The price of an employee benefit plan is usually the most important consideration for organizations looking to sponsor a plan, or looking to move from an existing plan to a new one. Different providers will give you different quotes, and these aren’t always apples-to-apples comparisons. It can be challenging to know how much you will pay – or whether you’re getting good value or not. Fortunately, you have the final say in what a plan will cost you because you will be making the key choices about the benefits you will provide and how (or if) the cost of those benefits will be shared with your employees.
What Affects the Price of your Plan?
Because employee benefits are a type of insurance, you will pay a “premium” to cover the cost of the plan. This premium is based on the level of risk the insurance company will assume. Factors like average age and gender of the workforce, the sector or industry of the employer, and past claims experience (if you have had an employee benefit plan before) will all be used to calculate your premium.
If your plan has higher claims than other comparable organizations then your premium will be higher. If your organization has lower claims than comparable organizations your premium will be lower. For smaller organizations, benefits like Long Term Disability (LTD) and Life Insurance are often “pooled.” This means the claims of a number of organizations are all grouped together (“pooled”) so that the organizations support each other during high and low claiming years. It helps smooth out premiums. If one company has higher claims than the rest of the pool one year, the pool will help moderate the premium increases. If a company has lower claims one year, the rest of the pool will benefit from their experience.
When sponsoring an employee benefit plan, there are several important choices regarding who will pay for the employee benefit plan. Most important when making this decision with your employee benefits provider is to look at the long term, specifically how to ensure that your employee benefits plan is sustainable over the long term.
- Employer Pays – In this scenario, the employer pays for the entire premium for the employee benefit plan. The employee does not pay for any part of the plan. For the employer, the premium is a tax-deductible business expense. This would be the most popular scenario for employees, but it’s also the most costly for employers, and it risks creating a dynamic where employees forget the cost of the plan.
- Employer and Employee Split the Cost – In this scenario, the employer and the employees share the cost of the plan. The employer can choose the cost-sharing percentage, but one of the most common cost-sharing arrangements is 80/20. This means the employer pays 80% of the premiums and the employee is responsible for the remaining cost. In a cost-sharing arrangement, the employees are more likely to care about the cost of products or services, since they are contributing to the cost of the plan. This helps contain the plan costs. A cost-sharing arrangement is often the preferred option for companies sponsoring a plan for the first time. It’s always better to increase the percentage covered by the employer, rather than decreasing the percentage covered if the company finds they can’t afford to cover all premiums. Reducing benefits can often have a detrimental effect on employee morale and retention. Sometimes, in a cost-sharing scenario, the employer will also add a Health Spending Account (HSA) where the employee will have access to a specified amount of money for eligible expenses. The employee’s part of the cost can then be claimed through the HSA.
- Coverage by Coverage – In this scenario, the employer pays for the entire premium for some benefits, while the employee pays for the entire premium for other benefits. For example, the employer may cover health and dental, while the employee may be responsible for Long Term Disability (LTD) benefits and Life insurance.
Look for The Best Value
When looking for an employee benefits plan, it’s important to look for value-added features to get the most out of your benefit dollars. For example, at GroupHEALTH our clients receive value-added services like an Employee and Family Assistance Plan (EFAP), medical second opinion services, and cash for miscellaneous expenses related to a hospital stay.
When choosing an employee benefits plan, to save money, it’s best to leverage group buying power. One way to do this is to purchase benefits from a Third-Party Administrator (TPA), instead of directly from an insurer. A TPA (like GroupHEALTH), can use group buying power to secure favourable rates and value-adds that insurance companies won’t offer to companies directly. You can also leverage group buying power by researching whether any associations that you are a part of (or could join) offer an association benefit plan.
The Cost of Not Providing Benefits
Now that we’ve looked at the costs of providing an employee benefit plan, it’s also important to look at the costs of NOT providing one. The first cost to consider is the impact on your competitiveness as an employer. If you don’t offer employee benefits, another company probably will. Research has shown that employee benefits are highly valued by employees. If you don’t have an employee benefit plan, you may lose some of your employees who move to other companies that do have a plan. You’ll also be one step behind when it comes to recruiting new employees. When looking for employment, prospective workers are more likely to choose a company that has an employee benefit plan, than one that doesn’t.
You’ll also have to consider productivity costs. An employee who does not have access to employee benefits like health and dental may choose not to address physical and mental health issues. This can translate into more absences, more presenteeism and lower productivity. Whatever way you look at it, the costs of NOT having an employee benefit plan can really add up.
Good Advice is Key
Are you looking for more clarity on employee benefits pricing? Do you want value adds and creative solutions to stretch your benefit dollars? 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 benefits packages that work as hard as you do.