Recently we discovered that a large employer was allowing employees on non-medical leaves of absence (i.e. sabbaticals) the opportunity to maintain benefits while on leave by paying for the benefits themselves. Had there been a claim of any kind, the plan carrier would not have paid it.
For years, one of our clients was paying for the employee’s portion of the benefits plan, however, if an employee wanted family coverage, the employee would then have to pay the additional cost. Unfortunately, the plan became unaffordable as only families with high claims opted in.
There are numerous scenarios where the employer costs for providing employee benefits to their staff are offset by employee contributions. It is important for employers to understand what is and is not allowable and the implications of premium sharing to plan costs.
Group plans are based upon the assumption that, when all employees are included in a plan, they will not claim more than the cost of the plan, including administrative costs. As claims increase, so do premiums. If participants are basing their decisions to join on how much or whether they will be claiming, costs will increase, accordingly.
All carriers have rules that say employees must be actively at work (absences due to health issues or maternity leave notwithstanding) and not pay more than 50% of the benefit costs. These rules are in place to avoid what is called anti-selection or the situation where a decision to join the plan, contribute or even pay for premiums in full would be based upon whether the employee believes that they will claim more than they are contributing. Insurers are not in the business to lose money; increases in claims resulting from the above scenarios will increase the cost to the plan.
We often advise that, it is more equitable for employees to contribute their share at the point of sale rather than to the premiums. The employees would pay a percentage of what is claimed and only pay something if they claim.
When a client asked us to add an employee co-pay of 20% to the plan, the rates quoted by the carrier were actually 30% lower, as the underwriter explained, asking the employee to cover 20% of health and dental claims incents them to spend more wisely. The factor underwriters apply is up to a 7% additional cost saving beyond what would be normally expected. Plans where the employee contributes to the premium incent them to claim just to be sure that they get their contribution back.
Some scenarios to avoid
- Employees paying more than 50% of the plan cost
- Employees paying a specific portion of the health and dental portion of the plan, such as family portion or dental only
- Employees on leave maintaining benefits by paying themselves
- Employees opting on or off the plan
Some recommendations
- Mandatory participation in all aspects of the benefits plan
- Employee co-pay claims rather than premiums
- Ensure employees waiving health and dental coverage have coverage elsewhere (spousal coverage for example)
- Communicating to employees that, other than as a result of a life event (i.e. spouse losing their benefits), joining the plan at a time other than when they first qualify, will result in having to complete a health evidence application
- Offering an individual coverage plan, such as Green Shield Link, to employees going on leave
Employers are always looking for ways to reduce their employee benefits costs, having the employees contribute to the premium or allowing them to opt out, will likely cost the plan more in the long run. Contact us to review your plan design and HR policies to be sure your plan runs as efficiently as possible.
ASSOCIUM Benefits is a very unique employee group benefits provider, focused on supporting benefits advisors and their employer clients. We provide Brokers and Plan Sponsors with a range of solutions from traditional group benefits to more customized, cost and tax effective employee compensation. Let’s connect to find out how we can help.