Here are seven tactics that our company and others have used successfully. While none of them is a panacea for rising health care premiums, they all can provide signifi cant relief for compa- nies struggling to keep up with these rising premiums. Consider implementing one or more of the following approaches.
1. Talk to a local insurance broker. A number of small busi- ness owners I surveyed negotiate their deals directly with insurance companies. Brokers often are able to negotiate better rates than business owners can, so it would be wise to talk to someone who may secure a better rate or can at least offer you some suggestions for fi nding a lower-cost plan that better suits your particular situation.
2. Offer employees incentives for deferring coverage. The odds are that at least some of your employees will take you up on this offer. Married employees may have spouses who receive good insurance coverage from their companies, for example. Employees in their 20s may be able to obtain less expensive coverage on their own or through groups to which they belong. A 25-year-old person in good health can often obtain relatively low-cost coverage with high deductibles because of being in the low-risk category. Recog- nize, too, that some of your married employees had separate poli- cies before they got married and maintained these policies without giving them much thought. In other instances, people feel more comfortable being insured through their employer rather than through a spouse’s company; they have a certain amount of trust in being insured by their own companies. Consider how it might work if you were to offer your employees an incentive to defer coverage.
As of this writing, it costs a small company about $10,000 annually to provide an individual with health insurance. If you offer that employee a $2,000 bonus for declining the company’s medical cov- erage, you save about $8,000! Many times, an employee is eligible
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35 Are Employee Benefits Benefiting You?
for coverage through a larger company, school, or governmental agency that offers a more comprehensive plan. Be aware, how- ever, that some insurance companies have restrictions on spousal coverage; they won’t allow employees who already have coverage with their own employers to be covered through their spouses.
Similarly, some employers have tightened up restrictions on their policies, preventing nonemployee spouses from gaining coverage if they have the option of coverage from their own employer. Still, you may be one of the lucky ones who can take advantage of this option, so at least explore the possibility.
3. Stop offering insurance to retired employees. This offer is part of the culture in some small companies due to the caring, family-type environment they have established. It is a very nice benefi t to make available for retired employees. Unfortunately, it is also a benefi t that is no longer practical. If you are providing insurance for a signifi cant number of older, retired employees, you also are probably paying an infl ated insurance rate. People who are at or above retirement age drive up rates more than any other group—they’re the ones who get sick most often and most seri- ously. Again, this tactic isn’t about being callous. Retired employ- ees have other insurance options such as Medicare and Medicaid, depending on their age. In fact, they are probably paying a high rate if you are allowing them to maintain their insurance after COBRA has expired. If your human resources department can assist retiring employees by explaining what insurance options are available to them, this may be even more of a benefi t than allow- ing them to maintain insurance at a high rate. In addition, main- taining coverage for retired employees ends up punishing current employees. As rates rise, you will be forced to pass on some of the costs to current employees or even cancel coverage altogether.
Fritz Hoffmann, on the other hand, chose to stop covering his retired employees. He owns a company called Lunar Mold and Tool, and a number of his retired employees who were eligible
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for Medicare or Medicaid continued to receive coverage. This resulted in much higher rates for his other employees, and his health care provider informed him that if he were to drop these retirees from coverage, his rates would drop 16 percent. Fritz had no choice but to drop them, especially in a year when the average increase was around 13 percent—a 29 percent increase would have been intolerable. Fritz, like other humanistic small business owners, faced a tough decision. He wanted to reward loyal employees with postretirement health insurance coverage.
Unfortunately, this reward is fi nancially unfeasible in this day and age, especially for older companies who have hundreds or even thousands of retired employees.
4. Evaluate the viability of working through an employee leas- ing company. These leasing companies essentially take over all HR and administrative functions, including health insurance. Later, I’ll address the pros and cons of employee leasing companies for small businesses in more detail, but for now, let me emphasize that they can reduce insurance rates signifi cantly because your employees, along with the employees of other small companies, essentially become employed by the leasing company. As part of a larger group, you are often able to secure lower rates. I’ve found this is an especially attractive option for companies with 20 or fewer employees. For companies with more than 20 employees, it may not be as advantageous. Still, try to contact at least two employee leasing companies, provide them with the information they request, and secure quotes to get a sense of whether this option might help you to reduce your administrative and benefi ts expenditures.
5. Help your employees reduce their claims. Obviously, there’s nothing you can do when your employees have real ill- nesses and need to access the health care system. If you and they are unlucky and they have expensive illnesses, your insurance
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37 Are Employee Benefits Benefiting You?
company is going to increase your premiums correspondingly. At the same time, employees may be using their health care benefi ts in a variety of ways that result in higher costs for you. For instance, some people use emergency rooms as if they were doctor’s offi ces, stopping in when they have minor ailments such as colds. Higher deductibles and copays make people think twice about using the system in this way. Of course, you don’t want to set deductibles so high that people are discouraged from going to the doctor because of the cost. At the same time, the days of the $50 deduct- ible are over, at least for most small companies.
In addition, you should do everything possible to encourage a healthy workforce. You have many ways to help your employees practice good health habits, such as offering incentives for people to quit smoking, sponsoring weight loss programs, or offering discounts for health club memberships. The more physically fi t employees you have who eat healthy diets, who are physically active, and who don’t smoke or drink to excess, the lower your health care costs are likely to be.
6. Establish Health Care Savings Accounts (HSAs). If you don’t know about HSAs or have assumed they are not right for your company, you may want to learn about them or investigate them further. Approved by the U.S. government in December 2003, these plans have very high deductibles—some people refer to them as catastrophic health insurance coverage. Typically, deductibles are from $1,000 to $2,000 with annual caps on health care expenses at $5,000 to $10,000. With high-deductible plans, companies pay less for their employee health care insurance. Com- panies that have high-deductible plans are then able to fund HSAs for employees. These plans allow employees to set aside pretax dollars for medical and long-term care purposes. Money that is put into an HSA can be invested in an interest-earning account, carried forward year to year, and transferred to a new employer if the employee leaves the company.
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If you choose to offer this type of plan to employees, be aware that you may encounter some initial resistance, especially when employees hear about the high deductibles. It will require some education to help them understand that the company will help reduce the deductible to a manageable level and that employees will receive all sorts of other benefi ts that can, in certain circum- stances, be more advantageous to them than a traditional plan.
7. Offer Health Care Refund Accounts (HRAs). Similar to HSAs, these plans also come with high deductibles that compa- nies reduce through funding. As the name implies, though, the funding takes place through a reimbursement program. Employ- ees present their medical bills to employers and are reimbursed for their expenses up to a set amount.
If you’re trying to decide whether an HSA or HRA best suits your company, consider the following example. Company X, with 50 employees, is willing to fund a $1,000 deductible for employ- ees. With an HSA plan, Company X must set up accounts for all 50 employees and fund each account with $1,000. In other words, the company is immediately “out” $50,000—the accounts and the money in them are the employees’.
Company Y, on the other hand, wants to adopt an HRA with the same $1,000 deductible. They don’t need to fund and set up
$1,000 accounts for each employee. Instead, the company keeps track of how much of the $1,000 allowable each employee spends (to make sure employees don’t exceed this amount) and reim- burses expenditures.
Here is a key fact about HRAs: companies typically reimburse around 67 percent of employee expenditures annually. In other words, the average company is out only $33,500 rather than
$50,000. Given that insurance companies charge the same for the high-deductible plan behind the HRA or HSA, the HRA seems to offer a signifi cant savings advantage. I suggest talking with an insurance broker about the different ways an HRA plan can be
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39 Are Employee Benefits Benefiting You?
designed and the pros and cons of both types of plans to see which might best fi t your needs.