In a recent post, we talked about strategies for scaling back benefits when a rough economy forces reductions. This time, we’re going focus on how to find affordable alternatives for employees when a program must be cut entirely.
There are three different paths a thoughtful employer can go down in order to save the necessary money while still putting its employees in the best possible position: The company can make a previously funded product voluntary. The company can switch to an HSA-compatible plan that is capable of compensating for the loss of ancillary benefits. Or, the company can replace a product with a different, less expensive one (e.g. cutting dental but adding or boosting life insurance).
Let’s take a look at the options one at a time:
Making Products Voluntary
There’s an essential difference between dropping a program completely and keeping it on a voluntary basis (where if the employee really wants it, he or she can pay for 100 percent of it). Many families feel more secure with life or disability insurance and will keep that benefit alive … if given the opportunity. And allowing employees to “opt in” means they’ll pay pennies on the dollar through the group rate rather than paying top dollar on the open market.
Before, the company paid for the benefit. Now, the employee will need to have $6 or $7 taken out of their paycheck to keep the benefit in place. But at least it’s still in place. Some workers would never otherwise be able to afford that product, while others might not have an option at all. If an employee has an existing condition, life insurance at the current coverage level might be an impossibility.
In many cases an employee could keep a life and disability product on a voluntary basis for less than $10 a month. It’s a huge benefit to the employee to have the option open, and the employer has been able to save the money.
No employee wants to hear that a financial burden will fall to them. But that’s nothing compared to the reaction to having a safety net completely yanked and learning they’ll have to take their chances on the open market.
The HSA-Compatible Approach
Ancillary products are extremely valuable to employees and help companies attract and retain talent. Still, employers will cut out those programs when financially against the wall. Medical, however, is always critical. That company is most likely never going to do away with its medical plan. And certain medical plans can help pick up the slack when other products are cut.
The old standard for a company offering is medical-dental-vision. But you don’t need dental and vision if you’ve got a good HSA-compatible plan. You can use tax-free dollars to pay for dental and vision costs and save the premium dollars.
We recently ran an analysis on a 20-employee group and found that not one person used the dental insurance in-network in the past year. The company was paying $15,000 on an annual basis for this top-notch dental plan, but nobody was really using it!
One option in such a situation is to phase out the dental plan and take that cost savings and put $500 tax-free dollars into each employee’s HSA account to pay for dental out-of-pocket expenses. (They were paying for it out-of-pocket anyway since they weren’t using their in-network coverage).
When a company must cut costs and programs, having an HSA plan in place will at least give employees have a tax-free way to fund their out-of-pocket dental and vision expenses.
Giving While Taking Away
Let’s say a company is offering a medical and dental plan, but it’s struggling to make ends meet. That employer could cut dental while switching to a high-deductible, HSA-compatible plan (described above) and add an inexpensive life or disability product.
In this case, the employer could say, “Everyone, we unfortunately have to eliminate the dental plan, but in return we’re going to put a $25,000 life plan in place.”
For the employer, this could result in paying approximately $85/month per employee down to $4.75/month (because a life product is so affordable). And yet that company is still offering something to the employee. It’s more than just an olive branch; it’s a tangible, valuable benefit.
Any of the approaches described above could result in thousands of dollars in annual savings. That’s potentially enough to keep an employee from being fired during budget cuts. Our job as brokers during an economic downturn is to craft the best possible cost-saving strategy for our clients—and many of those approaches can save employee benefits (or even employee jobs).