What you need to know to reduce health insurance premium costs
A December 2015 Bureau of Labor Statistics report indicates that wages and salaries averaged $23.06 per hour worked and accounted for 68.7 percent of employee compensation costs, while benefits averaged $10.52 and accounted for the remaining 31.3 percent. Taking up almost a third of the total cost to pay an employee, employers are looking for new ways to reduce these benefits costs. For more detail on how much benefits cost a company, click here to read our blog post about it.
With benefits accounting for 31.3 percent of employee compensation costs, the majority of employers cited cost control as their most important benefits objective according to MetLife.
One of the most common approaches to reducing costs is allowing benefit brokers or consultants to assist with the shopping process. By staying with the same carrier year after year, premiums will no doubt rise. However, by getting quotes from multiple insurance carriers, employers have a greater opportunity to find the same or better coverage for a lower price.
Other approaches to combating these costs lie in the health plans themselves, for instance:
- High deductible health plans (HDHPs) are a common option due to their lower premiums and higher deductibles. Of those companies providing benefits, a PwC survey says 83 percent of companies offer an HDHP. Typically, these types of plans are coupled with a health savings account (HSA) or health reimbursement account (HRA).
- Consumer-driven health plans (CDHPs) allow consumers to use HSAs, HRAs, or other payment options to pay for routine medical expenses instead of paying the high insurance premiums of traditional plans. CDHPs may sound like HDHPs, however a CDHP will not protect patients from catastrophic medical expenses.
- Defined contribution health plans are not actually health insurance plans, but are a way for employees to reimburse themselves for individual health insurance plans that they choose and pay out of pocket. Companies give each employee a fixed dollar amount for reimbursement towards those plans.
- Self-funded plans are also gaining traction with larger employers because if there are less claims than anticipated, the employer may keep the extra surplus of funds in most instances. With traditional plans, the health insurance carrier bills upfront based on expected claims, and if there are less claims, there are no refunds or credits to the employer. Companies can also hold premium dollars until they’re used for claims, allowing them to collect interest.
It’s also anticipated that hospital networks will continue to make attempts to cut out the health insurance carriers entirely and come out with their own health plans. This has already been done by Piedmont Healthcare and Sutter Health. A 2011 survey of 100 hospital leaders by health research firm Advisory Board Co. found that 20% of them intended to market an insurance plan. In 2010, around 10% of community hospitals owned, or were part of systems that owned, health plans, according to the American Hospital Association.
Another approach to trimming costs are health insurance exchanges, over 40 percent of employers say that they somewhat or strongly agree that health insurance exchanges offer new low cost-saving options.