Evaluation - The Employer Side

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I’ve spoken with several small business owners and a few mid-market CEOs over the last few months, and every time I ask what they don’t understand or what they find frustrating, I get a similar answer, “Everything!” closely followed by, “Why is it so confusing?” and, “There should be an easy way to compare.”

I agree.

See, what most employees don’t realize, is that the employer makes the decision of what to offer, months in advance of when the employee sees their options.

How do employers do that? They work with brokers, and their broker advises what kind of plan to offer, what contribution an employer should make to the premium, whether to offer multiple medical plans, a high-low dental plan option, life insurance, disability, pre-tax options, work-site and life style benefits and how to figure those calculations into the employee’s total compensation package (don’t forget that someone is also deciding 401k contributions and time off as well). Wait, did I mention budget?

Is your head spinning yet?

Are you a decision maker and feeling overwhelmed just by reading the paragraph above?

No problem if you are, I’m here to make it a little easier to navigate and a set of things to look out for.

First things first, how big is your company and do you actually need 25+ things in your benefits offering? Decision paralysis is a thing and not just for you as a decision maker! The most important things to offer are:

·?????? Medical insurance: the Affordable Care Act aside, I think the statistic is something like 70+% of Americans get their health insurance from work.

·?????? Dental insurance: Have you ever had to get a crown? It’s a fortune. Yes, most people won’t need a crown every year, but most people also aren’t getting regular teeth cleanings, so the odds of needing something major go WAY up.

·?????? Disability insurance: If you read my article on financial products, you’ll remember that I recommend offering disability over a vision plan, especially short-term disability. Premiums aren’t huge and you can offer a voluntary (i.e., employee paid) plan. ?

·?????? Life insurance: we’ve all seen the articles detailing the dismal state of most American’s savings accounts. Offer your people life, a flat $50k is relatively inexpensive and you don’t have to worry about imputed income.

·?????? Pre-tax plans: you offer them, the employee contributes. Pre-tax plans are available for public transit, van pools, paid parking, health care expenses and dependent care (but not private school tuition).

Now we’ve got a rough outline of offerings. Picking vendors is a different beast. Let’s get the easy ones out of the way first.

Pre-tax vendors all basically do the same thing. Your broker will present you with different options based on cost, ease of administration and features. Make sure your people will have access to a debit card and it’s ideal if the chosen vendor with your benefit administration system for eligibility updates. This same vendor can usually manage COBRA for you and may also be able to take the lift for ACA filings if your company is required to file.

Life and disability can usually be placed with the same carrier, great news, one less bill. Your broker will explain the terms you need to know and assist in a comparison. Make sure you aren’t paying a premium for too much coverage unnecessarily. You’ll want a plan designed to cover 60 – 66.7% of an employee’s pre-disability wages and choose whether benefits are paid tax free (meaning you add the premium to an employee’s W2 at year end) or are taxable.

Dental plans are pretty standard, with the average plan covering preventive and diagnostic services at 100%; basic restorative services at 80% and major restorative services at 50%. Depending on the industry, the annual maximum will be between $1,000 and $1,500 a year. Dental plans are a good place to share costs with your employees, the premiums are relatively low, and you can cover half and let the employee cover the other half.

Now, to medical. This is a hard one and will depend on several factors, not the least of which is company size. Benchmarking helps here, but I do have a few things that may make deciding easier. (And don't forget budget!)

Where are you (as in your company) located AND where are your people (employees) located? If they’re all over the country, then an HMO plan probably isn’t a great fit. (budget!)

How cost sensitive are your employees? There are two things to consider here – plan design (deductible, out of pocket maximum, etc.) and their portion of the monthly premium. (budget!!)

Options: I’ve seen this go both ways, some companies offer too many options, and some companies don’t offer enough options. I like a nice middle of the road setup. The company chooses a base plan (ideally, budget allows this to be a mid-range plan – but not always) and sets their contribution on that plan. Then, the employee has the choice to spend more each month, and purchase a stronger plan or in some cases, buy less coverage and spread the company contributions farther. (budgets - theirs and yours!)

An employer can also just set a flat dollar amount as the contribution if that’s what is easiest for budget purposes.

Now that we’ve got parameters set – how do you choose a carrier?

Network: I like to compare networks, using a geo access report. These tools compare the number of belly buttons (providers) and access points (facilities) in a specific network. If there are specific specialist someone needs (think there’s a transplant recipient, etc., in your population), I check those doctors specifically.

Customer service: Paramount! The better the relationship with carrier reps and the experience I hear colleagues and other clients having with a specific company are vital in making a recommendation. I’ve placed a company with a carrier, even when they’re 3-4% higher (after presenting all options) because of customer service! When this happens, my team and I have a cell phone or other direct dial with an account manager, client success representative and names of good people in the service department.

Plan design: Is the out-of-pocket maximum to the employee less than the other carriers? Do the 1st dollar benefits make sense (co-pays for office visits and generic prescriptions)? What does the deductible apply to – everything diagnostic or hospital services only? Are my employees going to feel like they’re being nickel and dimed (i.e., is there a separate, per occurrence, deductible for services received in a hospital?

This quoting and comparison stage can be a headache. I like to see plans next to each other, with rates below. I’m usually taking quotes and making my own spreadsheets as a result. Also, color coding helps. Employers shouldn’t be expected to remember what was good or not from a comparison after we talk, I’ll color code things to make it easier (for both of us) when there are follow-up questions.

At the end of the day, you, as a purchasing decision maker, need to understand why you’ve chosen something, be comfortable with the choice, understand what the premiums are for and if you’re getting any discounts for bundling items together.

Once decisions are made, we implement and move forward into the year.

I’m curious, how do you make your decisions? Is there a way to compare that you’ve found helpful? Did I miss something that you find important? Let me know!

As always, if there is something that you want to unravel regarding health coverage, reach out!