33 ways to save on benefits – without slashing & burning
There are many ways that plan sponsors can reduce their premiums without drastically cutting back on group benefits. Here are the most efficient ways to do so. If you have any questions, please call us at 1-800-387-1670 x252.
Reduce Admin Fees
1. Join a buying group
Admin fees are based on the volume of a group. If you have less than 200 employees, it makes sense to join an aggregator like the Beneplan Co-operative in order to reduce your expense fees and commissions.
2. Negotiate your target loss ratio
The higher your target loss ratio (TLR), the lower your premiums are. The best possible one is in the high 80s. Ask your benefits broker – if it’s anything lower than high 80s, see if you can get it up to 85% to 89%.
3. Negotiate a crown scale commission structure
You are entitled to know how much commission is built in for your broker – it comes directly from your pocket. It should decrease as your group expands and hires new employees. A fair percentage is 8-10% for small employers, and 5-6% for large employers.
4. Partner with other companies to reduce admin fees
Along the same line of thinking, even if you are already part of a buying group, you can link up with another business owner under the same policy # (maintaining different plan designs, rates, and billings) in order to obtain a lower commission rate.
5. Negotiate a refund on unused health & dental premiums
If you have joined a buying group, or if you are currently on a fully insured plan with more than 100 employees, you should easily be able to receive a refund on any premiums you paid which were not put towards claims or fees.
6. Negotiate a lower trend or inflationary factor
All carriers will inflate your premiums by an inflationary factor to get ready for higher claims in the next year. However, the inflation rate they set is often higher than reality: up to 15% for health and 8% for dental. Bring this down to 11% for health and 5% for dental.
7. Negotiate the reduction or the Incurred But Not Reported reserve
IBNRs were originally built into plans to budget for the claims which employees made, but which have not yet been submitted: the shoebox effect. However, in the electronic age, most claims are submitted very soon after occurring. Reduce this unnecessary reserve as much as you can.
8. Negotiate a refund on unused life & long term disability premiums
If you are large enough, or part of a buying group, rebates on pooled insurance products exist. Ask your broker how to build this in.
9. Negotiate a refund on retail or provincial insurance sales tax
If your plan is ASO, make sure that your sales tax is calculated as a percentage of Claims + Fees, instead of on Premiums. The government allows this, and make sure your carrier is paying you this tax refund.
10. Ask your carrier if they have rebates for prescription drugs
Some insurance companies are starting to give rebates on the prescription drug benefit, which is completely separate from surpluses from any ASO arrangement.
Benefits are priced in the same way that hydro is billed: the more usage, the more you pay. You can control the consumption in fair ways by trimming the fat, without cutting back on benefit levels.
11. Cover the dental fee guide from last year or 2 years prior
The dental fee guide is the fair market price list set by the provincial dental association, and it increases every year with inflation by about 3%. However, a closer look shows that more frequent services may increase by 10%, and less frequent ones by 0%, netting out to an average of 3%. Having your plan pay last year’s fair market price does not cut on the benefit, but allows your employee to ask the dentist to slightly discount their service – it is very legal and very commonly allowed.
12. Cover a more standard drug formulary
Find out the formulary options with your carrier and see if you were automatically placed on a higher tier. See if you can move down a level – it would largely only affect lifestyle drugs and not affect medically necessary drugs.
13. Change your drug formulary to a two-tiered list
Some employers recognize that there can be 20 drugs which have the exact same efficacy and molecules for an illness, but have different pricing. You can penalize the more expensive identical ones on a lower tier.
14. Put in a cap on your prescription drugs and refer the rest to your provincial means-tested drug benefit program (for example, the Ontario Trillium Drug Program).
Handle with care: ask your advisor, doctor or pharmacist for help completing this step so not to hurt any employee. This change should also reduce your stop-loss premium overnight.
15. Reduce or eliminate the amount covered towards dispensing fees
Costco’s fee is $3.89, and no membership is required, compared with Shoppers Drug Mart’s $12.99.
16. Change your drug plan to mandatory generic substitution
These still allow provisions for members to appeal if the generic does not work in their body, and have the brand drug covered.
17. Convert your plan to a pure Health-Spending-Account with pooled insurance services added.
This caps the year-over-year inflation on your plan and forces your employees to become smart consumers. However, there are concerns with this approach as well. For example, if an over-zealous employee uses $500 on glasses and $300 on massage, they might only have $200 left for dental and drugs for the year. Talk to your advisor about this before making this change.
18. Join a preferred provider network for dental care, or partner with a local dental office
You would have to change your plan design to put in incentives for employees to use them, but you could ask the dentist to discount their services by 25% in exchange for the guaranteed business.
19. Join a preferred provider network for prescription drugs
20. Mandate employees to purchase certain medical supplies online or through more cost efficient suppliers
For example, orthotics and compression hose are marked up dramatically when sold to your benefit plan, and sometimes the mark-up is dependent upon how much your plan covers.
Compression hose cost $10 to $30 to be manufactured, but they are being marked up to $150 and sold to your plan for a tremendous profit. Compression hose can be purchased online for $50.
Focus on prevention to reduce claims
21. Have a nutritionist educate your employees on how to naturally reduce cholesterol and weight.
22. If you have coverage for Major Dental services, cover more dental cleanings (ex. every 4 months instead of every 9 months) in order to prevent major dental problems down the road.
23. Have the most abused paramedical benefits subject to doctor’s referrals or pre-approvals
24. Restrict or eliminate coverage for compression hose to a dollar amount, instead of the number of pairs per year.
25. Restrict coverage for orthotic inserts or orthopaedic shoes to $300 – the fair market price
26. Elect to turn e-claims off for your plan.
Some carriers have e-claims set up and do not require a receipt to submit paramedical expenses – which are the very benefits which are the most prone to abuse and fraud. By allowing this, you are effectively allowing an employee to ask your company for money without proof of payment.
Lawsuits are costly. If benefit plan administrators at your firm are not doing their job properly, it can be a lawsuit waiting to happen. They must follow the rules of insurance administration, since they are acting as an agent of the insurance company. Failing to do the tasks below will leave your company open to risk.
The big picture is that if an employee assumes they have benefit coverage, but they do not, due to a gray area in employment, your company can be liable. If the employee dies or becomes disabled in that time, the insurance carrier might reject the claim based on it breeching the Not Actively at Work clause, thus inviting a lawsuit.
27. Do not promise a severance benefit package to a terminated employee unless you check first with Beneplan (or, your insurance company or TPA) if they will extend benefits.
28. Always update employee salaries if you have a benefit which depends upon it.
29. Educate employees about how out-of-country claims work.
If an employee simply puts the full amount of an expensive hospital claim on their credit card without calling the insurance company, they might have trouble collecting the full amount when they return. Hold a lunch & learn and invite your advisor in to explain the process.
30. Never let employees refuse pooled benefits – life insurance and LTD (if applicable) must be mandatory of employment.
31. Tell Beneplan (or your TPA or insurance company) as soon as someone is not actively at work for any reason.
32. Submit enrollment forms before the end of the effective date.
Share the Cost with Employees
33. Ask employees share the cost of the health & dental plan
The most tax efficient way is to reduce their payroll by a small amount, and provide 90% or 100% coverage instead of charging them 50% of the premium from their after-tax dollars. This way, both the company and the employee save tax.
You don’t have to ‘slash & burn’ the benefit coverage in order to save expenses. Start with the low-hanging fruit first, and then consider major changes if you still need to save money.
About the Author
Yafa Sakkejha is the General Manager at the Beneplan Co-operative, a buying group for employee benefits. She can be reached at yafa at beneplan dot net 1-800-387-1670 x252.