Many small businesses are facing sticker shock with 2014 small group health insurance premium rates. What can a small business do to reduce health insurance premiums without reducing the level of coverage? Here are six tips for small business owners and HR professionals.
Businesses often work with a health insurance broker to explore different health insurance plan options, and take one or more of these approaches to see reduced health insurance premiums.
1. Educate employees to get the most value out of the health benefits you offer
Employees may not realize the value in the benefits they currently have. If they're not using their benefits to the fullest, then your small business is not getting the most value out of your money. Educate employees on the benefits and how to use them.
2. Encourage preventive care and wellness
Make it easy for your employees and their families to stay healthy by promoting prevention. This can be done through education, wellness programs, and a company culture of health and wellness.
3. Focus on the benefits your employees care most about
If you decide you need to eliminate some of your benefits, be sure to keep the ones that your employees care most about. Target your benefits for better efficiency and effectiveness instead of cutting based on cost alone. Consider your employees. Do you have many people in a certain age group? Younger? Older? Do you have more women than men? Tailor your benefits to your key employees. Consider which programs will have the most value to your employees and to your bottom line.
4. Transition to a Consumer-Directed Health Plan (CDHP)
A CDHP is a health strategy that involves the consumer to make decisions about their health care. CDHPs encourage employees to make informed decisions and spend wisely - which can lead to lower costs for the company. CDHPs come in various forms, but most commonly this means offering a high-deductible health plan paired with a spending account for out-of-pocket costs such as a Health Savings Account (HSA) or Integrated Health Reimbursement Arrangement (HRA).
For example, a company switches from a lower-deductible plan to a high-deductible plan to realize premium savings. To keep the coverage level and employee exposure the same, they offer an Integrated HRA to cover the additional out-of-pocket deductible costs. The employer reimburses employees through the HRA for their additional deductible costs. The company achieves savings because on average, employee utilization of the HRA is only 30-50%.
5. Increase cost-sharing
Another strategy used by businesses of all sizes is shifting more of the costs of health insurance to employees. While this is a less popular strategy from an employee morale standpoint, it's a decision that many businesses have made over the last decade. It is especially common for businesses to reduce contributions for dependent coverage. For example, from 2003 to 2013 premiums that employees pay for family coverage increased 89% compared to the overall premium increase during the same time of 80%.
Source: Kaiser/HRET Survey.
6. Transition to a Pure Defined Contribution Plan
Many businesses are transitioning away from group health insurance all together and choosing to offer health benefits with a pure defined contribution approach. With defined contribution, the business controls all health benefits costs while providing the same (or better) health insurance coverage to employees.
The small business simply sets the amount they can afford and provides employees health insurance allowances.
Employees use their allowance to purchase individual health insurance coverage and are reimbursed by the company, up to the amount available to them.
- 4 Ways You Control Health Benefits Costs with Defined Contribution
- Now is the Time to Cancel Group Health Insurance
What strategies did we miss? How are you reducing health insurance premiums without reducing employee health benefits? Leave a comment or question below.