premium savings

Three Overlooked Strategies All Employers Should Know

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).

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Nothing to Fear Here: ‘High-Deductible’ Plans Reduce Costs, Please Clients

A lot of people worry that if they switch to a high-deductible health plan to save some money, they’ll end up with lousy insurance. It doesn’t have to be that way. Today’s HSA-compatible (high-deductible) plans aren’t the least bit scary; they’re just different … and cash-strapped employers can save up to 60 percent in reduced premium costs.

High-deductible, HSA-compatible health care plans are normal PPO plans. There’s no gatekeeper, and it’s not an HMO where you’re locked into certain doctors or services of the carrier’s choosing. In fact, these plans are actually relatively rich in benefits.

High-deductible health plans are typically thought of as catastrophic prevention plans that won’t help much in the day-to-day. But the current high-deductible health care plans include a wealth of free preventative services that are covered at 100 percent (regardless of your deductible status). You’re also covered at 100 percent after you hit your deductible. Services of such quality are designed to incentivize people to switch. But what’s nice is the model becomes a win-win (for you and the carrier): With more preventative services, carriers are banking on fewer claims and healthier people. Meanwhile, employers get dramatic cost reductions while retaining benefits—and their employees.

Regardless of whether you use your medical insurance a lot or a little, high-deductible health plans can be a great option because your exposure is capped. You know exactly how much your worst-case scenario is going to be on an annual basis.

People pay huge premiums for rich, low-copay plans. But if you’re not going to the doctor, you’re giving the carrier all your money up front for the coziness of having $10 or $20 copays for purely theoretical doctor visits. The truth is that when expenses are broken down, often these low-copay plans end up having a higher out-of-pocket cost to you than the higher-deductible health plans (because of an inefficient usage model).

Your bill might be a little higher up front if you use your high-deductible health plan. But the nice thing is you know where you stand going into every year. You know you have a maximum exposure that is usually lower than a rich copay plan’s potential exposure. And the cost savings are so dramatically different that I would rather save up front than pay through the nose for a low copay that I don’t ever use.

I’m not just saying that. My wife and I switched our family to a high-deductible, HSA-compatible plan. We chose the lowest of these higher-deductible options and we’re still saving $600 a month in premiums. We also know we have a certain maximum exposure and that we’re 100 percent covered after hitting our individual and/or family deductible. I personally love the plan. And in Stephenson Welsh Insurance Services’ most dramatic case, we saved a small business (eight employees) $52,000 initially in premiums. The business then fully funded each employee’s deductible amount (put that money into their individual HSA accounts), so the employees effectively had a zero deductible and 100 percent coverage. After all that, the business still saw a $34,000 savings by switching to a high-deductible plan.

For those totally unfamiliar with HSA plans, it’s a health savings account, which is a portable medical IRA in your name (and tied to your normal health insurance). You can use it to pay for your medically eligible expenses in a manner that’s not subject to federal income taxes. It’s not “use it or lose it.” Funds roll over and accumulate if not spent during the year. In fact, you have a lot of flexibility, including leveraging it to pay for services such as acupuncture, chiropractic, dental and vision.

If any of this is beginning to sound overwhelming (or simply intriguing and worthwhile), we’re here to help. As an insurance broker, we’ll do a free benefits review and free cost analysis to find the right health plan with the right strategy. High deductibles may not be for everybody. And some others want the most-possible savings by going with a high-deductible plan at $4,000 or $5,000 (as opposed to $1,500).

In all honesty, not all brokers are pushing high-deductible plans. That’s because if you lower your premiums, it lowers the broker’s commissions. But it’s the right thing to do by the client. And ultimately if the client is happy, they’ll refer us to others. By having a delighted client, it benefits us in the long run, too.

For more information or a free consultation, please call us at (925) 256-7800 or send us an e-mail.

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