Cost-Sharing Arrangements in Employee Health Benefit Plans

If you’re a business owner who is interested in sponsoring an employee benefits plan, you should know that sharing the cost of a benefits plan with your employees is actually very common. There are several different ways of sharing the cost; there’s certainly one that is right for you.

Why Share the Cost?

Sponsoring an employee health benefits plan is a big investment. It will certainly have a positive impact on your employees, but it does still require financial resources. Coming up with the budget to sponsor a plan can be challenging – especially for companies who are starting out.

The good news is, you don’t have to shoulder the entire cost of the plan. If budget is a factor, it’s better to share the cost with your employees to ensure the plan’s sustainability. This is actually a very common practice.

Sharing the cost is a good decision if budget is a factor, but it’s also a good way to encourage employees to help keep plan costs under control. When employees are paying for a portion of their benefits, they’re more likely to be responsible consumers. This helps trim waste in plan spend and keep the plan affordable for everyone.

Cost Sharing Arrangements

There are several different cost sharing arrangements that can be applied to your benefits plan. They can be used in isolation or together. With cost sharing, it’s important to educate employees about the costs of the plan so they can be smart consumers. This will reduce the costs for the plan and for the employee.

1. Co-Insurance

Co-insurance refers to a percentage of benefit plan costs that an employee pays. A typical co-insurance is 80% – this means you (the employer) pays for 80% of plan costs, while your employee pays for 20%. It applies to every claim and the dollar value varies depending on the cost of the visit or procedure. You can choose to have your employees pay a deductible before the co-insurance begins to pay.

Co-insurance can be different for different benefits. For example, it’s common to have 100% co-insurance for basic dental but only 50% for major restorative dental. Your benefits provider can work with you to find the right co-insurance for each of your benefits.

You can also have different co-insurance levels for different employee groups. For example, senior management or executives may have a 100% co-insurance, while other employee groups have an 80% co-insurance. You can even structure co-pays based on years of service, to reward long-term employees with higher co-insurance.

Sometimes it makes more sense for the employee to pay for the entire premium for some benefits. Long term disability (LTD) is a great example. As long as the employee pays for the entire premium, the benefit is non-taxable when received. If you (the employer) pay for any part of the long-term disability premium, the benefit is taxable to your employee when received. So you may choose to have the employee pay for the entire LTD premium, while you pay for the entire life insurance premium.

When co-insurance is part of your employee benefits plan, the employee share is usually deducted from the employee’s pay. Automatic payroll deductions are an efficient way to collect the employee’s share.

2. Co-Payments

Co-payments are another way for you and your employees to share the cost of employee benefits. A co-pay is a fixed proportional amount that your employee has to pay out of their pocket at the time of their claim/visit.

Co-pays can be required for products or services. For example, some plans have a $5 co-pay per prescription. Co-pays may be required for all products or services, for some products and services or until a deductible has been reached.

3. Deductibles

A deductible is a set amount that your employees are required to pay before they receive coverage, or before they receive a higher level of coverage. It’s a dollar value subtracted from the total amount of their claim before they are reimbursed any money.

For example, if your plan had a $25 prescription drug deductible, the plan would not cover any prescription costs until your employee had paid $25 out of pocket on their prescription. An annual deductible is most common, and it doesn’t have to be paid all at once. It is common for a portion of each prescription throughout the year to go towards the deductible.

If your plan has co-insurance and a deductible, the amount that your employees pay for their first claim will differ from subsequent claims after their deductible is met.

Cost Containment

Sharing the cost of the plan with employees is just one way to keep the plan affordable for your company. It’s also important to focus on containing overall plan costs. There are many ways to do this, and it is especially important to build cost-control mechanisms into the plan at its inception. Here are just a few ideas:

Health Spending Account – A health spending account is a fixed amount available to employees to spend on eligible health and dental expenses. You choose how much is in the account and employees make claims until the account is depleted. It’s not so much a cost containment strategy but instead, a way to have a hard limit on what is being spent. A health spending account is often used in conjunction with traditional benefits. It can be a great way to have cost transparency.

Smart Rx Solutions – Smart Rx solutions are prescription drug plans that support employees with the prescription drugs they need, while containing costs for your plan. It focuses on lower cost, safe and effective drugs along with central dispensing pharmacies that deliver the drugs to your employees. It’s a good way to save money and give your employees convenient access to their drugs.

Supporting Employees

Let’s take a minute to remember why employee benefits matter in the first place. Why are we exploring cost sharing arrangements in order to ensure long-term, sustainable benefits for your employees?

Supporting employees with benefits means healthier, happier employees. This can have a very positive impact on your organization. Healthier, happy employees have fewer absences and lower instances of presenteeism. They are more productive and more likely to go the extra mile for your organization. In short, your employees and their efforts really can impact your company’s success.

Good advice is key

Sharing the cost your employee health benefits plan with your employees is a great option when budget is a factor. There are many ways to do it, and there are some good reasons to do so. Review your options with one of our licensed advisors on the phone or in-person or contact us for a comparison quote.

Whether you’re looking for extended health and dental coverage, disability coverage, or life and critical illness coverage, GroupHEALTH has affordable benefit packages that work as hard as you do.

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