Understanding Employee Health Benefits

Key Attributes of a Successful Employee Health Benefits Plan

In an era of ever-increasing healthcare costs and a constantly expanding array of available plan options, choosing a health insurance plan for your company is becoming an incredibly challenging exercise for human resource teams and senior executives.

It’s not a decision to be taken lightly. According to the website Allbusiness.com, employees consider health insurance to be among the most important benefits an employer can offer, second only to paid vacation time. Choosing which health plan to offer (or whether to offer one at all) is a multi-step process that involves research, engaging with your workforce, speaking with brokers and finally choosing a plan that best balances employee needs with your company’s available financial resources.

Developing the Best Employee Health Benefits Plans

The first step in deciding on a health plan is weighing the pros and cons of offering one at all. With the implementation of the Affordable Care Act, most Americans have the option of purchasing healthcare plans if their employers do not offer one, but choosing to take this route has potential disadvantages for both employees and employers. Not only may your employees take issue with having to pay high premium costs out-of-pocket, if you have 50 or more full-time employees, your company may be subject to assessment if your employees receive premium tax credits to buy their own insurance.

While not offering a health plan seems advantageous from several angles (reduction of costs and administrative needs, potential liabilities, etc.), the benefits of offering a plan typically outweigh these factors for most employers. The “pros” of offering a health care plan include:

• Increased productivity and lower absenteeism/presentism rates
• Attracting and retaining top employees
• Federal income tax deductions and credits
• Lowered group rates on health plans

Once you have decided to offer your employees a health plan, the next step is determining which plan is the most advantageous to both your workforce and to your business. The first decision to be made is choosing between a Health Maintenance Organization (HMO), a Preferred Provider Organization (PPO) or a Health Savings Account (HSA).

An HMO plan requires employees to visit only doctors that are approved by the plan, and typically has higher monthly premium costs than a PPO. HMO plans make up for these limitations with comprehensive coverage, predictable and low co-pays at the time of service and lower deductibles. PPO plans allow employees to choose their own doctor and have lower premiums, but this freedom comes at a price—in the form of much higher co-pays/co-insurance and deductibles. An HSA account combines elements of both an HMO and a PPO plan. Like a PPO, monthly premium costs are kept low, but have very high deductibles. This is counter-acted with health savings account funds provided by the employer, with the employee responsible for their share of the deductible after account funds are spent.

Health Plan Pros and Cons

The best way to determine which type of plan to choose is by educating your employees about the pros and cons of each type of plan (including how much will be deducted from their paychecks), and surveying them to determine what they want/need from a health plan. Once a decision is made, contact a local, independent insurance broker to obtain price quotes and information about the plans, such as coverage limitations, plan ratings and customer service options (including web and mobile support for both employees and plan administrators).

Finally, weigh the information you receive about the various plans against the employee expectations and desires you acquired previously, as well as against your company’s budgetary needs. After a thorough analysis, you should then be able to select the health plan that is best for your company.

The two types of plans for employee health benefits

With the cost of traditional healthcare plans on the rise, HR leaders and benefits buyers are re-evaluating their employee health benefit options, with many employers moving to defined contribution plans. Like any benefit change, moving to a new plan can be daunting, but with proper research and communication the transition can be made with little difficulty and can benefit both employers and employees.

Employer-provided, group health care plans are familiar to both employers and employees. They involve the company choosing a single health plan to meet the needs of their workforce, with the employer paying a percentage of the premium cost. While these traditional plans are simple to understand and can be beneficial for very large businesses (risk is spread across many employees, reducing premiums), they involve a lot of research by benefits buyers to choose a plan, and the “one-size-fits-all” approach limits employee choice. In addition, since premiums rise based on the healthcare cost of the entire staff, employees with fewer healthcare needs still pay the bill for the claims costs of their high-claims colleagues.

Defined contribution plans offset costs while maintaining benefits and increasing employee options. Employers give each employee a set dollar amount (a “virtual gift card”) to help cover the costs of monthly premiums, and the employee can choose the coverage plan they want, paying the remainder. The benefits of a defined contribution plan are total cost predictability for employers (as they pay a fixed dollar amount, not a percentage of premium costs), an average cost savings of 20% over employer-provided plans, and increased plan options and savings for employees (via tax credits and employer-provided defined contributions, which can help small-business employees cover up to 100% of their premiums).

There are some learning curves and administrative hurdles to be considered when changing to a defined contribution plan model. First, these plans require significant upfront involvement by employees, who are responsible for researching and choosing the plan that works best for them. Employees are also responsible for paying their healthcare costs upfront before being reimbursed by their employer, which may be confusing for employees accustomed to employer-provided plans. In addition, since a defined contribution plan is a payroll function, it will require additional training and administrative resources.

Important Things to Remember When Making the Transition to a Defined Contribution Plan:

• Communication and transparency are absolutely critical in preparing both your employees and administrative staff for the change. Open discussion about the new health plan should start as far out as possible to address all concerns. Recommended communications methods include print, email and online materials, as well as group meetings and webinars for remote employees. Your company’s goal should be complete transparency, showing the financial contributions the company is making to employee health care, as well as the impact on employees’ costs. Whenever possible, share your cost analysis reports with employees.
• The response to the change will differ based on demographics (younger, single employees may embrace the new plan faster than older employees or those who are married/have families), so position your communications and training accordingly.
• Finding the right vendors for your organization is crucial. Some offer technology such as online portals for ease of employee access, while others will handle all or most administrative and employee communications needs, a huge benefit for smaller companies with lower administrative staff resources.

If increased costs and changing employee healthcare needs are an issue at your company, it’s probably the right time to take a look at your employee health benefits plan. Remember–there is no single health insurance solution that works for every company, but thorough research and open communication with your company leadership and employees can help you to find the right plan for your organization.