Employee Benefits

Employee benefits can be metaphorically called the new salary, and most small employers are of the opinion that employee benefits are their biggest expense after payroll.

Unaffordable Healthcare 

Insurance companies identify a firm with less than 50 employees as a Small Group and I manage benefits for an IT consulting firm in New York City. From 2005, our medical premiums have increased to about 24% from one year to the next.

Large groups often buy in volume and thus get much better rates –just compare shopping at a Mom &Pop store vs. Costco. A small employer will be bothered by an increase to a greater degree. Over the years, the company has made some changes in its plan design to reduce the costs incurred by the company and absorb maximum financial impact for the employees.

High-Deductible Plans

It was clear that for paying low premiums, we had to include plans that are referred to as “consumer-driven health plans” in the insurance industry. We found a big difference in premiums when your plan included a $2000 or $1000 deductible. We got great savings on premiums and put that into Health Savings Account (HSA) to cover that deductible for our staff. Our savings were still better than that of a traditional plan.

The premiums increased when these high-deductible health plans gained more popularity. The company had earlier funded one HSA account for every employee up to the full amount of the deductible. However, now it had to limit its contribution to a lower amount per person as part of cost control. Still, the employees and employers were happy because the savings were better when compared to that of the older plans according to which only a small co-pay was necessary at each doctor visit. Plans of this kind are known as “Cadillac” plans.

By 2011, High Deductible Health Plans became a norm. These plans were every bit as expensive as the traditional plan before a few years, however, now there was a deductible of several thousand dollars. To reduce the expense to our company and its employees, we had to find out some creative measures. Most importantly, we had to provide benefits capable enough to attract and retain the employees that happen to be the most valuable asset of a firm.

The Emergence Of A Sensible Design

Small Business Owners

From 2012, we started offering three Health Plans: Gold, Silver, and Bronze. Regardless of the type of plan the employee chooses, the company pays the same amount towards premiums and the employee picks up the remainder. This way, our employees can choose the level of coverage they get and still manage to be granted the same dollar amount benefit.

We also offer Health Savings Account and/or Flexible Savings Account (FSA) so that employees can pay their medical bills using tax-free dollars. We maintain a Health Reimbursement Arrangement(HRA) to cover the out of pocket expenses of employees and a certain dollar limit up to a yearly limit applies to the scheme.

This is very useful for an employee who needs surgery, has suffered a traumatic event, or has a family member suffering from a chronic illness. This strategy isn’t that cost-prohibitive for the company because they decide to pay only after a good share of the maximum out-of-pocket expenses is met and it does not happen often. HRA reimbursing this tail-end out-of-pocket expenses or deductible lets the employees have their individual Health Savings Accounts under IRS rules.

You Might Need A Broker

A deep earning process that took several years was required for the plan design but it was completely worth all the effort. The company’s employees and my employer are maximizing their healthcare dollars. It takes some time before the plans can be set-up and offering FSA, HRA, and HSA plan is associated with added costs. But the efforts will give two benefits to small business owners: lower costs and happier employees.