How to Beat the High Cost of Healthcare

Evaluate employee healthcare requirements and plan options to ensure you get the most bang for your buck.

April 21, 2011

Does anybody understand the health insurance landscape any longer? I don't think so, and as we get closer to 2014, it gets even more confusing. All we really know is health insurance is expensive and getting more expensive by the year. This large, illusive cost is out of control, yet is something contractors have to address.

Many contractors are finding more work and are hiring back workers who were laid off, or new workers to handle the additional business. When you add more people, here you go again with the insurance issues. It is a never-ending battle.

If you hire union workers, you are covered, though with a very expensive alternative. Non-union shops may still incur an expense, but have more flexibility in designing what they offer employees. Yet, even if you offer a simple plan and an employee is laid off again as work slows, there is the COBRA issue to deal with.

What do you really need to offer?

Putting the cost issue aside for a moment, you need to consider what to offer to attract the talent required. This may not pertain to everyone, but it does more often than not when you need someone now for a job that will be starting shortly.

You do have the option to avoid the hiring process altogether by subcontracting work to others and keeping the headcount to a minimum.

So let's assume you do everything you can to avoid hiring, but still want to offer insurance to employees. If that is the case, the first thing you should do is check with your peers to see what they're offering. If you are going to offer health insurance, you want to at least offer benefits in the same ballpark.

Next, you need to determine what you can afford to pay and how much employees have to contribute. The type of plan you pick, along with custom perks added to the plan, will determine what you have to pay. To keep this cost to a minimum, it is a good idea to survey your employees to see what they expect from a policy. Who knows? You may be offering more then you need to.

Keep in mind that on average, employers pay $4,000/month and employees $900 for single coverage and $9,700 and $4,000, respectively, for family coverage. Can you afford it? Can your employees afford it? If not, on to Plan 2 to reduce the cost.

Plan 2 may mean no group policy at all. Maybe you have employees who buy individual policies where you reimburse them a fixed amount for coverage. Personal policies are covered by state law and allow more flexibility regarding coverage and cost.

Assuming you only want to cover "permanent" employees, while trying to avoid COBRA situations, you may want to set the standards for admission to the plan to avoid insuring part-time people. For example, maybe employees have to wait six months before they can join the plan.

Alternative plan options

Once you decide what you can afford and have a couple of plan designs on the table, you have to decide which plan to take, and then educate employees how the plan works and the costs for which they are responsible. It may be a PPO or an HMO, which is less costly. It may be a health reimbursement arrangement (HRA) or health savings account (HSA), which encourage employees to watch the spending before they reach the total deductibles provided by the company.

In most HRA/HSA plans, the company pays the first portion of the deductible. But I did see one plan where employees cover the first dollar of out-of-pocket costs, and only after they reach their maximum out-of-pocket deductible does the company portion kick in. Some inexpensive perks that can be added to the plan to make them more attractive to employees might be term life insurance, vision coverage and long-term care coverage.

The point of this exercise is to spend a minimum amount of insurance dollars using plan design and education, while at the same time offering a plan that meets most employee needs. It sounds easy. And it may be if you survey your peers to see what they are offering, and work with a competent broker who will help you design a program in your price range.

In the end, who knows. Health insurance may not be in the budget until workflow improves.

See Tips for Healthcare Cost Control to learn more about managing your healthcare investment.

Tips to Control Costs

Jeffery Bartecki, Beacon Benefits LLC

When it comes to healthcare, the first thing you need to remember is you have options. Your business can have numerous unique and customizable variables: union/non-union, employees/independent contractors, salespeople, office help, field personnel, managers, etc. The combinations are endless. Plus, this doesn't encompass your personal philosophy on how you want them protected, or the type of value you place on providing those benefits (read: budgets).

You need to understand that you can affect the premiums you are paying. And by understanding what goes into your premium, you can work toward lower premiums and still maintain good protection for your employees.

What seems to get forgotten in the Employee Benefits field is that all insurance - health insurance included - is a transfer of risk. The person who is purchasing the insurance policy is transferring risk to the insurance company for costs they either do not want to or cannot afford. They pay a premium and the insurance company takes on the risk at some point.

The first dollars, called deductibles, are usually 100% of the insured's money. The next level of coverage is what is called co-insurance which, as the name implies, is a portion that is shared between the insurance company and the insured. This is the portion described as 80/20 or 70/30 on your policy up to a certain dollar amount such as $10,000 or $15,000.

What this means to you is that the insurance company is responsible for 80% of the bills, and the insured is responsible for 20% of the bills. For every thousand up to $10,000, the company pays $800 and you pay $200 until you get over the prescribed dollar amount; in this example, it would be the $10,000 or $15,000. The final level is where the insured's total risk is transferred to the insurance company, which is responsible for 100% of the bills at this point.

Now, you may have noticed that I didn't say anything about co-pays of $25 or $35 when you go to the doctor or that apply to prescriptions. There is a reason for this. Those are bells and whistles that the insurance company provides and on which they make a profit. Typically, these bells and whistles add $100 each to the premiums. That's an additional $1,200/year for doctor visits and $1,200/year for prescription coverage before you ever get into the insurance companies' pockets. Plus, you still pay the co-pays as you use the services.

Health insurance is the only insurance that provides for maintenance to be covered. Does your auto insurance cover you for oil changes, car washes, new tires or brake jobs? Of course not. How about your homeowner's insurance? Does it cover you for mowing the lawn, painting the house or sealing the driveway?

The reason that I bring this up is because these bells and whistles have become expected by employees, yet they are not aware how much they actually cost. If they were aware, I believe that more times than not, they would forego them.

Let's take a look at the stats. The average family spends around $1,200/year on healthcare. The average family has a hospitalization once every 8 to 9 years. Only 6% to 10% of policies max out their deductibles and co-insurance in any given year. Take a look at your own situation and ask yourself if you fall within these averages or, better yet, see if your employees fall within these averages. If so, you have options.

With the unemployment rate and rising cost of healthcare that all over the news, your employees are aware of how bad things could be. Given the chance, they would probably like to take a proactive role in controlling their healthcare costs. Your first job is to find a creative, forward-thinking insurance broker that will take a long-term view and help customize a plan for you. If your broker has just been asking for a census and bringing back rate increases, you need to search for a new broker, even if your current one is your brother-in-law. Remember, you have options.