Do contributions matter? Part II

Do contributions matter?  Part II  How to lower health insurance costs by providing incentives.

When advising firms on contribution strategies (how to share the cost of health insurance with employees) many firms are making a huge mistake. While nobly intended, the firms that pay 100% of health insurance premiums, for single and sometimes even for family coverage are wasting money. These well intended policies have the unintended consequence of increasing your participation rate by an average of 10%. Meaning on average, 10% of your employees are eligible for better and cheaper coverage through other plans (spouse plan, retiree, or government qualified) but if your policy is to give it for free, they will accept the coverage. This is a waste of money since in an era still dominated by network copays for most services, there is little financial benefit for your employee to participate in double coverage, but as there is no cost to them, 10% of your people will double dip – participate in two plans. With single coverage being approximately $5,000 per year, firms are wasting tens of thousands of profit dollars.

There are two fix strategies to get these people off of your health insurance dime and still maintain a benefit friendly work environment:

1) Replace your simple 0% contribution with a policy that continues to be a 0% contribution plan with an official Buy Out plan. If your employee elects to not take your coverage you will through your official Buy Out plan, give them $100 per month. The $1,200 annually is enough for your employees to be financially incentivized off of your plan. It will likely cover much of their out of pocket costs (copays, etc.) that they will experience on the other plan.

2) Charge 10-15% for the coverage. This should be sufficient to incentivize your double dippers to not take both plans, but still low enough to deliver a benefit friendly environment.

Lastly, this year’s renewal discussion will inevitably include analysis of cost sharing plans (plans with in network deductibles and coinsurance). Discuss with your broker how these plans may or may not fit in with your firm contribution strategy. Since these plans are different in the user cost experience, they need to be analyzed in a contribution and tax efficiency prism for the complete picture.

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