Companies that have health insurance plans with low deductibles can save money by increasing the deductible, and then use some of the savings to ensure employees aren’t harmed by the change.

“If you go from a fairly rich deductible of $250 to $2,500, the insurance carrier will provide you discounts of 25 to 35 percent in premium reductions,” says Dan Wilke, Vice President of Underwriting and Statistical Analysis at Benefitdecisions, Inc.

“But if you tell employees their plan changed from a $250 to a $2,500 deductible, that’s a PR nightmare. Instead, you can create a health reimbursement account (HRA) or health savings account (HSA) to reimburse them under that deductible,” he says.

Smart Business spoke with Wilke about the advantages and differences with HRA and HSA plans.

How does the reimbursement strategy work?

In essence, you make the employee whole all the way back to their original deductible liability. If their deductible was $250, then you’ll reimburse employees for any deductible incurred after the first $250. This works because in 90 percent of the cases we’ve done, the amount of premium savings — the 25 to 35 percent reduction the insurance carrier gives — is more than enough to cover the claims reimbursement the company has promised employees.

Doesn’t that involve some risk for the employer?

Yes, but our studies show that 53 percent of individuals incur $0 to $100 of claims on an annual basis. Even when you increase the amount to $250, it’s 63 percent of employees on the medical plan. So the company will have minimal reimbursement on 63 percent of employees. We haven’t had a situation where reimbursements have been more than the premium savings. It can happen; but our findings are that 10 to 20 percent of employees incur 80 percent of the claims.
The vast majority of employees don’t incur much in claim dollars. Employers should accrue an average of what they expect to reimburse, and that will add up to more than what is paid out. Over time, they’ll save money while giving employees the same coverage.

What are the differences between HRAs and HSAs? Which is better for employers? 

The HRA is a promise to pay. If an employee has claims, the company will give the employee money that has been set aside. Under an HSA, the company pays money into the account regardless of whether the employee ever goes to the doctor. If you raise the deductible to $2,500 and put $1,500 into an HSA, the company has incurred a fixed expense of $1,500. In essence, employees earn a $1,500 bonus that goes into a health retirement account they can take with them when they leave.

If you’re putting the premium 
savings into HSAs, you’re not really seeing any cost savings. You’re not pulling any costs out of the medical plan. Employees prefer HSAs because that’s money the employer is putting into a personal account. There also are tax advantages to the employee regarding any contributions made on an individual basis.

With an HRA, companies can cover the employee exposure from changing to a low-deductible to a high-deductible plan without giving up as much of the savings. Depending on your plan design, you can also issue debit cards to employees so that when they go to the pharmacy or doctor’s office they can have expenses paid upfront and they don’t have to pay up front out of pocket expenses.

Employees like that 
because the first thing they’re concerned about when switching to a higher deductible is having to pay a $2,500 bill and waiting to be reimbursed. This strategy is likely to continue to provide savings because you’re compounding premium increases on a lower amount. If rates go up 10 percent next year, a plan costing $500 with the $250 deductible would increase by $50, while the plan costing $375 with a $2,500 deductible costs $37.50 more. 
When employers see the compounding effect on three to five years of increases, they realize that it’s a way to curtail the trend seen over the last 10 years.
Dan Wilke is Vice President of Underwriting and Statistical Analysis at Benefitdecisions, Inc. Reach him at (312) 376-0437 or
Insights Employee Benefits is brought to you by Benefitdecisions, Inc.
Published in Chicago

Many employees are surprised when they learn how much employers are spending on them in addition to their salaries. Studies show that benefits can add 30 to 35 percent on top of the salary being paid.

“A total compensation statement is a good way to illustrate this and make employees aware. Most employees will end up appreciating employers more if the information is communicated properly and in an effective manner,” says Dan Wilke, director of underwriting at Benefitdecisions, Inc.

Smart Business spoke with Wilke about the value of providing employees with total compensation statements.

What’s in a total compensation statement?

You want to capture every cost associated with employees from the moment they are hired. The statement takes into account items such as vacation time, sick leave, personal days, holidays, wages, overtime, employer matching 401(k) contributions, and bonuses and commissions.

Then you break out the costs of what the employer pays for insurance — medical, dental, vision, life, disability, and travel and accident. It also includes tax-related costs the employer pays — Social Security, Medicare, federal and state unemployment, and workers’ compensation.

Some companies also reimburse employees for tuition for continuing education, or provide reimbursement for health club memberships as a way to incentivize employees to keep active and in good health.

The statement includes all of these hidden costs that employees forget about. They look at their paychecks and lose sight of the other benefits their company provides. Benefit-related costs are the second largest income statement expense, after payroll, and total compensation statements shed light on how much is spent.

It’s not about telling employees what you do for them, but showing how much they are valued. Studies show that when employees are aware of the total costs, they feel more appreciated and they are more productive.

Are total compensation statements also used as a recruitment tool?

It’s a logical next step. It might become commonplace that prospective employees hand over resumes and are given total compensation statements in return. Prospective employees often focus on the salary number. For example, a friend of mine accepted a new position and was surprised to learn he had to pay $1,200 a month for family health insurance because his company only pays 50 percent of those costs. Had he accepted another offer, he would have paid only $400 a month. He lost almost $10,000 in total annual compensation.

If you have a rich benefits package, illustrating that in a total compensation statement could certainly be valuable in terms of recruitment.

Can statements have a negative affect if you don’t have a rich benefits package?

A statement might not be applicable to all companies. It’s not promoting a sense of increased value to employees if your benefits package is light. A consultant would be able to determine if it makes sense to produce a total compensation statement.

What are the implementation costs?

On a one-time basis, you can outsource the project to a company that produces total compensation statements and the fee will run from $5 to $15 per statement.

However, it is more cost-effective to load information in a benefits administration system, if you have one, because it’s rolled into the cost of the system. There is an indirect cost because it takes legwork by HR to gather the information and enter it into a spreadsheet or database, but it’s worth the effort.

Typically, statements are provided to employees annually. While they can be delivered any time of the year, the best time is after you’ve given raises and had a benefits renewal. You’ll know the new costs and it’s a sensible time to update employees.

It’s important that you don’t just send it out or hand it to employees; there has to be follow-up. Offer to meet with employees on a one-on-one basis to provide explanations and answer questions to show you care about them. Total compensation statements are valuable and they have to be communicated in a manner that conveys that message.

Dan Wilke is director of underwriting at Benefitdecisions, Inc. Reach him at (312) 376-0437 or

Insights Employee Benefits is brought to you by Benefitdecisions, Inc.



Published in Chicago