Employee Health Plans: Five Things Every Business Owner Should Know

Every day employers ask us what they should do about healthcare benefits. That’s because the government’s action or inaction with Obamacare has created a great deal of uncertainty, in addition to creating problems that never really existed.

However, what many people don’t realize is that 85 percent of employee-based health insurance is self-funded, or at least partially self-funded, to provide maximum protection with optimal flexibility. Because of this, recent studies and polls have indicated a strong allegiance to the private employee benefit health coverage system.

Why Self-Funding Works

The “elevator pitch” for self-funding is that a self-insured plan or employer places money into a trust fund that is strictly regulated by the federal government. Claims are paid out of the trust which also retains any profits made on behalf of the employees to offset future expenditures.

In the event of catastrophic medical claims, most self-funded plans buy re-insurance (also known as “stop-loss”) for claims that go beyond a predetermined level. The beauty of this scenario is that it allows the employer to decide in advance the maximum level of loss it can sustain. This means any company of any size can be self-funded.

Self-funding enables employers to use their health benefit plans to their best advantage by attracting and retaining the best employees in their industry because plans can be customized in such a way that employees’ health insurance needs are met and the company’s objectives are satisfied.

Shifting the Burden of Costs

In the past, many employees covered by group health insurance benefited from plans with more generous offerings. This arrangement seemed to encourage people to file claims for unnecessary procedures and routine doctor visits which strained the system.

However, recent studies show that more employers are shifting some of the burden of healthcare costs over to employees through increased deductibles and co-payments. I personally recommend this alternative as a means to defray increasingly rising health costs.

As part of the big picture, companies are now moving towards consumer-driven health plans, which is a trend that we here at The Kennion Group endorse. This concept adds another tier to health insurance plans that allows participants to use personal health savings accounts (HSA) to budget and pay for routine health care expenses. The employer provides a less expensive, higher-deductible health insurance policy to be used for catastrophic coverage.

Think of it like this: We all pay for routine maintenance and small repairs on our vehicles. And we wouldn’t ask our car insurance company to pay for oil changes or new tires – only big events. Major medical health insurance should be handled pretty much the same way.

Focusing on Wellness

Another trend we support is the one where employers are implementing wellness programs for their staff, which are designed to help employees manage their medical conditions and improve workforce health overall.

Part of this focus would be to have wellness and preventive care with no deductible or co-payments. In addition, employers would incorporate programs for stress prevention and health risk management that would provide incentives for participation such as lower deductibles. They could even add a cost differential for smokers vs. non-smokers or weight-reduction.

Under the Patient Protection and Affordable Care Act (PPACA), beginning in 2014 employers will be able to offer increased incentives such as premium discounts up to 30 percent of the cost of coverage to workers for participating in a wellness program. However, what people may not know is they can allow up to 20 percent under existing wellness regulations right now as long as the program meets certain criteria under the Health Insurance Portability and Accountability Act (HIPAA).

Repeal of Voucher Provision

After much debate and the threat of a government shutdown, everybody decided to play nice and pass the budget. As part of the negotiations, the voucher provision has been repealed allowing employers to take a deep sigh of relief. Otherwise, employers who offered health benefits would have been obligated to provide free choice vouchers to every employee who met certain criteria. This would have placed a huge financial burden on employers and companies who have already slashed budgets to remain in business.

What this means is that government officials are realizing that employee benefit plans – particularly self-funded plans – are not fiendish conglomerates trying to take advantage of staff members and earn gigantic profits. What they discovered is that these types of plans are making a difference in the workplace by providing wellness programs and health risk management strategies.

A Reality Check

Everyone knows how expensive health insurance is. For many people it’s right up there with their mortgage payment as one of their biggest recurring financial obligations. This is why a lot of folks in today’s economy do not have health insurance. They simply don’t have the money to pay for it. Whether they are working or not working, it’s all about money. That is the core problem from my perspective.

Currently, most employers today pay a portion of healthcare insurance if the employee elects it. One of the changes in the healthcare reform legislation is coming up with a specific dollar amount that the employer agrees to pay towards health care benefits for each employee. This mandate will actually apply to everyone, not just those who raise their hands.

This means employers are going to have to take a bigger responsibility to pay money towards healthcare for all employees. And we’re here to help you find out how to do that in the most economical and practical way.