A Recipe for Benefits Soup: Health Coverage, aka the Meat

We have the meats.

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A company’s health benefits are typically the largest expense in its benefit package: think of it as the steak in stew, the pork shoulder in green chile, the clams in clam chowder. It’s also the component that can most dramatically impact employees’ lives and wallets. 

In order to determine the best health benefits for your company, you need to understand how different offerings can meet your company’s needs. So first, assess those needs! Talk to your employees. Let them know if they have medical requirements (such as in-network access to a specific physician, a drug that needs to be covered at a reasonable rate, or upcoming surgery), they should communicate that to you or your broker prior to open enrollment. For a January enrollment, that means broaching the subject of health coverage with your employees in August, so there’s enough time to get quotes on coverage that addresses those needs.

It’s also important that employers can recommend the best health care plan for every employee. If possible, it’s best to offer more than one plan and provide guidance for your staff to help them choose the one that’s right for them.

The Process

Your broker will initially collect a census. At that time, they should ask an employer if there are specific issues the coverage needs to accommodate. They’ll get a sense for budget,  funding, risk tolerance, and the types of plans that will be most beneficial for a company. Once they have the census, they will get quotes for your group. This process can take a couple of weeks to complete, so make sure you leave enough time or your open enrollment period may be rushed. For coverage beginning January 1,  a broker will generally collect quotes in September, giving an employer ample time to select a plan, negotiate, and sign contracts before informing staff of their options in November.

Plan Design

Below are a few examples of why a business—or its employees— may choose one plan over another. As a business owner familiar with your staff’s needs, you can answer employee questions about the pros and cons of each plan given their individual requirements.

Upcoming Surgery

Best Plan: Copay or high deductible health plan (HDHP)

If an employee is planning on having surgery, they’re generally going to be better off on the plan with the lowest out-of-pocket max. The out-of-pocket max is the cap on healthcare expenses in a given year (as long as the employee stays in network). 

Super-Healthy, High Income

Best Plan: HDHP with health savings account (HSA)

If an employee is young and healthy, a HDHP is  a good option. We recommended individuals use an HSA to pay for any medical expenses they incur during the year. HSA funds roll over from year to year, so they are perfect for savers. Also, HSAs are funded by pre-tax dollars,  so they work well for high-income earners.

Diabetic or Other Chronic Illnesses

Best Plan: Copay

People with chronic conditions generally benefit from copays for prescriptions and office visits. Employees enrolled in an HDHP pay the contracted rate for prescriptions and office visits, which may be much more expensive than the copay. 

Contribution Strategy

When your insurance expert mentions contribution strategy, they’re asking how much your employees will pay for their benefits. This ranges from no employee contribution (0 percent) to having employees pay for the full amount of the benefits package (100 percent). In general, the largest factor when determining contribution strategy is how much the employer pays towards the plan—the contribution strategy is the balance after the employer cost—though there can be other considerations. For example, the Affordable Care Act (ACA) limits employee contributions for companies  employing more than 50 full-time workers; certain carriers also have contribution requirements and may require a minimum 50 percent contribution. 

We typically recommend an employer offer at least two health plan options: an HDHP plan that is HSA qualified and a copay plan. Typically, the HDHP will be an employer’s least expensive option. We also recommend contributions increase for more expensive plans; this is called a buy-up option.

The Carrier and Network

The provider network is essentially the number of health care providers that have a contract with any particular plan. An in-network provider has a contract with the insurance company and cannot “balance bill” the insured (charge the employee for what insurance doesn’t cover). An out-of-network provider doesn’t have a contract, and the insurance company may pay substantially less than what it would pay to an in-network doctor.

Network restrictions can be complicated. For example, patients may see a provider group (a particular hospital, medical center, or even a specialist practice) that is in network, even though the group may have specific health care providers who are not in the plan’s network. We’ve also seen a growing trend of emergency room doctors who are employed by out-of-network provider groups, but who work in an in-network emergency room. In this situation, employers need to work with their broker to ensure they’re negotiating in-network rates for individual providers. 

The broader the network, the higher the cost of the plan. Employers should understand what networks will work best for their staff within budget constraints..

How to Fund Your Plan: The Different Options
Fully-Insured Plans

This is the traditional funding mechanism, and is generally the most expensive. A premium is charged for each employee and the carrier covers individuals according to the contract. Fully-insured plans are subject to all state regulations, which generally add cost to the plans, but they may also have additional protections for plan participants. The employer doesn’t receive any reward or benefit for wellness programs or direct primary care. 

Self-Funded Plans

This is the most flexible and customizable plan type. It’s also usually the cheapest plan, but it can be riskier depending on stop-loss amounts. (A stop-loss policy is additional insurance that protects an employer from catastrophic losses. Under this coverage, the insurance company is liable for losses over the deductible, or stop-loss—the lower the amount of the stop-loss, the higher the cost of the policy.) Self-funded plans allow businesses to adjust the plan design, pharmacy benefit, and stop-loss amount. Self-funded plans also allow for the most creativity in claims management, because the employer pays for claims as they come in. Direct primary care and wellness programs can be great ways to manage costs on this type of plan. 

Level-Funded Plans (The Hybrid: Managed Risk with Potential Refund)

A level-funded plan is a type of self-funded plan that limits the risk to employers by having a level monthly premium with (usually) no additional risk to the employer if they terminate coverage. If a business runs well on a level-funded plan, it may be able to get a refund of all or a portion of their claims fund. As with other self-funded plans, direct primary care and wellness programs can be used to limit costs.

Participation Requirements

Finally, you’ll want to set participation requirements for your employees. Businesses with over 50 full-time employees need to make sure they pay attention to ACA requirements regarding this. Employers must offer coverage to employees working more than 30 hours per week, so you may want to set up a look-back period to determine who meets that threshold. You should also set up employee classes (i.e. salary vs. hourly or part-time vs. full-time) to ensure you are following all non-discrimination requirements. Employers may violate these requirements  if they only cover 100% an executive’s plan, or only offer coverage to certain employees. Smaller employers (under 50 employees) must also make sure they’re following non-discrimination rules. The simplest way to avoid problems? Offer coverage to all employees at the same cost. 

Ronnie Meyers co-founded FH Insurance with over five years of experience in employee benefits. Prior to working at FH Insurance, Ronnie was an Account Executive with CBIZ, a large national agency where she specialized in small and mid-size local clients (though she’s worked with clients that have as many as 50,000 employees). She graduated Magna Cum Laude from the University of Colorado with degrees in mathematics and economics as well as actuarial certification. Ronnie is passionate about using her mathematical skills to ensure her clients obtain the best rates and plan designs.

What do you want to know about insurance? Email your questions (and thoughts, opinions, and experience—anything, really) to askus@diningout.com

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