A benefits plan is a promise between an employer and employee. You can design your promise to include cost controls, but the most common tactics rely on small changes within the structure of the plan.
Reducing per-person or family maximums, increasing drug plan deductibles, and limiting paramedical practitioners to a brief list are often suggested as cost control measures. Employers can also be tempted by different carrier proposals that seem to offer savings. But to lower the costs of your plan and gain genuine control over costs, the benefits promise must be changed on a fundamental level.
The costs of a benefits plan consist of: 1) insurance premiums to protect against catastrophic loss; 2) claims payments; and 3) administration fees. These three components all impact plan costs, however the largest component is claims payments. Rather than employing short term tactics like changing carriers or tweaking maximums, employers need to assess their options for long term cost control.
Short Term Savings are Ineffective
Shopping a traditional benefits plan from carrier to carrier may lower your costs – in the short term. However, your plan costs will increase back to previous rates (at least) in the long run. Benefits plan rates over time are set to allow the carrier to recoup claim costs paid out, plus administration costs and profit.
Your new carrier will likely only give you preferred rates for the first year or 24 months, in order to secure your business. After the discounts expire, the carrier will use your claims volume to raise your prices once more. Moving from carrier to carrier may provide savings in the short term , but this method is not sustainable, and expends your valuable time and effort to execute.
Repeated moves between carriers require reviewing proposals, re-enrolling employees, learning new administrative procedures and systems, and all the associated extra steps each time.
How to Control Costs for the Long Term
Instead of shopping a traditional plan around to different carriers, the most effective way to control the costs of your benefits plan is to design it with cost control measures in place from the beginning. This is a long term strategy that will ensure you can maintain control over your plan, and your budget.
This can be achieved with a hybrid plan design – a plan that allows much greater flexibility for small and mid-sized businesses than conventional packaged benefits plans offer. Hybrid plans combine the advantages of both conventional plans and Healthcare Spending Accounts (HCSAs).
The conventional plan provides the basic benefits: usually a prescription drug benefit, key insurance coverage such as life insurance and critical illness insurance, and possibly a limited dental benefit. With a carefully defined “core” benefit, the potential for large renewal increases year over year is drastically reduced.
The HCSA portion of the plan wraps around the drug and dental benefits to provide for additional expenses like vision care, physiotherapy, or orthodontia. HCSAs also allow employers the flexibility to designate different amounts for the various groups within their organization, and then compensate according to business goals and philosophy. The employer has full control over this component of the plan, allowing for careful budgeting every year.
This hybrid plan design approach provides tax advantages to business owners, and allows employers more control over benefits costs. It’s also great for employees (click here to find out more).
Choosing the long term solution will give you more control over the benefits promise you make to your employees, as well as reduce unnecessary costs. Hybrid plans combine the advantages of conventional plans and HCSAs to provide a more flexible, cost-effective solution.
>> As a business owner, when you tire of the short term treadmill, invest 10 minutes to learn about an employee benefits plan that provides long term control. Contact us today for more information.
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