So you’re challenged to get the best employees because you don’t offer a benefit plan. You run the risk of losing a valuable employee because you don’t have a benefit plan. You want to offer security to employees, but you don’t want to jeopardize your company’s bottom line in the process. What will a benefit plan cost my business?
Whatever is your reasoning, you want to make a business decision that’s the right and responsible thing to do for your company.
Here are a few myths that need to be addressed to understand the impact of the decision fully:
Myth 1 A benefit plan is insurance
Of course, there are elements of a plan that are insurance (Life, LTD, Travel, AD&D), but most of your cost (usually 70-80%) comes in the form of health and dental benefits. Think of it another way; today’s claims represent tomorrow’s premiums.
Myth 2 If my premiums go up, I’ll move carriers
That may work for your initial year, but usually, by your first renewal, your rates are at or above the premium level of your last renewal. It takes a lot of time, money and interruption to go through new plan implementation.
Also, insurance companies have something called an IBNR Reserve (usually from 8-15%) factored into your first renewal. When you change carriers, the IBNR is absorbed into income by the insurance carriers. So every time you move companies, each provider charges this IBNR
Myth 3 There is no such thing as cost certainty with a benefit plan
On the market today, there are several different options with greater cost certainty.
The most cost certain solution is an H S A based plan (Health Savings Account). This allows for a fixed amount to be spent on health and dental care services provided that CRA recognizes the expense. Consider this as a savings account for healthcare services. Once it’s gone, it’s gone until the new benefit year starts.
Other products ensure the catastrophic elements of a plan (prescription drugs, private nursing, semi-private coverage) and have the non-catastrophic benefits (dental and paramedical) have a fixed amount in the form of an H S A.
Myth 4 We’re too small to have any other funding model other than an insured plan
That’s complete rubbish! Many brokers make more money on insured plans, so they don’t offer you a choice.
If you’re working with a reputable TPA (Third Party Administrator), you should have many different options to choose from. If your broker doesn’t give you an option, talk to an advisor that will give you a choice that’s best suited for your budget, risk tolerance and value-added offerings.
Myth 5 We can’t afford a benefit plan for our employees
I can’t tell you what your business can or cannot afford, but people are shocked that I can start a plan for as little as $1,000 per employee or less. Obviously, there are limitations to the coverage levels, but if an employee can coordinate benefits with a spouse, they can minimize their out-of-pocket healthcare expenditures.
How much does a Benefit Plan Cost?
The cost per employee can vary from less than $1,000 to $10,000 or more. It largely comes down to the funding model used and the plan design offered.
It stands to reason that a plan that offers orthodontics and unlimited use of massage therapy is not going to be your least expensive option. Work with the premise that today’s claims represent tomorrow’s premiums. Make your plan design fairly conservative to start with so you won’t be shocked at renewal time and be forced to claw back benefits.
I encourage many first-time plan holders concerned about costs (and who isn’t these days?) to set up a H S A type account or a plan that incorporates an H S A but safeguards against catastrophic circumstances. This gives greater cost certainty from year to year.
Benefit Plan Cost Containment Ideas
Here are a handful of cost containment ideas. A more comprehensive list can be found within my E-book, “16 Best Practices for Creating a Sustainable Benefit Plan”.
Other cost containment principles that I encourage are to include co-pays for employees. Including even a nominal employee contribution helps employees understand that benefits aren’t an entitlement. They aren’t free, and everyone is responsible for ensuring the plan is sustainable for the future.
Tiered Drug Formulary
There is a huge cost difference between the cost of generic and brand drugs. (brand drugs cost more than fives times the number of their generic counterparts). Therefore, smart plan holders offer incentives to employees to ensure they are capturing these savings.
Release of IBNR Reserves
If your company opts for an insured plan, enquire whether the insurance carrier offers an opportunity to get back your IBNR Reserve. This potentially represents a savings of 6-8% off of your healthcare and dental premium. But, again, ask your broker if they offer such a program. But, again, the IBNR is better in your company’s bank than on the insurance carrier’s bottom line.
A disability to an employee can be financially and emotionally devastating. The uncertainty of an employee’s disability situation can be challenging for employers as well. By introducing a disability management component to the equation, you have an intermediary between the employee, employer and insurance carrier. They start working on a case after the fifth day of absence from work, ensuring the proper forms are filled out, the employee is looked after, and a back to work strategy is undertaken.
This ensures a quicker return to work resulting in a happier employee and employer. Therefore, this service should be included with most LTD policies and usually contain LTD premium costs.
Employees need to understand that their use of the plan affects its sustainability. For example, helping employees understand the difference between generic and brand drugs, scrutinising a dental bill, that benefit plans are intended for medically necessary purposes and that their actions affect the future of the plan. By making employees part of the solution, they are a lot more conscious that their actions affect their long term viability.
Hire a TPA
A Third Party Administrator can help mitigate against potential exposure, leverage its volume of business, and provide many value-added products and services that otherwise would be unavailable to many clients. In addition, they bring some clout when dealing with the insurance carriers.
7. Cap Administrative/Commission Costs for 3 Years
One of the challenges with benefit advisor compensation is it’s tied to the overall revenue of the case. Therefore, the benefits advisor who does the worst job at cost containment gets paid the most! That hardly seems fair. The compensation on the case should be fixed for a certain period of time, so the motivation should be to do the best job on behalf of the customer.
There are several other guiding principles to follow and ensure fiscal responsibility and plan sustainability.
Ask your benefit advisor questions and hold them accountable for their recommendations because, ultimately, you pay for the cost of their advice.
Please download any of my eBooks to get a more comprehensive overview of setting up a sustainable benefits plan.
Chris Coulter is the Founder and President of The Finish Line Group. He works with business owners to leverage their businesses to increase their wealth, reduce corporate and personal taxes, create viable succession strategies, enable employee retention strategies and allow them to exit their businesses on their terms.
Chris’ passion for what he does evolve from the mistakes he made in his first business; by not diversifying his risk and not utilizing many opportunities within his business to create significant wealth. Chris found out the difficult way and now educates business owners on avoiding many of his former oversights and ultimately controlling where their finish line ends