5 Insider Secrets – Putting the Brakes on Rising Benefit Costs

| January 22, 2009

If you have had the same group health plan over the past five years, you have more than likely noticed the double-digit cost increases every year.

Health insurance has probably become one of your largest insurance costs.

These costs are expected to continue increasing for the next decade. On a similar note, the pool of qualified employees continues to shrink.  A solid employee benefits plan will be critical to attracting and retaining skilled employees. The federal government has offered new alternatives to help offset these costs.  If you are not taking advantage of these alternatives and proactively managing your benefits, then you are failing to get the most for your benefits dollar.
The Goal of This Report
1.    Help curb your rising health insurance costs so that you get the maximum value for the dollars you spend on employee benefits.
2.    Enable you to match your employee benefit program to your employee’s needs which will help you to obtain maximum employee satisfaction for the dollars you spend.
3.    Assist you in implementing a proactive system to control your benefit expenditures.
4.    Broaden the benefits offered without adding to your costs.
?    This Could Be You
Greg owns an eyeglass store & lab with 24 employees. He was spending $8,000 a month for a Blue Cross HMO. When I met Greg he had just been handed another 10% increase that he could not afford.  At an average of $10.00 per hour, his employees could not afford to pay it either. He did not want to drop their coverage, but he had to do something. That is when Greg found me.

After surveying his personnel so that we knew exactly how often his employees were accessing their health insurance, I helped him implement a high deductible PPO combined with a health reimbursement account. Two years later, this plan has saved him nearly $40,000 a year from his old plan.

Now, you must be asking, “Why didn’t Greg’s previous agent show him how to do this, and why don’t the insurance companies give this as an option instead of constant rate increases?” Could a similar alternative work for you? Is there a solution that your current agent has failed to offer to you? Insurance companies have no interest in actively offering these alternatives to companies because the difference between implementing these strategies and keeping things status quo would mean a large hit to the insurance company’s profits. Many agents, if they do not specialize in benefits and commercial insurance, lack the expertise to implement these types of solutions.  If they are aware of them, it means that they need to be willing to take a voluntary pay cut to implement them for you. Unlike these other agents, I have the philosophy that the reason you have a broker is that you are relying on someone to give you the best advice. You want someone to evaluate your specific needs and issues and to give you a customized solution to meet those needs and eliminate waste from your benefits budget. And I am that someone.

?    Why Would I Give Away Our Secrets?
That is a good question.  The answer is simple. It is good for my business. I also want to demonstrate to you that in order to curb your rising costs you need an experienced broker who understands how to implement creative alternatives. This will enable you to get the best return for the benefit dollar. The standard solutions being peddled today aren’t the best alternatives any longer. Once you see what isn’t being done for you by your current broker, your decision to use me or someone as qualified will be an easy one to make.

SECRET #1
Know Your Company’s Health Profile

?    By knowing the general health of your employees and the quantity of dollars spent on prescriptions every year, you will have a better idea of what waste there is in your current benefit program and how to maximize the dollars you spend.

For example, if you have a predominately healthy employee base with no chronic illnesses, your options are much different than if you have an employee base where the majority of employees have chronic illnesses that require costly treatments. Each of these profiles will have different needs and expectations from their health plan.  If their expectations are not met, they will be unhappy and dissatisfied with the plan you are offering.

If you have 30-40 employees, you may find that there are two distinct groups within your company and that each need different types of health care. That situation may require having multiple plan options for employees. If you would like help on how to gather this information and interpret it correctly, it is free service that I offer to all of my clients, and I would be happy to offer it to you as well.

Secret #2
The HRA
?    An HRA is a health reimbursement account.

The federal government created this plan in 1995.  It allows an employer to subsidize co-pays, deductibles, and maximum out of pocket expenses on behalf of their employees.  There is no set amount or guidelines of what you must do. This is at the business owner’s discretion. How you structure an HRA will reflect the needs of the employees as well as the resources you wish to spend.

If an employer currently has a low-deductible PPO, or a traditional HMO, this allows you to change to a high-deductible PPO and fund the difference yourself. For example, if you are currently spending $250 per employee, per month for health insurance and the high deductible PPO only cost you $125 per head, you have cut your costs in half. If you take that difference, multiply by 12, and then multiply by the number of employees have, you will see how much you could save every year in premium. This is where secret number #1 will assist you greatly. If you have an essentially healthy group that seldom sees a doctor, this becomes a cheap alternative to traditional health plans.

To employees, the benefits have not changed.  You might spend a couple of thousand dollars on co-pays and deductibles, but the rest of the premium savings drops right to your bottom line. If the group is a severely unhealthy one that uses large quantities of health care, this will not be an alternative you would want to pursue. The money that will be spent out of the HRA will be as much as the savings, negating the benefits of this alternative.

If you would like to know more about how this could possibly help you, we will be happy to figure out the exact economics for your group and assist you in a feasibility study.

Secret #3
The HSA
?    This is the newest alternative for helping with medical costs.

The money put into the HSA account is the employees’, not the employers, unlike an HRA or FSA.  Any contribution that an employer makes, the employee takes when he or she leaves the company. These are similar to IRA’s for retirement, but the money in it can only be taken out to pay approved specified medical expenses. The annual contribution for the plan is the same as the plans deductible, or $2,600 per person or $5,150 for a family, whichever is lower. These accounts can only be used in conjunction with an HSA compatible high-deductible health insurance plan. The major defining characteristics of an HSA compatible plan are that it will have high deductibles, typically $2,600 per person and $5,150 per family and a person’s prescriptions costs are counted toward the maximum out of pocket expenses for the year.

Given the extremely high deductibles, the HSA compatible plans are the most inexpensive plans on the market. Unfortunately, the high deductibles will make most employees groan the first time they go to the doctor. One way to solve this problem is with an employer contribution to the HSA. What you, the employer, contribute, is the first money used.  To employees, it will continue to have the same feel as a low deductible plan.

This is a very good strategy for several types of individuals:
?    Those that have unhealthy employees that access health care constantly. Given the inclusion of prescriptions as part of the maximum out of pocket on the plan, this caps the employee’s exposure to pharmaceutical costs. This can provide great benefit to employees, and with a small employer contribution, will be the best alternative health care plan for an employee.
?    Those employers who do not want to take the risk associated with an HRA. This alternative will allow you to know exactly how much you will be contributing during a given plan year, with no potential catastrophic risk if everyone should fall severely ill during a plan year.
?    Those employers who want the employees to appreciate the value of the benefits that they are receiving by getting a “bonus” if they are not sick, to be used in future years.

The economics on this one can be tricky. If you give us a call, we will be happy to assist you with evaluating whether or not this is a good alternative for your company.

Secret #4
Optimizing the use of an FSA
?    This plan is used in order to allow employees to pay for their portion of the health insurance cost with pretax dollars.

It can also be used for offsetting other medical costs, such as dental, eyeglass purchases, and eye exams. The typical vision plan will cost you $12-$18 per month, per employee, and will provide for a visit to the optometrist every year, and a new pair of glasses every other year.  If only half of your staff wears glasses, you have just spent a minimum of $144 on those employees for nothing because do not use the benefit at all.  The benefits that employees receive if they do access the insurance do not exceed the premiums that you have paid.

If you contributed $200 to each employee’s FSA to provide for their vision needs, any unused portion of that contribution goes back into your pocket at the end of the year.  If you have a group of 20 employees and you are spending $2,900 a year on your vision coverage, under the FSA alternative, if half your employees access the benefit, you will only be spending $2,000 to provide a better benefit than the vision plan is offering.

A similar concept can be used for dental coverage, but it is too complicated to be covered in the scope of this report. If you are interested in how to implement a similar strategy for dental bills, please contact us and we will be happy to explain and assist you in evaluating if it is a good alternative for your company in the context of your whole benefits program.

Secret #5
Use of Mexican Insurance
?    If you have a heavy concentration of Mexican Immigrants in your work force or are situated near the Mexican border, there is another alternative that you should seriously consider.

An American health insurance provider has teamed up with a Mexican health insurance provider to provide employees with a network which covers both Mexico and America. The cost of these plans can be as much as 30% less than traditional HMO’s like Kaiser. If you have a workforce that will not be able to adapt to the alternatives above, this may be a choice for you.

Significant savings are achieved because Mexican medical costs are much cheaper than American costs. Given that a significant portion of the people enrolled in the plans access Mexican health care instead of American health care, the overall costs incurred by these plans are lower than traditional HMO’s.  The differential between the two allows for large savings on health costs, of which, a portion is passed on to the employer in the form of premium savings. Even if your employees do not want to access Mexican health care, you will still realize savings from this alternative.

If your current broker has already brought all of these alternatives to your attention then you are probably already set. If your current broker has not brought all of these alternatives to your attention and you want this type of guidance for the money you are spending on your benefits program, we recommend that you give us a call or send us an email.

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