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How "Small Group" Companies Provide Quality Health Benefits

I recently read an article in Bloomberg News titled “Benefits are the New Salary”– and with most small employers citing employee benefits as their biggest expense after payroll, they’re right on target.  

Unaffordable Healthcare

I manage benefits for an IT Consulting firm in New York City considered to be a “Small Group” by health insurance companies: less than 50 employees. Since 2005, our medical premiums have risen as much as 24 percent from one year to the next.

Naturally, large groups get much better rates because they’re buying in volume – think of shopping at Costco vs. a Mom & Pop store – and a small employer is going to feel the pain of any increase to a greater degree.  Over the years the company has changed its plan design in order to reduce costs to the company and to absorb as much of the financial impact as possible for our employees.

The Allure of High-Deductible Plans

The trend was clear – if we wanted to pay lower premiums, we had to shift our offering to include plans that the insurance industry was calling “consumer-driven health plans.” It was amazing to see the difference in premiums when your plan included a $1,000 or $2,000 deductible. The savings was so great that we were able to take our savings on premiums and put it into a Health Savings Account (HSA) to cover that deductible for employees – and we still saved over a traditional plan.

As these High-Deductible Health Plans became more popular, the premiums increased.  Where the company once funded an HSA account for every employee up to the full amount of the deductible,  it now had to limit that contribution to a lower set dollar amount per person in order to control costs. Still, everyone was pretty happy because both employer and employees were saving money when compared to our old plans under which only a small co-pay was required at each doctor visit.  These types of plans are now known as “Cadillac” plans – how lucky we had been!

Jump to 2011 – High Deductible Health Plans were becoming the norm, not the exception, and every bit as expensive as the traditional plan was a few years ago – but now with a deductible of several thousand dollars to boot! We had to get creative in order to minimize the expense to the company and our people. More importantly, we needed to offer benefits that would attract and retain our most valuable asset – our employees.

A Sensible Design Emerges

Starting in 2012, we began offering three Health Plans: Gold, Silver and Bronze. The company pays the same dollar amount towards premiums regardless of which plan the employee chooses, with the employee picking up the remainder. This allows our employees to choose the level of coverage for themselves, while still getting the same dollar amount benefit from the company.

In conjunction with these plans, we also offer a Flexible Savings Account (FSA) and/or Health Savings Account so that employees can use tax-free dollars to pay for medical expenses. Here’s my favorite part: we have a Health Reimbursement Arrangement (HRA) in place to cover every employee’s out of pocket expenses over a certain dollar amount, up to a yearly limit.

This really helps an employee who suffers a catastrophic event, needs surgery, or has a family member dealing with a chronic illness.  It’s not too cost-prohibitive for the company because they only pick up the tab after a good part of the maximum out-of-pocket expenses have already been met, which is not often.  Having the HRA reimburse this “tail-end” of the out-of-pocket expenses or deductible allows the employee to also have a Health Savings Account under IRS rules.

You’re Gonna Need a Good Broker

This plan design required a learning process of several years but it was well worth it. My employer and our employees are truly maximizing their healthcare dollars.  Getting these plans set up can be time-consuming, and there are some added costs involved when offering FSA, HSA and HRA plans, but the efforts can result in two benefits for any small business owner: lower costs and happier employees.

If you have a question about “small group” health benefits, feel free to contact me on LinkedIn!

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