Business

Healthcare Benefits: 5 Savings Strategies for Employers

Employers today face huge financial challenges in providing healthcare benefits to employees.

Not only are healthcare costs rising across the board, but now there are increased regulations for

employers. In particular, with the passage of the Patient Protection and Affordable Care Act (PPACA) in

2010, there a new package of guidelines for employers to sort through. Here are a few examples of the

new challenges found in the PPACA:

 Employers must provide health insurance benefits to all full-time employees.

 Benefits should not cost an employee more than 9.5% of his/her income (Tabar, 2012).

These and other factors have led to the rising costs of providing healthcare benefits.

The purpose of this report is to highlight five strategies that some companies are using to save on

healthcare benefit costs.

1. Offer Flexible Benefits

One popular strategy is flexible benefit plans. Martha Peak calls these “cafeteria” options because

employees are given a set amount to spend and allowed to choose from a menu of options. If an

employee chooses a more expensive plan, they can contribute some of their own money to add those

features. (Peak, 1990)

For example, the Quaker Oats company has been providing flexible benefits since 1983. According to

Stern, Quaker allocates $400 in benefits for each employee. Stern writes that employees “can choose to

take it in taxable cash, use it to improve their benefits coverage, or keep it in a tax-sheltered flexible

spending account to pay for out-of-pocket medical expenses.” (Stern, 1991)

Why Flexible Benefit Plans Work:

According to Agho, flexible benefit plans help both the employer and employee:

 Advantage to Employer: Fixed dollar amount for healthcare

 Advantage to Employee: Customizable benefits

Flexible benefit plans are a win-win situation for both the employer and employee. For the employer,

flexible plans set a fixed dollar amount the company will spend on healthcare. This saves the company

from paying for benefits that employees do not need or use. On the other hand, for the employee,

flexible plans allow employees to customize the health care plan to their needs, so they get exactly what

fits their situation. In other words, the employee has control over what benefits they get. (Agho, 1995)

So far, the idea of flexible plans is catching on. Peak writes that “A survey by Noble Lowndes found that

an overwhelming 93 percent of cafeteria plan participants prefer their new benefits plan.” Peak adds

that employees “are willing to cost-share if they can pay for what they want – and only what they want.”

(Peak, 1990)

HEALTHCARE BENEFITS: 5 SAVINGS STRATEGIES FOR EMPLOYERS 2

2. Purchase Cooperative Memberships

Cooperatives are member-owned health organizations that complete with traditional health care. An

example of a cooperative is Medi-Share, a Christian cost-sharing ministry, where members “share” each

other’s medical bills (Christian Care Ministry, 2015).

Why co-ops are inexpensive:

The advantage of co-ops is that they are not generally for profit, and thus save on administrative costs.

Because of this, premiums tend to be at least average, if not lower. According to Modern Healthcare,

the cost savings increases the longer a co-op is in existence, because co-ops is are continuously working

to lower costs (Modern Healthcare, 2013).

3. Tie Premiums to Income

Another strategy is tying premiums to income. Simply put, this means that higher salaried employees

pay more in dollar amount than low salaried employees – this is because the amount of money paid by

the employee is based on percentage.

Q: Why tie premiums to income? A: Because of the “9.5% of income” clause.

Cook writes that “under the Patient

Protection and Affordable Care Act,

employers face penalties if they offer

coverage to their workers that costs

them more than 9.5 percent of their

incomes” (Cook, 2013). In order to stay

within the law but still save money on

health insurance, many companies are

choosing to base the amount of an

employee’s premiums on a percentage

of their salary.

An illustration is General Electric who,

according to Andrews, divides its

thousands of employees into seven

salary ranges, then pays a certain

percentage of their premium. For

example, “In one GE option, a worker

making less than $25,000 a year pays

$631 annually for individual coverage

while someone who earned $150,000 or

more would pay $2,151.” (Andrews,

2011)

$10,000.00

$30,000.00

$50,000.00

$70,000.00

$90,000.00

$110,000.00

$130,000.00

$150,000.00

$170,000.00

Salary of $25,000

Salary of $150,000

GE Health Insurance Payment by Employee, Based on Salary

Income Health Insurance Payment

HEALTHCARE BENEFITS: 5 SAVINGS STRATEGIES FOR EMPLOYERS 3

4. Offer a high-deductible health plan combined with a health

savings account (HSA)

Another good strategy is to offer a high-deductible health plan, combined with a health savings account

(HSA). For example, in an article by Andrews, we read about a small family-owned bagel business which

offers their employees a health care plan with a $5,000 deductible. However, the owners of the

business also deposit $200 each year into employee’s HSA accounts. Even with the $200 deposit into

HSA accounts, the company has still saved significantly. (Andrews, 2013)

Advantages to Employers:

According to Vanguard, this approach provides a couple of significant advantages to employers:

 Higher deductible health plans lower the price of health care premiums (Vanguard, 2015).

 HSAs are tax-deductible, so they reduce payroll taxes (Vanguard, 2015).

Advantages to Employees:

Lower premiums for employees. For example, the aforementioned bagel company reduced the

employee premium payment from $173 to $43 a month (Andrews, 2013). Employees will likely be eager

to save on monthly expenses.

Cash in HSA accounts. The advantage of HSA accounts is that they are more permanent and rollover

funds (Jacobs, 2014). In other words, if an employee adopts a healthy lifestyle and doesn’t have any

healthcare costs this year, the money not used up this year is added to next year’s fund. Theoretically, a

healthy employee could save thousands of dollars, over time.

Savings for Employees: Bagel Company

What each employee paid (per year) Before $173 x 12 = $2,076

After $43 x 12 = $516

Initial Savings $1,560

+ HSA Payment + $200

Total Savings $1,760

HEALTHCARE BENEFITS: 5 SAVINGS STRATEGIES FOR EMPLOYERS 4

5. Offer a Wellness Program

Another strategy is to offer a company wellness program. According to a survey from the International

Foundation of Employee Benefit Plans, “more than 80% of organizations in the United States and

Canada offer some kind of wellness initiative, and more than 60% plan to increase their wellness

budgets over the next two years” (O’Rourke, 2015).

What is a wellness program?

A wellness program offers incentives to employees who adopt healthful lifestyles. For example, Regions

bank uses a company called Virgin Pulse that offers “rewards for getting active and staying active”.

Employees can earn up to $425 for exercising a certain amount of miles. (Regions, 2015) This rewards

graph from Regions’ website describes the reward levels:

Level 1

(Up to 5,999 HealthMiles)

New Enrollees receive a free MAX accelerometer

(a $35 value)

Level 2

(6,000 to 11,999 HealthMiles)

$60.00 Reward

Level 3

(12,000 to 23,999 HealthMiles)

$90.00 Reward

Level 4

(24,000 to 35,999 HealthMiles)

$125.00 Reward

Level 5

(36,000+ HealthMiles)

$150.00 Reward

Total Upon Reaching Level 5 $425 Reward*

Why use a wellness program?

A major reason to implement a wellness program is to reduce healthcare costs. Bolch writes that a

survey conducted by Mercer University showed that companies saved about $2-3 for each dollar spent

on a wellness program within the first 3-5 years. Bolch highlights several companies who have made

significant savings after implementing wellness programs:

 Nationwide Mutual Insurance’s health costs were 27 percent lower than other companies in the

same industry.

 Baylor Health Care System saved $2.44 for each $1 invested in their wellness program.

 Cuso Financial Services lowered their premium by 13% for two years. (Bolch, 2012)

From this article it seems that two keys to effective wellness programs are to:

1. Focus on practical activities that employees must perform.

2. Offer measurable cash incentives.

HEALTHCARE BENEFITS: 5 SAVINGS STRATEGIES FOR EMPLOYERS 5

Conclusion

While the costs of healthcare continue to rise, there are cost savings measures which can significantly

ease the blow of these challenges. Many companies are working hard to provide creative solutions.

Once again, these companies reduce the cost of premiums by:

 Setting a fixed spending amount for each employee

 Giving the employee greater control over their health benefits

 “Sharing” the expense of medical bills through a co-op

 Using high deductible plans

 Providing HSA’s to employees

 Increasing the amount paid by employees

 Improving the overall health of employees

HEALTHCARE BENEFITS: 5 SAVINGS STRATEGIES FOR EMPLOYERS 6

Works Cited

Agho, A. O. (1995). Flexible benefits plans. Hospital Topics, 73(1), 38. Academic Search Complete.

Andrews, Michelle. Large Companies Are Increasingly Offering Workers Only High Deductible Health Plans. (2013, March 26). Kaiser Health News. http://kaiserhealthnews.org/news/032613- michelle-andrews-on-high-deductible-plans-and-large-employers/

Andrews, Michelle. Some Companies Base Premiums on Employee’s Salary. (2011, December 5). Kaiser Health News. http://kaiserhealthnews.org/news/michelle-andrews-on-premiums-based-on- salary/

Bolch, M. (2012, July-August). Wellness works: well-designed wellness programs are proving to help not only employee waistlines but company bottom lines. Here is a look at some innovative programs that are working. Financial Executive, 28(6), 26+. Academic Search Complete.

Christian Care Ministry. (2015). https://mychristiancare.org/medi-share/

Cook, Dan. More employers tie premiums to salary levels. (2013, July 5). Medicare Is Simple. http://medicareissimple.blogspot.com/2013/07/more-employers-tie-premiums-to-salary.html

Middle of the pack; Co-op plan premiums suggest good long-term prospects. (2013, July 15). Modern Healthcare, 43(28), 0010. Academic Search Complete.

O'Rourke, M. (2015, April). Expanding workplace wellness. Risk Management, 62(3), 52. Academic Search Complete.

Peak, Martha H. Holding down healthcare costs. Management Review Apr. 1990: 1. Academic OneFile.

Regions. (2015). Virgin Pulse. http://www.regions.com/benefits/virgin_healthmiles.rf

Stern, L. (1991, March). What's new in flex benefits: last year the number of companies adopting flex plans grew by about 20 percent. Business & Health, 9(3), 14+. Academic OneFile.

Tabar, P. (2012). Rethinking Employee Benefits. Long-Term Living: For The Continuing Care Professional,

61(9), 16-20. Academic Search Complete.

Vanguard Group, The. (2015). Health Savings Accounts (HSAs). https://personal.vanguard.com/us/whatweoffer/overview/healthsavings