Employee Benefits: Four Killer Strategies

Employee benefits first began during World War II as a way to attract the best workers. Today, most employee benefit plans are taken for granted at best and actually despised at worst. Your employee’s satisfaction with their job, their health, and their financial well-being can all be affected by their benefits.

But it doesn’t have to be that way. This article will describe 4 killer strategies that will help make this year your Best Employee Benefits Year Ever.

This article goes into great detail on all four strategies, showing the pros and cons to each.  All four strategies will greatly reduce the time and stress in dealing with employee benefits.

If you’re in a hurry, skip right to Strategy #4 because it’s my personal favorite and the only one that offers your employees true choice.

Strategy #1 – Eliminate the Employee Benefits Plan

The first strategy we’ll discuss is to eliminate the group plan altogether. After all, small businesses under 50 full-time equivalent employees are not required by law to provide health insurance for their employees.

Make sure you proceed with extreme caution if this is the strategy you choose. Not only will you be losing the competitive hiring advantage employee benefits bring but you’ll discover many other major drawbacks to this strategy as well.

Now that you’ve been warned and have decided to continue, you only have a few easy steps. Choose the date that you will cancel your group health insurance plan. then give your employees raises and send them off to your state exchange or marketplace such as Covered California to get their health insurance.

So let’s look at the pros and cons of this method:

Pros to eliminating your employee benefits plan

• You’re offering choice, sort of. I say “sort of” because yes, they may have a choice of which insurance company they want to go with now but they’re really going to have a very limited choice of doctors.
• Reduced employer cost and again I’m going to say “sort of”. Down below I will show you all the different ways where costs sneak back in.
• No administration. Yes, this is completely true. I’m not going even to say “sort of” this time. There is no administration because you have eliminated your group health plan. You don’t have to worry about adding people on, taking people off, offering COBRA when they leave, dealing with your renewal when it comes up. You eliminate all of it. That is until you reach 50 fulltime equivalent employees. At that point, you are required by law to offer health insurance or pay a major fine for not offering it.

Cons to eliminating your employee benefits plan

• Higher payroll tax. Remember if you cancel your group plan, you’re offering raises to your employees so they can go out and buy individual health insurance. Those raises result in higher payroll tax, of course. This is the first of the reasons why the savings that you think you’re going to realize may not add up.
• Medi-Cal. In California, families with income up to 266% of the federal poverty level will see their children pushed on to Medi-Cal. There’s nothing really wrong with Medi-Cal but a lot of people just don’t like the idea of their kids being on it. I get asked all the time how to avoid it and the only answer is to pay full price for an individual plan or have them added to the employer’s group plan as a dependent.
• The employee may not buy any health insurance at all. This is a major con when we talk about eliminating the group health insurance plan. So what happens if they don’t buy health insurance? Number one, they can go untreated. If they don’t have health insurance, because they didn’t choose to buy it, they may not treat that illness and it can get worse, resulting to a lot of missed time at work. There’s also financial disaster to consider. Not having health insurance obviously means that nothing is covered when they go see the doctor. This is the number one cause of bankruptcy in the United States. You probably already know that if your employees are worried about their bills, they’re not very focused at work, resulting in a loss of productivity and reason number two why your savings are reduced.
• Higher Workers Compensation Costs. Higher work comp costs can result from what I like to call the Sunday injury. Here’s an example: an employee twists their ankle on Sunday. He doesn’t have insurance and he can’t afford to go to the emergency room or the urgent care center to get his ankle taken care of. It’s Sunday night. He’s not sure what he’s going to do. So he gets up the next morning and goes to work and “falls”, triggering a workers compensation claim and “free” treatment of his Sunday injury. So now you’ve got a worker’s comp claim on your hands and your worker’s comp costs are going to go up. This is reason number three why your savings from not having a group health plan may not materialize.
• Your employees are going to lose their doctors. There’s no doubt about it. The doctors’ networks for individual health insurance in California are much, much smaller than the small group network of doctors. There’s no doubt about this. I recently saw a study that California is the fourth worst state when it comes to doctors’ networks for individual health insurance (link).
• Higher deductibles and co-pays. The group health plan that you may have been paying for…your employees didn’t realize it but it may have been a really good plan. When they go to the individual insurance marketplace and try to find that plan, it may not be there. Platinum and gold level plans have zero deductibles but those are expensive plans that your employees are unlikely to be able to afford. Silver deductibles are $2000 and Bronze are $5000. Your employees aren’t used to deductibles like that.
• Perceived loss of benefit. It has been said that perception is reality. It’s not going to be very long before your employees start telling their friends and family, “You know what? They used to pay for my health insurance at work and now, they don’t.” They’re not going to remember that they got a raise to help pay for it or that the government may be subsidizing their premium. They’re just going to have this perceived loss of benefit. So that extra pay you gave them? Very soon they’re just going to consider it part of their salary. It’s going to be taken for granted and it will become the basis for their next raise, further evaporating your savings from eliminating the group health plan.

Have I scared you away from eliminating your group health plan? I hope so. Let’s move on to a strategy that is less extreme.

Strategy #2 – Raise Your Deductible & Add Supplemental Insurance

If you don’t like the idea of eliminating your employee benefits plan altogether,

Step one is to raise your deductible. I know I just warned you about higher deductibles in Strategy #1 above, but if you need to do this due to budgetary concerns, let’s do it right. When we raise the deductible, we need to do something to buffer your employees from the extra financial burden. We do that by adding in supplemental health insurance like Aflac. Aflac pays for medical expenses and it pays for missed time at work. The number one fear of people, when they have that higher deductible, is that maybe they don’t have the money in their savings to cover the larger deductible.

They’re not really worried about going to see the doctor when they have a cold or going to get their antibiotics at the pharmacy. They’re more worried about the big ticket items. This is where the supplemental insurance like Aflac can really help.

So let’s take another look at the Sunday injury I mentioned in Strategy #1. What happens now that he has supplemental insurance? If he now has a $2000 deductible and gets hurt, he just submits that claim to the supplemental insurance company. They will write him a check which is now right there in his hand. He can use it to pay for that deductible. You’ve got lower insurance costs. He has got a check in his hands. So he’s not worried about the deductible any longer. It’s a win-win.

OK. Let’s look at the pros and cons of raising your deductible and adding supplemental insurance.

Pros to raising your deductible & adding supplemental insurance

• Lower employer cost. Obviously if you’re raising your deductible, your insurance is going to cost less.
• You keep your same plan. Now that’s not always a pro because remember, offering choice is a big deal. But if your employees like the current plan, you can choose to keep it. You’re just going to raise the deductibles and help them out with that by offering supplemental insurance.
• Adding to your benefit portfolio. Remember we said if you’re hiring a new employee, competitive medical benefits can help. However, when you start adding in even more options to their employee benefits package, that all of a sudden becomes more attractive to them.
• Lowering your work comp cost. I’m going to go back to that Sunday injury again. Instead of that person waiting until Monday morning and pretending they got hurt at work, they’re actually going to want to turn it in to their supplemental insurance company. They would much rather have that money in their pocket. Sometimes that money can be more than their deductible.

Cons to raising your deductible & adding supplemental insurance

• No choice. If you keep your old plan, employees still don’t have choice, right? It’s that same plan again. They don’t have choice in the insurance carriers. They don’t have choice that you’re raising their deductible.
  Administration. Adding in supplemental insurance means you’ve got one more plan to administer and it means you’ve got more payroll deductions. This is the kind of thing that HR people hate. But don’t worry. If you got any significant number of employees, there are ways around the payroll deduction problem. As for the administration problem, your agent should be helping you with that.
• Lost employee time. If the supplemental insurance is paying for getting hurt and also time off, the employee may be out a little bit longer, right? While it is possible that the employee may be able to kind of milk the system a little bit, this is also true for regular state disability. It’s just that with supplemental insurance, they may be getting a little bit more benefit.

Strategy #3 – Educate

The next strategy is simply to educate your employees on their benefits plan. Educating is the bare minimum of what you’re going to need to do if you keep your plan. You need to create more perceived value. Remember the old saying, “Perception is reality?” It really rings true.

Let me give you an example. “COBRA is expensive.” I hear this all the time. Not only do I work on group health insurance but I also work on individual health insurance. So here’s what happens. An employee will leave their job either voluntarily or they’ll be terminated. They get their COBRA offer in the mail meaning they can keep their health insurance coverage that they had with the prior employer.

The former employee will call me on the phone, looking for individual health insurance and this is what they say, “COBRA is expensive.” Is it really? Well, it kind of is when you’re the employee. And you know why? It’s because employees have no idea what their health insurance costs. COBRA, by law has to cost the same amount after employment as it did during employment, plus a possible admin fee. The only difference is the employer was paying for it previously and now the ex-employee is paying for it. Again, perception is reality. Before they had no idea what it cost and their perception was that they were getting “free” health insurance.

Now their perception is, “Wow, this is expensive.” We need to fix this by improving their perception of their plan. So here’s what I would like you to do if you’re going to educate your employees. Sit them down and have a meeting. Do it one-on-one if you’re more comfortable with that. Then go over this list:

• Cost of insurance. Yes, tell them the cost of their insurance. So many employers do not do this. If they don’t, they end up with a lower perceived value of their employee benefits. You want to tell them what it costs so that they understand exactly what they’re getting.
• Ancillary coverage. Many of you provide dental, vision, life, maybe even cancer policies. Employees don’t value those because they’re not talked about very often. So when you do talk about your employee benefits package, don’t just focus on the medical insurance. Focus on everything including this ancillary coverage.
• Preventative services. Under the Affordable Care Act, these are covered 100 percent. Most people still don’t realize this. Annual exams, well-baby visits, etc. are preventative services. As long as it’s not diagnostic, these are covered 100 percent…no co-pays, no out-of-pocket expense.
• Wellness programs. Wellness programs are included now too in a lot of plans. They may offer smoking cessation or weight loss. These are considered wellness and your employees need to know about them.
• Urgent care. I have four kids so I’ve been to the urgent care plenty of times. If one of the kids hits their head, I have the option of going to the emergency room or now, I have the option going to urgent care. The emergency room is expensive. There are long waits. The urgent care in most cases is a fraction of the cost and a lot of times you can get in there and see the doctor right away. Your employees need to know about this because when they end up in the emergency room on the weekend, and then they get their bill a month later, they’re going to complain about the whole process thinking once again that their coverage is not very good. That’s their perception. If you teach them about the urgent care centers, they’re going to have a better experience and have a much lower co-pay, giving them the perception of having a better plan.
• Smartphone apps. Your employees all have smartphones. Did you know that most insurance companies offer apps to help their members set appointments and manage their care? They should be educated about this.
• Telephone doctors. This is a great new feature a lot of plans are offering. If your plan doesn’t offer this, there are outside services that you can pay for to add it in. So if your employee needs a doctor, instead of making an appointment and missing more work, they can call a doctor on their cell phone and they can tell them what’s happening. They can have a consultation right there over the phone. They could even turn their camera on and show the doctor exactly what’s going on. That doctor can then write a prescription based on what they have heard and seen over the phone. It’s amazing and your employees are going to love it.

By the time you’re done educating your employees on their benefits plan, they should completely understand what they have and what it costs both you and them.  So let’s first look at the pros of educating your employees.

Pros to educating your employees

• No plan changes. That’s a good thing because it eliminates the confusion. So on one hand, yes, that’s a pro. Everything stays the same. The employees just know more about it so now they realize what a great plan it is.
• Better perceived value.  Your employees will now perceive their benefits in a much higher light.  It will be much more difficult for them to take them for granted once they understand all the great benefits you are providing.

Cons to educating your employees

• No choice. If you’re going to stick with your old plan, that means you’re not going to give them a choice on a new one. Like I said before, your employees want choice and trust me, you want to give it to them.

Strategy #4 – Use a Private Exchange

Last but certainly not least, is to use a private exchange. This is by far my favorite of the four strategies to your best employee benefits year ever. So what is a private exchange? In a private exchange, the employer makes a contribution to the employee’s benefits. They might contribute a percentage of the benefits, the percentage of a certain plan or it may just be a flat dollar amount.

The employee then applies that contribution to the benefits that they prefer. So the employee will choose an insurance company and they will choose an insurance plan. If the employer’s contribution covers that insurance company and plan, then the employee doesn’t pay for anything out of pocket. However, if they choose a plan that is more expensive than the contribution that the employer made, then the employee pays the difference. That’s al there is to it.

This is how you fix your budgetary issues.

Typically, you’re paying for a plan that some people like, some people don’t, and some people don’t even need. So what happens when they choose their own plan? Some employees will take smaller networks to save money while others will pay extra because they want a specific plan or they want a specific doctor. It happens frequently with dental insurance. If you look at dental insurance, a PPO versus an HMO, there’s a huge difference in cost. Most people prefer to pay a great deal extra for the PPO because they’re so set on seeing their same dentist who doesn’t accept the HMO.

But the thing is, it’s their decision to make and they understand that. They will pay extra because they want their dentist. You will see the same thing happening in the private exchange. Your employees will have a choice put in front of them and they will understand that they can still get “free” health insurance if they choose the plan that you provided or they can get most of their health insurance paid for depending on your contribution level.

But they may want to buy up and they will be willing to pay the extra. The key is that it’s their decision to make.

So let’s look at the pros and cons of using a private exchange.

Pros to using a Private Exchange

• True choice. This is not choice “sort of”. This is true choice. Your employee can choose to do whatever they want. They can pay as little as they want or as much as they want. They can choose the plan they want. They can choose the insurance company they want. They can choose the doctor they want.  True choice.
• Fixed costs. When you have a fixed cost inside of a private exchange, you know exactly what your healthcare spending will be this year and every year from now on. You control the cost. That has been missing from your health insurance budget every year in the past. This is how you fix it.

Cons to using a Private Exchange

• Complicated setup. This is why you need the help of an independent insurance agent to help set it up. There are a lot of options and more options means more complexity. We can avoid that complexity by providing your employees with worksheets that show a complete breakdown of employer cost and employee cost for each of the plans. So we can eliminate some of that complexity by using worksheets. You’re definitely going to want to use an independent agent to help get through the setup.
• Potentially Slightly higher cost. However, this is only if you’re basing it on the same plan you had before. Remember we have choice here. So the cost can be whatever fits into your budget.

How Can I Help With Your Employee Benefits?

So what do you think? Which one of the four strategies will you be implementing? Each of the strategies have their place depending on where you are at with your budget and employee relations. The good news is I can help you implement any of the four. Please feel free to contact me or ask a question below in the comments.