Are you paying too much for employee benefits?

It’s November and most employee benefits plans will end December 31st, moving to new plans January 1st.  In preparation, we’re providing weekly tips on managing your renewal period, answering different commonly asked questions.  This week, we’re answering the question, “how much do employee benefits cost?”.

For 2018 the average monthly premium for single coverage was $574.67.  This is a 3% increase from the average single premium in 2017 and it’s projected to increase another 5% in 2019.  The 2018 average monthly premium for family coverage was $1,634.67.  This average was a 5% increase from 2017 and it’s projected to go up another 5% in 2019.

There are four things that will generally determine your group plan premium pricing.

1.  Plan size.

Generally, group plans are divided into two groups, large plans and small plans.  Small plans are less than 50 employees and large plans are 50+ employees.  Small plan premiums are based on age banded rates, premiums for different age groups within a company.  So, if you have employees ranging from 19 to 45 years old, you will have a premium rate for employees 19-25 years old, another for 26-30 years old, and so on.  Large employer group plan premiums are composite rates, taking an average of the group demographics to determine premiums for each level of coverage (employee only, employee + spouse, etc).  Large employer rates are primarily based on claims usage, how employees use the insurance.  So, how I and my employees use our insurance this year determines quoted rates for the company the following year (based on how much insurance we used).

2. Structure of plan.

Plan pricing varies depending on whether it’s a Preferred Provider Plan (PPO), Health Maintenance Organization (HMO), High Deductible Plan, or Point of Service Plan (POS).  Keep in mind high deductible plans do not have copays and have a minimum deductible ($1,350 for single coverage and $2,700 for family).  High deductible plans will typically be accompanied by a Health Savings Account (HSA) or Flexible Spending Account (FSA) benefit.

3.  Coverage.

Plans premiums also depend on the level of coverage.  Coverage is dictated by how high or low the deductible is as well as the percentage of coinsurance, out of pocket max, and copays.  Generally, plans with more coverage (lower deductibles, coinsurance percentages, out of pocket maximums, and copays) are more costly.

4.  Broker commissions.

Broker commissions vary based on plan size (small or large) and state.  Their commissions are built into monthly premiums as either a percentage or flat fee.  Commissions can range from just over $1 per month, per member to just shy of $50 per month, per member.

Here are some things you, as the employer, can do to manage your rates:

1.  Get creative with the coverage.

Particularly for smaller plans because premiums are based on employee age alone, can best manage the cost of premiums by changing aspects of coverage such as increasing copays or the deductible.  You’ll want to make sure it’s done in a way that the quality of benefits isn’t lost; however the cost of the premium is reasonable for both the employee and company.

2.  Educate employees about proper use of the plan.

For larger employers, because rates are primarily based on claims and the costs associated with employee use of company insurance, it’s important to educate and encourage employees about preventative and affordable measures with the plan.  For this reason you will see companies adopt wellness plans and encourage (or require) employees to enroll in prescription-by-mail plans, ask about generic drugs, use in-network doctors, and seek emergency treatment from urgent care centers rather than emergency rooms.

3.  Adopt a self-funded plan (with a stop loss).

Self-funded (also known as self-insured) plans, although not popular with companies with less than 100 employees, can work for companies if a stop loss is added to the plan.  Self-funded plans, are plans in which the employer assumes the financial risk for providing health care benefits to its employees.  Clearly there is risk associated with these plans as you’re unable to see what future health issues employees may incur; however a stop-loss built into the plan can help to reduce a company’s exposure to excessive costs.

4.  Consider a variety of insurance carriers.

While your broker may prefer to work with specific insurance carriers, it’s often financially beneficial to consider a variety of carriers.  In today’s competitive healthcare environment, many insurance carriers have strategically chosen to work with certain types of companies.  Carriers may give better pricing to employers in certain industries or of a certain size, in an attempt to incentivize the employer to select from their plans.

5.  Choose a plan year different from the calendar year.

Because most employers have insurance plans that go January 1 through December 31, it’s been suggested that employers choosing an off-calendar plan year gets better (more affordable) premiums.  I cannot speak to this first-hand; however I can absolutely say that off-calendar plans generally get better service because insurance carriers and brokers are not so busy.  Be careful though as employees coming into your company are likely coming from a company with a calendar year plan.  When starting a new plan year, everything starts over (deductibles, out of pocket maximums).  Employees will need to pay attention to the timing of their medical procedures whenever foreseeable.  With most group plans coinciding with the calendar year, employers choosing off-calendar plans will need to be mindful of communicating and reminding employees that their plan year is different.

Next week I’ll answer the following question, “What portion of benefits should employers cover?”.  If you have a benefits question, please email us at info@CultureEngineered.com.

Additional Resources:

KFF 2018 Employer Health Benefits Survey

2018 BLS Employer Costs for Employee Compensation

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