Employee Health Care Costs: How Much Is Too Much

While the HR world is buzzing over changes to health care reform and the changes that slowly find their way into our benefit plans, the cost of health care coverage has continued to steadily increase. Employers, still facing the affects of a recession, are seeing substantial increases to their annual premiums. These increases translate into more financial responsibility placed upon the employee in order to provide them with rich benefits. As employers, we have the responsibility to research how much of an increase the employer can handle and then how much of an increase our employees can bear. As employers, we have to ask ourselves, how much is too much?

How has the recession impacted your employees? What cuts or changes have already been made? Have your employees experienced cuts to wages, frozen wages or cuts to other benefits? All of these issues must be at the forefront when making future plans for your benefit package.

A great place to start is with benchmarking data. This information can be obtained by contacting your benefits agent. They should be able to provide information on what other similar companies are providing their employees and how your plan measures up. Are your employee premiums too high? Is your deductible too low? What about the type of prescription drug coverage you provide? The ultimate goal from benchmarking is to see where you might be able to cut back and where you shouldn’t.

Keeping your employees happy with their benefit package is a key factor in the decisions you make. You have to take a look at your employee population to see where their priorities lie. For instance, is keeping the premium the same as the prior year going to produce a positive reaction? If so, then you may consider alternatives for dispersing your annual increase. Some alternatives may include;

  • Increasing your plan deductible
  • Increasing premiums for dependants
  • Increasing emergency room co-pays

Many of these alternatives will offset the cost of your premium increase, and if you offer a flexible spending account, many of these expenses are eligible for reimbursement using tax-free dollars. If your employee population is not as concerned about the cost of the premium as they are with the richness of their benefit package, then you will probably have an easier time passing along the increase in premium directly to your employees.

Another alternative to continually incurring a premium increase is to go with a self-funded option. Taking on the risk and eliminating administrative costs could be your company’s answer to avoiding higher premiums. Self-funding has proven to work for companies with a higher number of benefit eligible employees and self-funding makes it easier to predict what the exposure will be based on prior experience. Self-funded plans have been very successful for larger companies. However, success can only be measured after self-funding has been in place for a minimum of two years.

As health care reform hovers on the horizon, we are unable at this time to predict how it will affect benefits for the future. At renewal time, it’s important that employees are aware of the rising premiums faced by their employers. Maintaining employee awareness should help your employees see that health care coverage is a positive offering, and while there may be an increase in cost, there is a reason it is referred to as a benefit.

Lisa Rothberger is director of Human Resources for JARC, a non-profit organization based in Oakland County providing residential and support services to people with developmental disabilities. She can be reached at [email protected]. JARC is a 2010 winner of Metro Detroit’s 101 Best and Brightest Companies to Work For.

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Richard Blanchard
Rick is the Managing Editor of Corp! magazine. He has worked in reporting and editing roles at the Port Huron Times Herald, Lansing State Journal and The Detroit News, where he was most recently assistant business editor. A native of Michigan, Richard also worked in Washington state as a reporter, photographer and editor at the Anacortes American. He received a bachelor of arts from the University of Michigan and a master’s in accountancy from the University of Phoenix.