If health insurance is costing your company from $1,200 to $1,500 per employee annually, you're not alone. Such a tab is typical -- and it is bound to grow. But you needn't simply grin and bear the surge in insurance premiums. There are ways to shrink the size of your health insurance bill without compromising the well-being of your employees.
Here are five prescriptions to save you money on health-care costs.
1. Decide whether to provide health coverage and, if so, what type. Should you rely on traditional health insurance through a commercial carrier or offer alternative care through a community health plan? Should you go the "Cadillac" or "Pinto" route? Regardless of what you decide, there will be trade-offs. If you decide that it's unnecessary to provide any health coverage, you won't be alone. In a 1981 survey of INC. subscribers, 21% of the respondents reported that their companies do not carry group insurance. If you provide benefits but opt for alternative health care, such as that offered by the growing number of one-stop health maintenance organizations (HMOs), you may get objections from employees who prefer to see their own doctors.
A "Cadillac" comprehensive plan will cover a substantial share of all hospital expenses, all physician fees, laboratory tests, X rays, and out-of-pocket expenses for prescription drugs, dental treatment, and even psychiatric care. But its cost may be four or five times the cost of a "Pinto" catastrophe-only plan, which is hospital and/or major medical. A company with a low-risk environment and young, healthy workers (i.e., average age under 40) could get by on a less-expensive, higher-deductible plan, while a high-risk company comprised of primarily older workers or those who have a history of illnesses and disability would be better off with a costlier, comprehensive policy.
Another key consideration is the maximum "out-of-pocket" expense an employee or family can afford. Under a plan with a $100 deductible plus $400 in co-insurance, or shared cost, the single employee would pay no more than $500 while a family of five could be liable for $2,200 a year because each individual is subject to the full co-insurance amount. If your company's employees are mostly married with families, a dollar limit on family out-of-pocket costs would restrict the liability and ultimately lower the employee's cost dramatically. On the other hand, with the exception of first-dollar (no-deductible) accident expense benefits, adding first-dollar hospital, surgical, and X-ray benefits may end up costing more in premiums than the actual level of benefits.
If your company provides health benefits, is required to pay the minimum wage, and has more than 25 employees living in the service area of a federally qualified HMO, you may be required by law to give employees the option of joining an HMO. HMOs are groups of local health-care providers, including hospitals, that operate on a prepaid principle with few or no deductibles. There are about 250 such organizations in the United States offering comprehensive medical services, generally under one roof. Some employees may prefer one-stop treatment, where they are guaranteed access as well as automatic coverage without having to submit claim forms. In some parts of the country, HMO premiums may be cheaper and even offer more benefits than conventional coverage.
2. Shop for a cost-conscious carrier. The discrepancy in price between essentially identical plans can be as much as 20% to 30%. For example, a mail-order company in Washington, D.C., with 14 employees, paid $1,580 in monthly premiums for a group life, health, and major medical plan before switching to another carrier that offered similar benefits -- for $4,200 less a year. Because it required less paper-work, the company saved additional money and applied the windfall toward a dental plan and a money market fund, with $800 to spare.
How do you determine who offers the best deal? Comparison shop the way you would on any other business expenditure. Ask other employers in your area and industry who provides their coverage, what kind of services they are getting for the money, and whether they are satisfied. Contact Blue Cross and Blue Shield and commercial health-insurance companies. Ask prospective carriers for a list of references and find out which carriers are most receptive to designing a plan tailored to your company's needs.
Alternatively, check with brokers, agents, and insurance consultants who are familiar with the marketplace. The advantage of having them do the shopping is that they know offerings, know how to read the fine print in policies, and can help you design a benefit package reflecting your needs, within your budget. The trade-off is that you'll have to pay a percentage or fixed fee. But if your bill is trimmed sufficiently -- say 10%, from $60,000 a year to $54,000 -- a $2,500 fee will still put you ahead.
Before retaining a broker, make sure the firm specializes in employee benefits. Get a listing of its clients to contact and samples of work done for other small businesses to appraise its track record. Find out whether the broker will act as an intermediary between your company and the insurance company once the plan is purchased. Check the broker's capabilities in handling claims and administrative procedures that can save you time and money.
Don't hesitate to change carriers to get a competitive rate, assuming the benefits are comparable. And keep tabs on the company's own financial health. If a carrier lost $100 million on its health insurance operation in the past year, for example, current policyholders such as you are going to absorb part of the loss through future premium increases.
3. Consider increasing deductibles. On many standard major medical plans, increasing an individual's deductible from $100 to $200 can save from 10% to 20% on premiums, while a $500 deductible can save 30% or more. The trade-off is whether your employees can afford or will accept the idea of absorbing more of the cost of their health benefits. That is a critical question but also a prime cost factor. It can be argued that if employees are responsible for more of the cost, they won't be frivolous about using the health-care system unnecessarily.
Although it may discriminate against unhealthy workers, one option is to offer rebates to employees who use little health insurance. Increase the deductible, setting aside the difference in a reserve fund. Any employee who spends less than the deductible amount within a given year or years gets the difference when he or she resigns or retires. Alternatively, the savings could be passed along through a direct cash payment or as a fringe benefit.
Another approach is to raise the shared portion for employees from a standard 20% of the first $2,000 of expenses to 20% of the first $5,000.That can save from 5% to 10% on premium costs. Since few employees spend $5,000 on medical bills in any given year, the added risk is negligible.
4. Make a pact with a preferred provider. A new entry among alternative health-care plans, preferred provider organizations (PPOs) exist in 12 major cities from Minneapolis to Los Angeles. Dealing with a preferred provider simply means that you get a preferred rate, in exchange for agreeing to direct your employees to particular physicians and hospitals. Co-payments and deductibles are generally waived if employees stick to the health-care providers participating in the plan. If they select other doctors or hospitals, care is covered but there are co-payments and an annual deductible.
5. Link up with other employers. If you employ fewer than 50 people, consider forming or joining a small-employer pool for purchasing health-care coverage. It may help you get a good package at a competitive rate. The larger your group, the better your bargaining power. You can form a pool on either an industry or a geographic basis. Conventional carriers can also help you find other groups to join. But remember that a group's experience -- good and bad -- will affect your costs, especially on an experience-rated premium based on the group's previous claims