explore all avenues and options available to control those costs.

Thomas Troost is the director of accounting and information technology with Bott & Co. P.C. in Traverse City. He works closely with many businesses in the region, reviewing and analyzing costs, profitability and business plans. BN