Employee contribution strategies Featured

9:09am EDT November 20, 2003
One of the most important decisions an executive must make is the employee contribution strategy for his or her company's group medical program.

This single decision has the widest array of consequences because employees rate the amount of their contributions (payroll deductions) as more important than the level of benefits and, for the first time, more important than the network of providers.

Before making your next decision on employee contributions, consider the following factors.

Try to keep the plan intact

The minimum goal of every employer-sponsored group plan is to keep the group plan in place. With employee contributions increasing, many employer plans are experiencing drops in employee participation.

To keep your contract from terminating, most carriers require 50 percent of eligible employees to participate. Some ask for quarterly wage and tax reports upon renewal to verify participation levels.

The requirement is 50 percent of your employees, not 50 percent of their dependents. Most contracts have no requirement for dependent participation. Your contribution strategy should be focused primarily on employee-only (single) coverage.

People shop around

Employees will shop their employer-sponsored benefits with their spouse's plans and individual plans and also consider going uninsured. Once you lose employees from your group plan, it is difficult to get them back. Employee contribution is the most important component of maintaining minimum participation requirements.

The average hard dollar cost for employee-only coverage ranges between $60 and $70 a month for medical plans with $1,000 to $1,500 of total out-of-pocket (including any deductibles), $15 office visit co-pay and a prescription drug co-pay benefit of $10 generic, $20 name brand and $45 nonformulary.

Reduced contributions

If your employee contributions are too high for single coverage, consider reducing employer contribution toward dependent coverage to increase funding toward single coverage.

The average hard dollar employee contribution for family coverage with similar benefits ranges between $275 and $300 per month. Even large employers are struggling with supporting these low contribution levels.

Some employers have successfully required the working spouses of their employees to prove a lack of access to medical benefits from their own employer before they become eligible to participate in the plan. Employers do not want to insure somebody else's employee. If the employer is paying any amount toward dependent coverage, he or she may be paying for someone else's employee.

With more employers looking for ways to eliminate waste, this may eventually be standard practice. It sounded harsh when employers first asked employees to pay toward single coverage; now, less than 10 percent of employers pay all of the cost of single coverage.

Multiple plans

Contributions for multiple plan offerings can also be tricky. The employee needs a financial incentive to enroll in the low-cost plan option, which typically has the highest dollar expense for out-of-pocket expenses and co-pays.

Worksheet assistance

Employees are using worksheets and even electronic Benefit Wizards to help make intelligent decisions in selecting which benefit plan is best for them. Employees will be making better decisions to make sure they are not overinsured. This should be the primary focus when employees select a plan from the list of options presented during open enrollment and initial enrollment as a new employee.

Executives should run through these worksheets themselves before deciding on contribution strategies. There is no advantage in offering a low-cost plan if no one elects it. This exercise can help executives select the correct low-option benefit plan(s) to offer employees.

As the industry takes the next logical step toward consumer-driven health care, everyone -- including the employee -- is asking, "How much insurance do I really need?"

Although medical benefits are an important part of the total compensation package, an employer should factor in other compensation including, vacation, sick days, work environment and, of course, pay rates before making final decisions.

Bruce Bishop is the director of marketing and managing partner of KYBA Benefits. KYBA Benefits provides consulting and administrative services to more than 400 corporate accounts ranging in size from 20 employees to over 7,000. Reach him at (770) 425-6700, (800) 874-2244, ext. 205, or (bruce@kybabenefits.com).