Health care costs have risen to the level that employers are forced to closely examine their benefits offerings.
Unfortunately, their concerns are not limited to just costs.
“Employers describe different areas of frustration, from administration and legal compliance to overall complexity,” says Joseph McGinty, employee benefits consultant with The Graham Company “Additionally, employers question whether their employee benefits program has remained competitive and can continue to be an effective employee attraction and retention tool.”
Smart Business spoke with McGinty about the concerns that business owners face when managing benefits programs.
What are some of the main employee benefits issues facing employers?
The primary issues are cost and complexity. At most companies, employee benefits programs look very different from how they did five years ago. Even if the plan offerings have not changed, employee cost sharing is most likely different, administration is probably more complex and insurance carriers may have changed. Every year, as employers react to increasing costs and complexity, somewhere along the line, the benefits program can drift from its original intent.
How do rising health care costs affect employee benefit programs today?
Health care costs have risen almost 10 percent annually since 1998. Employers cannot afford the rising costs and employees cannot take much more cost shifting. Some companies have been forced to cut other benefit plans or reduce costs in other areas of the company. Proactive companies are scrutinizing health care costs in the same manner they scrutinize any other business expense. They are being strategic in their offerings and demanding employee accountability within the health care cost equation.
How can employers adjust?
The best way to adjust is to engage employees in the health care equation and offer a variety of plan choices based on employee needs. By forcing employees to choose the proper health plan for their needs based on the structure of the plan design and corresponding employee contributions, employees have an incentive to examine their health care needs and priorities.
Consumer-directed health care takes this idea a step further. These plans have high deductibles and are associated with a Health Savings Account (HSA) or a Health Reimbursement Account (HRA). Employees typically receive a portion of the deductible funded by the employer through an HSA or HRA so they have a real incentive to manage their health care utilization and stretch their HSA or HRA dollars. For employers, the premium for these plans can be 25 to 30 percent less than traditional health care plans, so employers can fund a portion of the deductible and still realize savings.
Health management programs are another interesting way to engage employees. The overall goal of these programs is to reduce health care costs by keeping employees healthy, or at least ensuring they are taking the necessary steps to manage any chronic conditions. Keeping employees healthy goes beyond impacting health care costs. Healthy employees also have better attendance and are more productive.
Besides being strategic in the structure of the plan offerings and design, employers need to ensure they have the most innovative and cost-effective components that make up their plan offerings. Employers have a lot to consider, with specialized prescription drug carve-outs, health management programs and even new entrants into the health insurance marketplace. Additionally, employers of all sizes now have quite a few alternative funding mechanisms available that range from self-insurance to fully insured with many variations in between. It is important that employers stay informed of the latest programs and initiatives.
Is the administrative burden of managing benefits a real issue for employers?
Yes. Administration really has two levels. Internal administration involves employee enrollment processing, transferring eligibility to insurance carriers, producing reports and reconciling costs. Fortunately, comprehensive administration solutions are available for employers of all sizes.
The next level of administration is employee-related. These are employee claim issues and coverage questions that inundate a human resources staff. A broker should take these issues away from a human resources team and bring them to a quick resolution.
How can companies choose the best solution?
In general terms, it’s important to understand what you’re dealing with. We start an engagement with prospective clients with an assessment of their entire benefits program by analyzing policies, costs, plan offerings, plan designs, funding mechanisms, discount networks and competitive benchmarks. Once key areas of concern are identified, we then develop and implement solutions. We find solutions are the most effective when time is invested in learning about all aspects of the employee benefits program in order to anticipate difficulties and eliminate surprises.
JOSEPH MCGINTY is an employee benefits consultant with The Graham Company. Reach him at firstname.lastname@example.org or (215) 701-5292.