Insurance Insights

Three Strategies for holding the Line on Benefits Costs

How can we reduce our costs? That’s the #1 question our small business clients are asking.   We are all stunned by the continuing double digit health insurance premium increases. 

But clients always have additional priorities.  They want to reduce costs but they also want employees to be able to keep the same doctors, or have a choice of plans or have an HMO option. The list is as varied as our clients.

It is our job to question and probe to identify all the priorities.  Then we craft solutions. Benefit plan design requires both market expertise and creative problem solving. 

This blog post describes three of the many different strategies we are using to reduce costs for our clients while keeping employee satisfaction high. 

#1 Small Employer Purchasing Pool—Cal Choice

One of our non-profit clients came to us with the urgent requirement to reduce benefits costs by 30%.  The obvious and certainly reasonable solution was to enroll the group in    Kaiser.  Everyone would continue to have comprehensive coverage with low out of pocket expenses.  But there was another compelling issue: two employees were in the midst of treatment for serious health problems.  It was essential that they continue with their current doctors.  

We proposed using Cal Choice, a small employer purchasing pool.  Cal Choice provides employees with a choice of health insurers and plan designs.  The organization selected a Kaiser plan as the base plan and determined an affordable cost sharing split with employees.  Each employee also had the option of purchasing any other plan in the pool.  The employees with health issues chose to pay the difference in premium between the base plan and their preferred plan.  Their treatment continued without interruption. 

#2 Association Plan—Cal CPA Society Group Insurance Trust

Our recommendation for a CPA firm was quite different. They received a whopping 70% increase for their Blue Shield HSA compatible, high deductible health plan.  There was no way they could afford that increase.  Our client ruled out moving to a higher deductible plan—that would place too great a burden on staff.

Our market review showed that other insurance carriers had comparable pricing.  We looked further afield.  We recommended an association plan open to members of the California Society of CPA’s.   Instead of the 70% increase, we delivered a 7% decrease with a manageable increase in the deductible.  The firm continues to cover the same percentage of the premium and deposits $125 monthly into each employee’s HSA plan.

#3 “Buy Up” Plan Structure

The third strategy we call the “buy up” approach.  A client who always provided the highest quality benefit plans for her staff could no longer absorb the yearly premium increases.  But she also did not want to give up offering these plans.  A number of her employees had significant health issues and valued the coverage.  She saw her benefits offering as her competitive advantage in the marketplace.   How could she control her costs while continuing to offer these plans?

We added additional choices to the benefits offering.  The employer fixed her contribution to a lower priced, but very acceptable plan.  Bottom line:  She kept her costs level with last year.  Employees all chose to buy up to the higher cost plan with pretax dollars.

What to Do Next:  Start Planning Early  

Our best advice for the fall:  Start planning early for your January renewals and benefits redesign.  Give yourself sufficient time to make good decisions, hold employee meetings and have new coverage approved before the holidays.

We’re here to help!

Time to Take Another Look at Small Group Insurance

Current small business health insurance offerings hold some pleasant surprises for employers looking for affordable medical insurance coverage in 2010.

That’s because the California insurance industry is competing for customers in an economy that is expected to be flat to down in 2010.

Insurers are lowering premiums by introducing new high-deductible health plans (HDHPs) which can be paired with tax-advantaged Health Savings Accounts (HSAs).  Employers generally contribute a portion of the premium savings to the HSA, which can be further supplemented by the individual employee.

In the battle for market share, insurers – including Kaiser -- are all offering these plans at prices that are simply not sustainable. It might be a bit harsh to call it bait and switch, but it’s definitely a buyer-beware situation.

“Too-Good-To-Be-True” Benefits Pricing

As we’ve been advising you since 2006, the “too-good-to-be-true” prices had to go up.  And they have, by an average of 20% per year, and now in the case of one of our clients, a stunning 40% for 2010. 

That said, we think that the competition for business can work to your advantage. It is definitely not a one size fits all solution, but for employers with a substantial number of employees over age fifty it is definitely worth a second look.

Remember our client with the huge increase?  He was facing a 40% increase on his high deductible plan, as compared to a 7% increase on his PPO plan. Not surprisingly, he was ready to move everyone back to the standard PPO plan. On the surface it looked like an easy decision... Just to be certain, we ran the numbers.

The Employees Are The Real Winners

What we found is that when we combined the premium for the high-deductible plan with an employer contribution for the entire deductible into the HSA plan, the total employer outlay still turned out to be less than the premium for the standard PPO plan.

Once the deductible has been paid, this HDHP covers 100% of medical claims with no coinsurance.

Our Four Step Process

As we have said, this isn’t a one size fits all solution. The market is constantly changing, and new opportunities appear and disappear regularly.

At Shargel & Company, finding the right insurance solution for your company involves much more then identifying the low bidder. Group health insurance is a complex product, and precisely tailoring an employee benefits package to your needs is a complex process.

1) We work to understand your business preferences. We know that offering the best health insurance to your employees, is an important part of your strategy to attract and retain the talent that you need to be competitive.

2) We investigate the culture of the company. It is paramount that your employees value the benefits that you provide.

3) We look at what is available in the market place. As independent health insurance agents, we are carrier ‘agnostic’; our only concern is to find the best package for you.

4) Finally we look at cost, and make detailed cost comparisons between the programs we recommend.

In this difficult economic period, it will make sense for some of you to consider a HDHP/HSA plan. If you are interested, we are here to help.

For more information about high-deductible health plans/HSAs, please visit our website.

For a small group benefits consultation, please contact Susan directly.

If you are interested in the progress of health care reform legislation in Washington D.C., please visit Susan's Health Care Reform Blog.

Please join the discussion. How are you managing rising employee benefits costs?

When do HSA qualified health plans really pay off for employers?

Are you considering an HSA (Health Savings Account) qualified High Deductible Health Plan for your employees? For yourself? Are these plans a sensible choice? It depends on your motivation and your situation.

Minimizing Costs

If you only want to minimize your premium dollars and don’t plan to contribute funds to employees’ HSAs, a better choice may be a traditional high-deductible PPO with more immediate benefits.

Most HSA-qualified plans don't pay for anything except a few preventive services before the annual deductible is met. If your employees can’t afford to pay the up-front pharmacy and medical services costs, the coverage is still too expensive, however low the premiums.

In contrast, a traditional PPO will cover key services such as office visits and pharmacy benefits (usually with a separate brand drug deductible) before the plan deductible is met.

Maximizing Value

If you’re looking to save money on premiums and to take advantage of the tax benefits of Health Savings Accounts, you’re on the right track.

HSA-qualified plans can help you maximize benefits dollars—when conditions are right. To determine suitability, you’ll need to look at the relationship of three financial variables between your current plan and the HSA plan:

• Premium savings—will depend on the current and proposed plans, your employees’ ages (for small groups), and the type of coverage (individual or family)
• Deductibles—the amount employees pay for services and/or brand name pharmaceuticals before the plan pays
• Maximum out-of-pocket costs—the most that employees pay before the plan pays 100% of covered services

Premium Savings

Your current plan is the baseline for your premium savings. Your premiums will depend on your plan benefits and the ages of your employees.

If you already have a high-deductible PPO plan, or if your employees are in their 20s or 30s, an HSA-qualified plan might not save enough in premiums to justify a change.

However, if you're offering an HMO and/or a comprehensive PPO plan, you might save enough on employee premiums to add an HSA-qualified plan and fund all or part of the deductible.

You’ll also need to calculate your employees’ contributions for their own and their dependents’ coverage with both plans to determine their premium savings.

Deductibles

Once you know the potential premium savings for you and your employees, look at the difference in plan and pharmacy deductibles between your current plan and the HSA-qualified plan, for individual and family coverage.

You’ll want to determine if the savings will allow you to fund all or part of your employees’ deductibles by contributing to their HSAs. Small businesses may find that the success of the HSA offering depends on the enrollment of a few employees with high premiums.

Employees won’t sign up for the plan if their annual premium savings don’t at least cover the difference in their deductible amounts.

If premium savings do cover the deductibles, great. If there are additional savings, even better. The HSA-qualified plan is looking like an attractive option.

Out-of-Pocket Maximums

The next factor to compare is the maximum out-of-pocket (OOP) cost.

The max OOP gives a measure of total risk, after premiums are paid. Often, HSA-qualified plans have much lower maximum out-of-pocket costs than traditional counterparts. This can be a great selling point to employees if their deductible is already covered.

One advantage of HSA-qualified HDHPs is that they generally include pharmacy benefits within the plan deductible and maximum OOP. Traditional plans separate pharmacy benefits out with a separate brand deductible and no out-of-pocket maximum, making it more difficult to estimate costs for unexpected pharmacy needs. Some HSA plans are designed so that the maximum out-of-pocket equals the deductible, making it easy to calculate the total financial risk. We like these plans!

The Bonus—Tax Advantages

After the basic costs have been compared, factor in the tax savings for employees. To get a ballpark figure multiply the HSA contribution by the federal income tax rate. Neither employer nor employee contributions are counted as federally taxable income for employees. (Some states, however, including California, do not exclude HSA funds from taxable income.)

Often, a business owner will choose an HSA HDHP for him- or her-self, because the savings are so advantageous. They can fully cover their plan deductible and still have money left to either fully fund their HSA or reinvest in their business.

The Age Advantage

HSA-qualified plans are one insurance product where age is a comparative asset. Small group premiums are usually age-banded, as are premiums for individual market plans. For one California insurance carrier’s small group plans, a 55-year-old employee’s premium is close to three times that of a 29-year-old employee.

This creates greater savings for older employees. A $2000 deductible HSA-qualified plan costs 25% less than a traditional PPO $500 deductible.

For employee only coverage, annual premium savings for the 29-year-old would be $800 – not enough to cover the $1,500 difference in deductibles; but savings for the 55-year-old would be $2,300 – more than enough to cover the deductible and have funds left over.

For family coverage, with double the deductibles, annual savings for the 29 year-old are $2,700; for the 55-year-old, $5,200.

Individuals over 55 also can make the additional catch-up contribution of $1,000 to their HSA, giving an extra boost to their pre-tax medical expense or retirement savings, and an extra break on income taxes.

For more about HSAs visit www.hsainsider.com, or, if you’re a California individual or business, contact us for a quote.