Healthcare hacks for employers
Options for employers
More than 147 million Americans have health insurance through their workplaces, according to the Kaiser Family Foundation, which means rising costs are particularly painful for employers.
On average, healthcare expenses represent nearly eight percent of operating expenses, according to the Society of Human Resources Management, or $8,699 per employee.
The percentage has continued to rise over the years, faster than both worker’s wages and inflation. That’s why many employers have taken steps to cut down their healthcare expenses, particularly as the Cadillac Tax was expected to go into effect in 2020. The fate of that tax remains unclear as President-elect Donald Trump takes office, but House Speaker Paul Ryan also has a plan to tax high-cost, “luxury” health plans.
Minimal essential coverage
Providing a “minimal essential coverage” (MEC) plan option to employees is a fairly straightforward way to reduce healthcare spend. These plans, often called “skinny” plans, typically do not cover hospitalizations or other major medical expenses.
MEC plans do not meet the minimum value standard required of employers by the Affordable Care Act. Employers who only offer these “skinny” plans would be fined $3,000 for any employee who obtains a subsidy on the exchange, though this fine could disappear if the ACA is repealed.
Another option is to offer both affordable, comprehensive coverage and a MEC option. This protects the employer and employee from fines under the ACA, and provides health plan options for both younger, healthier employees who want cheaper coverage, and more traditional plans for employees who want comprehensive coverage.
That said, employers who offer MEC plans should make clear to employees what the MEC plan does and does not cover.
Raise the deductible and offer an HRA
Another option is to raise deductibles in conjunction with a health reimbursement arrangement. Sometimes called a health reimbursement account, an HRA is a tax-advantaged account funded by the employer that reimburses employees for out-of-pocket medical expenses.
HRAs are similar to health savings accounts but differ in a few key ways. Only employers can fund HRAs, and the funds typically revert back to the employer upon employee termination. HRAs are not required to be coupled with high deductible health plans, but often are, which typically lowers premiums.
In many cases, providing a higher-deductible plan and reimbursing for medical expenses can be cheaper than offering more expensive plans.
Move to a private exchange and defined contribution
Many employers have moved to a private exchange benefits model in an attempt to mitigate rising costs. Offering the traditional one or two health plans options opens employers up to large annual increases, while a defined contribution can reduce the rate of cost increases.
Having multiple plan choices — often up to six or more — reduces pressure on the employer to pick one plan for all employees. Multiple plan structures ensures an option for every employee’s budget and health needs.
This strategy is expected to expand under the coming Republican administration. Both Paul Ryan and Rep. Tom Price, Trump’s pick for the Department of Health and Human Services, have published proposals to encourage employers to switch to a defined contribution approach.
A key aspect of this approach is how it is positioned by the employer. The benefit emphasized is the dollar amount provided to spend on the private exchange, not the plan design of one or two plans. Many employees will prefer cheaper plans and more take-home pay, which can be accomplished more effectively with the defined contribution model.
The health insurance market continues to evolve rapidly, and employers will benefit from continuing to evaluate their current benefits strategy. Many employers have more options than they realize, and moving away from the traditional benefits package can save money on health coverage while maintaining quality benefits as a recruitment and retention tool.
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