Managing a company’s healthcare is not a walk in the park. Due to the ongoing medical inflation, employees’ medical insurance costs a tidy sum. As a result, many employers resort to reducing employee benefits to keep costs manageable. However, this cost containment measure can eventually become a point of workforce dissatisfaction.
In the worst-case scenario, companies won’t likely retain and even attract top talent, making businesses unstable and ultimately decreasing revenues.
What’s the most solid yet cost-effective benefits strategy employers can opt for? Do they even have to provide health insurance coverage to their employees and be concerned about their overall health? Let’s figure them out here.
“For employers, their shared responsibility is the pay-or-play provision. Larger companies must provide health care coverage to 95% of their full-time employees.”
Are Employers Legally Responsible for Employees’ Health Insurance?
No, there’s no federal law that mandates employers to provide health care coverage to their employees, so it’s legal for companies of any size to refuse to offer it. However, large companies resort to offering health care benefits to avoid the penalties imposed by the Patient Protection and Affordable Care Act (PPACA or ACA).
There’s a need to improve healthcare availability, quality, and affordability in the United States. This made ACA entrust the federal and state governments, insurance companies, employers, and citizens to share responsibilities for this.
For employers, their shared responsibility is the pay-or-play provision. It’s a penalty tax subjected to larger companies if they don’t provide health care coverage to 95% of their full-time employees. As of 2022, the penalty is around $2,750 per full-time employee.
Companies are considered “large” if they employ 50 or more full-time employees. It also includes the equivalent of part-time workers. For example, the employer must provide health coverage to 100 part-timers despite not working full-time.
To comply with ACA, large employers must provide health coverage that’s affordable and of minimum value. It must also cover the employees’ dependents, who are the biological or adopted children below 26 years old only. ACA doesn’t consider spouses, stepchildren, and foster children as dependents.
7 Ways Employers Can Manage Employees’ Healthcare Costs
Choosing the cheapest plan isn’t always the best business strategy that can strike the right balance between benefits and costs. Alternatively, companies can consider doing the following. They help employers save on healthcare costs without compromising employees’ quality of care, as well as help workers in finding solutions tailored to address their specific situations.
1. Offer Flexible Benefit Packages
Offering a one-size-fits-all benefits package from the get-go can help employers save money upfront. However, if these low-cost plans can’t provide the care employees need, employers will likely lose more from poor employee retention and high employee turnover costs.
Employers should rather take a more thoughtful approach and allow employees to decide which plan and level of care they need. Specifically, let employees understand the value of participating in health reimbursement arrangements (HRAs) and health savings accounts (HSAs). Both are considered saving vehicles, but each has its own structure, functionality, and advantage to employers and different employees.
Health Reimbursement Arrangements (HRA)
Health Reimbursement Arrangements (HRAs) are unfunded notional accounts funded by employers. It pays back employees for the qualifying medical costs they otherwise need to pay for out of their pocket. HRA funds can sometimes be used to reimburse health insurance premiums that the employees spend.
Since HRAs are employer-funded plans, the HRA funds are tax-free to the employees. However, employees can’t invest the funds, use them for ineligible medical services, and have them after leaving the sponsor’s company unless they opt for consolidated omnibus budget reconciliation act (COBRA) continuing coverage.
Employers, on the other hand, can enjoy HRA’s flexibility. It doesn’t have an annual contribution ceiling set by the Internal Revenue Service (IRS). Hence, it lets employers, especially small and mid-size enterprises (SMEs), customize their HRAs based on what they want or can offer. It’s basically employers’ go-to solution for expensive health insurance plans.
Employers can reap tax benefits. HRA reimbursements don’t cost payroll taxes and are tax-free to employers. The HRA funds can even be income-tax-free if the employer offers employees minimum essential coverage policies.
Additionally, since they don’t have any financial liability until employees incur eligible claims, employers can also recoup some of the HRA funds. If the funds are unused at the end of every plan year or an employee leaves the company, the unspent balance will be forfeited back to the employers.
Health Savings Accounts (HSAs)
Health savings accounts (HSAs) are special purpose tax-advantaged bank accounts owned by the employees. But the account holder and their employer can contribute to HSAs up to the annual limits set by the IRS.
For employers, this cost-sharing can lower their overall costs. They can also save money and time by not having the need to track reimbursement claims. Moreover, when employees fund their HSAs through pre-tax payroll deductions, employers can pocket their 7.65% FICA tax share since pre-tax contributions aren’t considered wages by the IRS.
But overall, employees have more tax advantages with HSAs than employers. Specifically, they can enjoy (1) tax-deductible contributions, (2) non-taxable investment earnings, and (3) tax-free withdrawals when used for eligible medical expenses. Hence, HSAs are known as triple-tax advantaged accounts.
The thing is, to have HSAs, employees must have a high deductible health plan (HDHP). The main purpose of this is to help lower employees’ unexpected and costly deductibles, as well as copays and coinsurance. It can also be used to pay for other qualifying health care that most health plans don’t cover, such as dental care, vision care, and over-the-counter medicines.
Another benefit of HSAs is that they can help employees become better-educated healthcare consumers. Owning and managing their accounts made them more invested in their healthcare purchases. They can also enjoy compound growth from investing their HSA funds. Finally, the tax-free HSA investment gains and funds can accumulate, so eventually, they become their retirement plans, helping them to be more financially secure.
“Employers can save a lot from integrated health plans over time.”
2. Opt for Integrated Health Care Plans
As a benefits strategy, integrated health care is an approach to connect care by offering medical, dental, pharmacy, or employee assistance benefits through the same insurer. It’s becoming increasingly popular these days – and for a good reason.
Employees can have a better patient experience all around. Getting a better quality of care through one insurance company doesn’t only streamline everything. It also makes employees feel more confident in treatment recommendations.
Integrating benefits promotes clinical collaboration and coordinated care. This allows healthcare providers to conveniently get a bigger picture of employees’ overall health and potentially provide earlier diagnoses and more effective care to employees.
Employers, by contrast, can save a lot from integrated health plans over time. One study revealed that companies with around 9,000 employees could save more than $1 million annually in integrating benefits.
These savings can be amplified even more if there are employees with serious healthcare needs. According to the Centers for Disease Control and Prevention, one in four American adults has at least one chronic condition, so savings can drastically increase up to thousands of dollars for each employee with chronic conditions.
3. Consider Level-Funding
Traditional self-funded plans are insurance arrangements where employers assume direct financial responsibilities for employees’ medical claim costs. In other words, employers pay directly for the employees’ healthcare without a cap.
Overall, self-funded plans come with several attractive benefits. They offer no premiums, savings on taxes and assessments, and possible exemptions from state requirements and mandates.
However, its major drawback is the unpredictability of claim-related costs. If employees make “catastrophic” or more-than-expected claims, employers’ healthcare budgets might be thrown off. Consequently, companies have to scramble to come up with the difference.
A level-funded plan can limit this risk. It includes monthly cash flow stabilization and a cap on costs. That means employers have to pay fixed monthly amounts for employees’ benefits. If there are low claims, employers can get the funds back through a rebate or credit towards the next year’s policy. Conversely, if claims go over a cap, the stop-loss insurance will kick in and cover the excessive claims.
With level-funded plans, employers can avoid unexpected high claims and predict healthcare budgets more accurately. However, level funding isn’t made for every employer due to its additional administrative requirements.
In general, level-funded plans are ideal for SMEs and startups, especially if employers want better control over plans and more predictability every year. They’re also the ideal options if employers want to offer more options that fit their employees’ budgets and healthcare needs. It’s also important to consider the company’s location before adopting level-funded plans. Every state has different regulations and applicable conditions.
4. Choose Low-Cost Health Services
When employees have access to lower-cost services, they likely choose HDHP with HSA. This results in lower premiums and claims for employers. One example of plans with low-cost service is specialty pharmacy services.
Specialty pharmacies can lower employees’ costs for costly medications, especially hepatitis C treatments and cancer biologics. They’re not only cost-effective but also reliable. They ensure employees receive the most appropriate and safest medications, not just the newest available and frequently costlier ones.
5. Keep Educating Employees
Make preemptive steps to educate employees about their health care. They can likely avoid suffering from unmanageable medical bills if they fully understand how their medical coverage and benefits work.
For this educational effort to be effective, it should come in various forms and be a continuous process, not just one meeting once a year. For example, it can be done through in-person meetings or webcasts for employees who like interaction.
Alternatively, those who prefer to read can be informed through emails, company newsletter articles, company intranet blog posts, or pre-recorded online tutorials. This way, employees will be fully more aware of their health benefits.
6. Consider Medical Billing Advocate Services
Medical billing advocates can help employees in many ways. They can review employees’ medical bills for errors, check whether their insurance claims have been processed appropriately, and dispute or appeal health insurance denials. They can also negotiate lower bills with their healthcare providers and insurers.
They’re beneficial to employers too. Employees’ lower medical claim costs also mean lower costs for employers. When seeking medical bill advocates, the overall amount of the reduced bill and the commission is typically less than the original bill. Otherwise, they won’t charge if they can’t reduce the medical bill.
If the company’s finances can’t afford to hire medical billing advocates, employers can still offer the same services as part of employees’ benefits packages. The HR department can provide the service either at a reduced rate or for free.
Employees might have privacy concerns, fears of losing their job positions or future promotions, or financial difficulties. That said, it’s crucial to have multiple avenues and robust privacy safeguards through which employees can access medical billing advocate services. Doing so won’t only reduce health plan costs but also increase employee productivity, satisfaction, loyalty, and retention.
7. Promote a Healthy Workplace
There’s much more that employers can do to create a healthy workplace environment and encourage employees to have healthy behaviors.
Apart from ensuring that employees know they’re covered 100% for preventive services, employers should also provide employee wellness programs. According to the Centers for Disease Control and Prevention, these programs should:
- Increase employees’ healthy behaviors;
- Improve employees’ health knowledge and develop skills they need to improve health;
- Encourage employees to get preventive immunizations, health screenings, and follow-up care; and
- Reduce on-the-job exposure to different hazards that can cause injuries and diseases.
Fostering a healthy workforce helps employers achieve significant cost savings. Employees getting sick and injured doesn’t only increase insurance claims but also cause absenteeism that can result in profit loss. In contrast, if employees are healthy, they’re likely to choose lower-cost plans. Hence, it’s in the best interest of companies’ bottom line to ensure every employee gets and stays fit and healthy.
Medicare and Employer Insurance
Several employees are working beyond the traditional retirement age of 65, which makes them Medicare-eligible. While this part of the workforce offers essential experience, it brings challenges to both the employees and the employers.
Employers can have a lot of benefits when Medicare-eligible employees drop the company’s group health insurance plans. It can potentially reduce employer contributions and remove high-cost claims. It can even boost companies’ census.
The thing is, not all Medicare-eligible employees choose to enroll in Medicare, or they’re probably unfamiliar with it. Being unaware of what Medicare can offer will make them miss out on many perks.
Medicare is America’s federal health insurance program. It’s available for people aged 65 years or older, younger people with disabilities, and individuals with end-stage renal disease (ESRD) or those whose kidneys no longer work.
The four Medicare different parts help cover specific services:
- Part A or the Hospital Insurance, which covers inpatient hospital stays, hospice or skilled nursing facility care;
- Part B or the Medical Insurance, which covers outpatient care, costs for professional medical services, preventive services, and medical supplies;
- Part C or the Medicare Advantage Plans, which covers dental care, vision care, hearing care, wellness programs, and fitness center memberships (administered by private insurers); and
- Part D or the Prescription Drug Plans, which covers prescription drugs, medications, and some vaccines (administered by private insurers).
Employees who are 65 years or older can get Part A coverage premium-free if they had:
- Paid Medicare taxes for ten years or more; and
- Been receiving or eligible to receive Social Security Income (SSI) benefits.
After two years, Medicare-eligible employees can’t receive SSI benefits anymore if they haven’t signed up for Medicare Part A yet. However, it’s important to know that only Part A is premium-free. Everyone must still pay monthly premiums for Medicare Part B.
Medicare: Requirement or Option?
When employees are both eligible for Medicare and employer coverage, they usually have three options:
- Keep employer coverage and postpone enrolling in Medicare;
- Refuse employer coverage and just depend on Medicare; or
- Have both employer coverage and Medicare at the same time.
However, their options are greatly influenced by the size of their company. It determines whether they’re required to sign up for Medicare or whether Medicare coverage or employer coverage is the primary or secondary payer of the employee’s coverage.
Companies With Less than 20 Employees
If employers employ less than 20 workers, Medicare-eligible employees are required to sign up for Medicare Parts A and B. Medicare then will become primary, while employers’ group plans will be secondary.
If Medicare-eligible employees don’t enroll in Medicare, they’re likely to be left uncovered. As the secondary, group health plan insurers can have the option to determine whether they’ll accept the responsibility of being the primary payer or not.
Companies with More than 20 Employees
If a company has 20 or more employees, the primary payer will be the employer-sponsored group health plan, while Medicare is secondary. This situation is called the Medicare Secondary Payer (MSP) rule.
Under MSP, medicare-eligible employees can have more options. They can choose whether to sign up for Medicare while still employed with the company or to stay on their Group Health plan and enroll in Medicare Part A at the same time.
Furthermore, note that the employee count includes all full-time and part-time workers in the company, regardless of Medicare eligibility. In addition, when a company is subject to MSP rules, they remain so throughout the remainder of the current calendar year, even if their employee count drops below 20.
Penalties for Medicare-Eligible Employees
Employees will face higher Medicare premiums as penalties for going without Medicare coverage upon eligibility. Specifically, for each 12-month period without creditable coverage, they could risk a 10% surcharge on their Part A and Part B premiums.
There’s also a late enrollment penalty for Medicare Part D. It’s calculated by multiplying 1% of the base beneficiary premium by the number of months without Part D coverage.
Can Employers Persuade Medicare-eligible Employees to Get Medicare?
As mentioned, if a Medicare-eligible employee is employed at a company with less than 20 employees, they need to enroll in Medicare. But if the company has more than 20 workers, employers can’t persuade nor require employees to refuse employer plans and enroll in Medicare.
Companies must continue offering employer health insurance to those workers aged 65 and older. However, if a Medicare-eligible employee suffers from ESRD, they need to get Medicare as soon as possible. Still, the company’s health plan has to pay for the first 30 months even after the employee becomes Medicare-eligible. Afterward, Medicare will become the primary.
Employers should encourage Medicare-eligible employees with ESRD to consult with Medicare experts. They can help these employees weigh their Medicare and employer coverage options. In most cases, Medicare offers superior benefits at a lower cost point for the employee depending on their own unique situation.
Medicare and HSA
Medicare-eligible employees enrolled in Medicare Part A and Part B can enroll in HSA-eligible plans and use their HSA funds for any eligible expense. Unfortunately, they can’t add either their own contributions or employer contributions to their HSA once they sign up for Medicare plans. Otherwise, they can face a significant tax penalty, as per IRS regulations.
If Medicare-eligible employees want to keep contributing to their HSA, they shouldn’t sign up for any Medicare plan. But they should keep in mind that if they enroll in Medicare only after they turn 65, the start date of their Medicare Part A will automatically backdate up to their 65th birthday. Hence, to avoid penalties, they should stop their HSA contributions at least six months before then enroll in any Medicare plan.
Medicare on COBRA
Before continuing any coverage, COBRA requires two things: a loss of coverage and a qualifying event. First, when a Medicare-eligible employee voluntarily drops a company’s health plan causing a loss of coverage, signing up for Medicare plans and other coverage isn’t a qualifying event.
However, it’s only considered a COBRA qualifying event when a Medicare-eligible employee enrolls in Medicare while their spouse is still on the company’s health plan. The spouse should not yet be eligible for Medicare to continue coverage through COBRA. Still, it’s at the employers’ discretion if they want to keep them on the plan moving forward.
Every employee has a unique healthcare journey. Determining what the workforce needs and improving healthcare benefits strategies can boost employees’ optimal well-being. This value-based design ensures employee quality of care while curbing employers’ costs.