Controlling Healthcare Insurance Costs
Originally published: 08.01.09 by Mike Coyne
Reforms will bring changes for contractors.
Every contractor should be watching what is happening with healthcare costs. If you already provide employee health insurance, you are well aware of how rising insurance premiums affect your business. If you are not providing employee health insurance, you need to learn about cost-effective ways of doing so. The majority of healthcare-reform proposals being discussed by Congress include either a requirement that employers provide coverage or, alternatively, a requirement that employers who do not provide coverage pay additional taxes.
Currently, employers don’t have to provide health insurance coverage to any employee, and if they provide health insurance, the law permits it to be provided on a discriminatory basis. Thus, insurance may be extended only to certain groups or categories of employees.
Unfortunately, while the law permits you to discriminate with respect to health insurance coverage, insurance companies may not permit this. Many insurers require employers, particularly small employers, to offer health insurance to most or all of their employees. They do this to protect against “adverse selection,” the phenomenon of “sick” individuals (heavy users of services) purchasing coverage while healthy individuals do not.
Employers can use a number of techniques, with varying degrees of success, to control
• Requiring employees to pay for a portion of the cost of health insurance. Frequently, the employee’s share is a fixed dollar amount, so if premiums increase, only the employer’s cost increases.
• Sharing the premium on a percentage basis. Thus, if premiums increase, both the employer’s share and the employee’s share increase.
• Providing a fixed dollar amount of contribution per month, passing on to employees the entire cost of increases. Aside from fixing the employer’s cost, this technique offers many other advantages. First, it easily quantifies for the employee the employer’s contribution.
Additionally, it makes employees more aware of the cost of insurance and more amenable to changes in the policy as costs increase. For example, an employee who bears the full burden of premium increases may be more willing to consider alternative types of insurance and changes in benefit structures.
Regardless of the manner in which the employee’s share of the insurance premium is calculated, it is possible to permit employees to make their payments on a pre-tax basis. This is accomplished by adopting a Section 125 plan, also known as a “cafeteria” plan. The plan need not be complicated; it can simply provide that employees can elect to pay for their share of health insurance premiums on a pre-tax basis. The plan need not offer any other options.
Some of our clients have been experimenting with high-deductible health insurance combined with some form of self-insurance. For example, one client recently changed to a policy providing a $1,000 per-person and $2,500 perfamily deductible. The client agreed to reimburse employees for the first $500 of expenses that are not reimbursed due to the deductible. Of the next $500 of expenses, the client reimbursed employees on a 70/30 basis, with the employer reimbursing 70%. For expenses between $1,000 and $2,000, the employer reimbursed on a 50/50 basis. The objective of the plan was to make employees think more carefully about the cost of health services. Our client was pleased to see that employees started questioning fees charged by physicians, laboratories, and hospitals; and demanding lower prices.
In our experience, however, the best way of controlling your healthcare costs is to develop a relationship with an agent who is passionate about the job and willing to work aggressively on your behalf. Good agents will not hesitate to contact the underwriters on behalf of your company if the quotes that they receive are not reasonable. A good agent will save you money before you pay the first premium!
Michael P. Coyne is a founding partner of the law firm, Waldheger Coyne, located in Cleveland, Ohio. For more information on the firm, visit: www.healthlaw.com or call 440-835-0600.
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