Managing your company’s health insurance plan can be frustrating. You want to provide this valuable benefit to your workers. However, the cost of the benefit increases each year. If you don’t take steps to control these costs, they can have a huge impact on your profits.
Worker decisions about benefits
Many of us have worked at companies that offer a cafeteria plan of benefits. As an employee, you’re given a dollar amount of company-paid benefits. You decide how to allocate the dollars to individual benefits. A young family, for example, may use the money for the childcare reimbursement benefit. Someone who has older children may spend their dollars differently.
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Your work force may prefer this system. The employee has more control over the company paid benefits they receive. Some companies have applied this concept to health insurance costs.
The private exchange concept
A small number of companies now offer their workers insurance coverage through private health exchanges. Medica, for example, offers one of these plans. Here’s how they work:
• The employer decides on an amount of company-paid money each employee will receive to purchase health care on the private exchange.
• The company makes a pre-tax contribution into an account for each worker.
• Your employees choose from a group of private insurance plans. If the cost of the plan is more than the company contribution, the worker can pay for the additional cost. Typically, the employee’s payment is made via payroll deduction.
The idea here is that the employee will “shop” for their health care, since they’re only allocated a fixed amount of company-paid funds to pay for coverage.
As an example, a young (and generally healthy) person may choose a high deductible plan. They pay less in premiums, but more out of pocket if they need healthcare. The theory goes that this individual requires less health care overall- so they can accept the risk of paying higher co-pays and out of pocket expenses.
Do employees want this health care system?
NPR recently did a story of the private exchange concept. Their story points out that only 3% of private companies use private exchanges.
A researcher points out that workers can have a difficult time finding out about the costs of their health care. Researching the cost of co-pays and medical procedures is time-consuming. If we choose the cheaper option, are we getting good care?
Another risk is that employees in high-deductible plans may not get the health care they need, if they have to pay a large amount of pocket.
Competition for workers
All companies face competition for productive employees. If you firm uses a private exchange system, your staff may find it frustrating and less attractive. They may decide to leave your firm for another company that offers a more traditional health care benefit.
Do your homework
So, businesses are stuck with higher premiums for traditional health care coverage- and employee resistance to private exchanges. The solution here is to get help, and do your homework. Survey your workforce. Ask them: If you had the option of using a private exchange, would it be more or less attractive to you?
Work with an insurance expert as you move through this process. Using these tips, you can find a way to offer a health care benefit that your employees want- and limit your company costs.
How have you successfully addressed health care costs? I’d love to hear from you.
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
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