While tighter labor markets kept employers from reducing employee benefits the past several years, the economic downturn has companies shifting more costs to their employees. In addition to higher co-pays for doctor’s visits, hospital stays and prescription drugs, employees are contributing more to their health insurance premiums.
Health benefits consultant Dan Pearce says that’s because many employers have received premium increases of 20 percent or more this year, due in part to higher health care costs, legislative mandates, life-saving measures and managed care backlash. But properly structured premium contributions can achieve savings greater than the actual amount of the redirected premium assumed by employees.
“Contributions reduce the amount of employees carrying duplicate coverage on themselves or dependents, protecting your plan from subsidizing other employers’ benefits plans,” says Pearce, director of group benefits at Sequoia Financial Group LLC in Akron.
Employers who pay the entire cost of employee health insurance are increasingly subsidizing other employer plans, Pearce explains, noting that an employee who is required to contribute just $20 per month will waive coverage if his or her spouse’s employer provides free benefits.
“Recent HIPAA legislation makes it easier for employees to waive their employer’s plan by guaranteeing them the ability to re-enroll if their coverage changes,” he says.
Pearce recommends establishing employee contributions as a percentage of the premium charged by the insurance carrier. Explain to employees their cost will change annually when premiums charged to the employer change. This can help reduce resistance to contribution changes and guard against reluctance by employers to address increases.
Contributions based on a percentage of the premium mean different amounts for single and family coverage. This can reduce or eliminate the number of employees carrying unnecessary duplicate coverage on their dependents and save an employer the difference in premium and potentially large claims in their group experience.
“Some employers establish contributions of one percentage for single coverage and a higher percentage for family coverage to further discourage double coverage on dependents,” Pearce says.
Either way, finding a happy medium is key. Contributions of less than 10 percent of premium have little effect on an employee’s decision to carry duplicate coverage. Excessive contributions compel too many employees to waive coverage, resulting in excessive rates and ultimately causing insurers to decline quotes for your group.
“Once you establish the percentage employees contribute, review it annually and be willing to change as need requires,” Pearce says, “even if that entails lowering the percentage, to encourage employees to accept benefit alternatives that save the company money.” How to reach: Sequoia Financial Group LLC, (330) 375-9480 or www.sequoia-financial.com
Victoria Reynolds is a contributing editor to SBN Magazine.
A national study by the Kaiser Family Foundation reports the average monthly employee premium contributions for 2001 were $30 for singles and $150 for family coverage.
The employee-paid premium percentage varies by industry and employer size. Reported averages from various studies range from 10 percent to 35 percent, and show that public sector and larger employers tend to require lower employee contributions than smaller private sector employers.
Insurance contracts usually require minimum enrollment levels and minimum employer contributions of at least 50 percent of the premium, and allow for revised rates if the number of covered employees decreases by more than 10 percent during the contract period.