Here Are Three Easy and Cost-Effective Ways
Companies of all sizes are looking for ways to trim benefits costs. The challenge of providing a good benefits package for employees without breaking the bank can be overwhelming in today’s economy. Fortunately, employers have several tried-and-true solutions that can help lessen the financial strain right away. Here are three easy ones to consider adopting.
Strategy #1 – Offer Section 125 Plans and Promote Them to Employees
One of the most popular cost-savings strategies employers use today are Section 125 plans.
These allow employers to offer their workers the option of paying for qualified insurance coverage with before-tax dollars. Because these plans reduce the employer’s overall payroll, they can also reduce your payroll taxes, including FICA, Social Security and Medicare matching taxes.
If you already have a Section 125 plan in place and offer personal health or dependent care spending accounts to your employees, be sure you’re proactively promoting and educating employees on how to take full advantage of these accounts.
Focused education and promotion will increase employee understanding of the benefits of flexible spending accounts. This, in turn, will spur participation that will generate tax savings for both you and your employees.
Strategy #2 – Verify your Dependents
Dependent verification offers another great way to reduce employee benefits costs right away. Providing insurance coverage for dependents who are no longer eligible drives up the costs for employers and diverts resources available for other benefits. Typically, dependent verification audits find somewhere between 5 and 12 percent of the dependents enrolled in an employer’s medical plan are actually ineligible to receive benefits. Ineligible dependents can include those who are over the age for eligibility, former employees, family members who aren’t blood relatives, and spouses who are no longer eligible for coverage after a divorce.
Fifty-eight percent of government finance officers surveyed say they use dependent verification as a cost-savings strategy, and 75 percent of them would recommend this option to others.1 Many local governments make dependent eligibility verification part of their annual benefits enrollment process and consider ongoing tracking and monitoring of dependent eligibility good stewardship of their employee benefits plans.
The savings accrued from dependent verification can be significant. For example, the City of Montgomery, Ala., saved more than $1.3 million when it discovered that nearly 9 percent of its covered dependents — 288 people — were ineligible for benefits coverage.1 Smaller governments can also realize savings. Upon an initial audit, a town of 20,000 people found $20,000 in potential savings on its annual $1.2 million employee health benefits budget.1
Strategy #3 – Increase Health Insurance Deductibles and Co-Pays
A third, and final, way to cut benefits costs is to increase deductibles and co-pays on your employee health plan. This strategy can help reduce the overall cost of the health plan for employers.
The percent of employees enrolled in a health plan with at least a $1,000 deductible has more than tripled since 2006.2 In addition, more than four-out-of-five employers say they anticipate raising the share of premiums paid by employees for the next three years.3
Whenever you increase costs for employees, try to find ways to ease the sting. One way to do this is by offering voluntary indemnity insurance. This coverage can help offset the cost of deductibles and out-of-pocket medical expenses for employees by paying lump-sum benefits to policyholders to use however they choose. This kind of supplemental insurance can be paid for by the employer, the employee or a combination of both.
Don’t Cut Corners on Employee Communication
Changes in your benefits plans don’t have to be perceived as a takeaway. Be sure you communicate clearly and often so your employees understand the changes and your reasons for making them. And you can avoid rumors and morale problems by giving employees input whenever possible in the decision-making process. Don’t overlook any short-term savings you can make in your benefits budget right now.
Paul Cariglio has been a district general agent for over 20 years in Central Florida at Colonial Life & Accident Insurance Company, which provides financial protection benefits through the workplace, including disability, life, accident, cancer, critical illness and supplemental health insurance. Contact Paul at (407) 529-5693 or Paul.Cariglio@ColonialLife.com.