Employee Benefits Strategies

Benefit Cost Control

There are two basic methods organizations can use to lower, or more realistically, slow down the increasing cost of benefits:

• change or reduce benefits and
• share the cost with employees

Changing or reducing benefits

Each major benefit area offers some way to change or reduce benefits.

• With health plans, you may need to change from a Preferred Provider Organization, or a Health Maintenance Organization to a High-Deductible Health Plan with a Health Savings Account to reduce costs.
• For time off, the number of holidays that are offered can be adjusted. In addition, organizations can save money by combining categories of leave into a single leave policy. Lastly, reducing or eliminating carry-over of leave can reduce potential financial liability for the organization.
• Finally, with respect to retirement, many organizations have chosen to replace costly defined benefit plans with less expensive defined contribution plans.

Cost sharing

Since employees need the protection that benefits offer and organizations can negotiate group rates that are lower than individual policies, employees still benefit from group plans even if they have to pay for some or all of the costs out of their own pockets.

Let's look at cost-sharing options for health care and retirement plans.

Health plans have seen double-digit increases in health insurance costs that have led many employers to require employees to pay a part of their monthly health insurance premiums.

This cost-sharing:

• helps alleviate the financial burden on employers
• allows employers to maintain the same level of health insurance coverage
• increases the recognition among employees of the true costs of these benefits

Here are some other ways employers may control rising health care costs:

• Increase deductibles and coinsurance. Most health insurance plans require a certain amount of deductible each year before the plan begins to pay. This deductible can be increased and the benefit percentage or coinsurance paid by the plan can be reduced.
• Co-payment, which is a fee for each instance of medical services used, can be increased and introduced on additional services.
• Tiered pharmacy benefits require a higher co-payment for brand name drugs than for generic drugs. Many plans now require that drugs be dispensed from an approved list of drugs, called a drug formulary, to receive the highest level of benefit. Non-formulary drugs may be excluded, or available for a higher co-payment.
• High-Deductible Health Plans combine a high deductible medical plan with an underlying health spending account (HSA) or health reimbursement account. Employees are responsible for payment of health care expenses from their accounts until they satisfy the high deductible required by the plan.

Retirement plan cost sharing may include transferring the responsibility for retirement investing from the organization to the employee, such as with 401(k) plans. The plan can be set up so that all contributions are from the employee. However, it's more common for the organization to also contribute, usually as a match based on a percentage of what the employee invests.