While an employee benefits plan is an essential component of employee compensation, it is also a significant expense for many businesses in Alberta. Typically, the cost of employee benefits goes up every year and the increases far outpace the rate of inflation. Whether you’re a small business or a larger corporation, here are four proven ways to reduce your employee benefits costs without compromising the quality of your plan:
1. Rethink your funding model
Your employee benefits plan can either be fully insured, self-insured or somewhere in between. A fully insured model is fairly common amongst small to medium-sized businesses. However, self-insured or Administrative Services Only (ASO) plans can also be a good fit in certain situations.
A change in the funding model can result in savings, however, one must proceed carefully before making the decision to change it. It is essential to review the claims over the last 3 years and to consider factors such as employee turnover and company size. Also, it’s important to understand the level of risk associated with the funding model you choose. Self-insured plans can be less expensive but the employer may face a significantly higher risk.
2. Review your plan type
Is your employee benefits plan a part of a larger pool or is it a standalone plan? If you’re a part of a “pooled plan”, your benefits plan is a part of a larger pool of clients. The idea is to spread the risk more evenly amongst the pool members. At the same time, your rates largely depend on the overall performance of the pool.
Although pooled plans can work well for small businesses, they are not always the best fit. In certain situations, it is more advantageous to switch to a standalone plan. In addition, standalone plans can offer more flexibility in terms of plan design options and customization.
3. Make smart changes to your plan design
Another way to reduce your employee benefits costs is to review your plan design. Even small tweaks to your program structure can make a big difference in premiums payable. One of the most powerful ways to reduce premiums is to change your plan’s co-insurance. Co-insurance is the percentage of expenses that the insurance company reimburses for each claim. For example, 80% co-insurance on dental means that your insurance carrier will pay for 80% of every dental claim. Co-insurance also encourages employees to participate in plan costs and to be more conscious consumers of benefits.
One way to make up for co-insurance reduction while still saving money is to supplement your plan with a Healthcare Spending Account (HSA). For example, employers may reduce their healthcare and dental care co-insurance from 100% to 80%, and at the same time introduce an HSA of $500 per employee per year. This strategy can reduce overall plan costs while giving more flexibility to your employees.
4. Consider marketing your plan
Marketing your plan is the process of getting quotes from other carriers. We recommend that clients market their plan every 3-5 years. When your existing carrier is faced with competitive proposals from other providers who are eager to win your business, your incumbent provider is more likely to sharpen their pencil as well. At the same time, it’s important to ensure that the quotes you’re receiving are sustainable. Your benefits advisor should do the necessary analysis to ensure that the rates presented by all carriers make sense in the long term.
Following a marketing review, you may decide to stay with your current carrier or to change providers. Either way, it’s prudent to negotiate a rate guarantee for the future. For example, we often negotiate a rate guarantee of a maximum 10% increase at renewal regardless of where the claims end up being. In other words, a 10% overall premium increase at renewal is your worst possible scenario. This type of rate guarantee helps businesses manage budgets while ensuring rate stability.
The Bottom Line
The examples above are only some of the ways to reduce premiums. It’s important to take a close look at your plan so that you can make an informed decision about what kind of changes make sense for your business and your employees. Visit our Employee Benefits articles for more tips on ways to reduce your employee benefits costs.
Lastly, you don’t have to wait until renewal time to review your benefits plan. There is no penalty to change providers or make any sort of plan change prior to renewal. If you haven’t reviewed or marketed your benefits plan in the last 3 years, now is the time to do so. With more than 18 years of experience working with employers of all sizes, we’d be happy to assist you with an objective review of your benefits plan. There is no cost or obligation to have your plan reviewed. Get in touch to learn more.
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This article is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to specific situations. Always consult with professional advisors.