In our last blog we provided some insight into payroll deduction, and how it can be advantageous to employers who want to minimize benefits plan costs by sharing with employees. Today, we are addressing the topic of co-insurance.
With co-insurance, the claimant and the benefits plan share the costs associated with claim expenses. The benefits plan reimburses a certain percentage of the costs for specific components of the plan (e.g. 80% for prescription drugs, 50% for major restorative dental services), and the claimant is responsible for the other portion (e.g. 20% for prescription drugs, 50% for major restorative dental services).
The advantage of this approach is that the employee’s portion is directly related to what they use. They do not pay for the healthcare that they do not need. If the claimant needs the services of an optometrist but they do not need prescription drugs, they would pay the appropriate percentage for the optometrist costs they incurred, but not for the prescription drug component of the plan.
Every employer’s benefits plan varies, and plans can be customized to cover different percentages according to the employer’s wishes. Different groups can have different levels of reimbursement. For example, the employer may want to increase the reimbursement for senior occupational roles (e.g. executives receive 100% payable while all other employees receive 80%), or provide increasing reimbursement dependent on years of service.
Increasingly, benefits plans are not reimbursing the claimant for 100% of eligible expenses. The Toronto Board of Trade’s 2012 Benefits and Employment Practices Survey reported that only 44% of plans pay for 100% of prescription drug costs. This can be compared to the 50% of benefits plans that paid the full cost of prescription drugs in 2007. The most common co-insurance plans offered 80% payable for prescription drugs. As we covered in our last post, employers are shifting toward a cost-reducing, shared benefits arrangement rather than reimbursing all eligible expenses in full.
When cost sharing is based on co-insurance, the greatest cost impact falls upon those claiming the most under the benefits plan. It also means that employees are much more aware of the costs that are associated with their benefits plans. Employees are motivated to participate in cost saving measures like obtaining estimates from different service providers, because they are paying out of their own pockets for a portion of the charges.
Co-insurance is an increasingly prevalent method for benefits plan cost sharing. It is flexible, reduces costs, and allows people to pay for what they use.
Next up in our cost sharing series will be an article about annual deductibles.