Why
provide employees benefits?
According to statistics from a
variety of sources, the actual cost to a business
for providing employees with a solid employee
benefit plan is from 25-32% of the employee’s
actual wage.
Thus an employee’s compensation
may consist of their salary plus a 25% increase
in value from benefits. But why should an employer
go through the expense of providing these benefits
when health insurance in particular eats up
so much of a business’ budget? Because
in a competitive environment, an employer needs
to attract and keep valuable and productive
employees and protect the business from attempts
at hiring them away by the competition.
Therefore, it is essential and
crucial to construct a cost efficient and employee/employer
friendly benefits plan that will serve the purpose
of retaining valued employees.
What is also essential is that
the employer must enlist the services of an
independent broker.
Foundation Financial Services
helps you to navigate the universe of health
insurances comprised of HMO’s, EPO’s,
PPO's and now MSA’s.
HMO’S
In 1993 New York State adopted the Community
Rating Law which
paved the way for insurance carriers to offer
HMO plans instead of the
traditional indemnity plan which became so prohibitively
expensive.
Where the Indemnity plan required the payment
of deductibles, co-insurance and coinsurance
limits, the HMO only required a simple office
visit copay. Where the indemnity plan required
the patient to fill out claims forms, the HMO
did not. Premiums were easily 25%-33% less on
the HMO.
The HMO offered these rates because
they contracted with certain “in- network”
providers (hospital, physicians, labs) in a
given area for
lower fees for HMO members. There was no coverage
though, with “out of
network” or non-contracted providers.
HMO’s also promoted preventive
medicine by offering free annual physicals.
These would theoretically keep claims down by
“nipping in the
bud” a potential problem before it became
a “shock claim”.
PPO/POS
Many insureds did not feel comfortable
dealing with HMO’s who would only provide
coverage through member providers. Insureds
required the peace of mind of “out of
network” providers. Hence, the “freedom
of choice” plan came about. Out of network
providers were covered but on an indemnity basis
utilizing deductibles and co-insurance. There
have been many variations on these plans including
EPO’s but all of them were traditionally
more expensive because of the out of network
option.
Many clients found themselves
with POS or PPO plans that offered out
of net coverage but the carriers had so many
in net providers there was no need for the extra
coverage and the extra premium. In one case
we saved a client 33% in premium by switching
from a PPO to the same carriers HMO plan.
MSA’s
With time premiums continued to rise and HMO/PPO/POS/EPO
carriers
costs rose with the tremendous following they
enlisted and their subsequent claims. Employers
to this day are having a difficult time with
the cost of high premium health plans. Despite
the tax advantages of offering employee benefits,
the high costs of benefits put a severe crunch
on cash flow and bottom line profits.
It became apparent to all parties,
that employees would have to shoulder more and
more of the costs of health insurance. Carriers
responded with
employee participation plans that reduced benefits
to the point where there were deductibles and
co insurance for in network benefits. As confusing
as that became, many employers decided to ask
employees to contribute to the cost of insurance
premiums.
Contributory plans where the
employee may contribute a % of premium or pay
the full amount of dependent coverage are more
common today. Originally these costs were paid
by the employee with after tax dollars (the
money left in the paycheck after taxes are withheld).
The Federal government (IRS) under IRS code
section 125, created the so called health IRA
some years ago and the concept has developed
into the present day MSA.
An employee on a contributory
plan can pay their share of the costs with
pre-tax money (money available prior to taxes
being withheld much the same as a 401-K). This
makes the costs less of a drain on the employee’s
cash flow by reducing taxable income. Employers
can even set aside money for their employees
on a pretax basis which can be used for premiums,
deductibles, copays, Rx or any medically related
costs. Money not used in the MSA is carried
over into an IRA type investment.
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