We Just Received a 20% Health Insurance Rate Increase.
Health insurance has been my life for the past 35 years and in insurance, like life, we have choices. For example, I may be fat, but you might be ugly, and I can always choose to diet. Therefore, when my health insurance agent presented an “ugly” group health insurance renewal with more than a 20% increase, I knew that I would have choices. First, he is a very good agent and he understands that I take the responsibility of providing insurance to my staff seriously. Secondly, I have made it clear to him that I expect that his renewal package will not only include the incumbent’s renewal package, but that he will also provide alternative carrier quotes. Finally, he knows that in order to continue to earn the privilege of handling my small account, he will have to earn his commissions, which are substantial and equal to 5% of the total premium. Yes, it is a privilege and if your agent does not act like it, find a new one!
I thought that it would be helpful to share the process that I went through in evaluating my renewal, in the hope that my thought process might assist you in dealing with your future renewals. But first, some of the important facts:
- We are a small firm with about 20 full time employees, located in Florida, Chicago and, Honolulu.
- We provide Health Insurance, Dental Insurance, Life Insurance, Long Term Disability Insurance and a robust 401 (k) plan.
- Coverage is provided through a combination of Florida based insurers and other alternatives.
- Currently, all employee coverages are free and dependent coverage is fully contributory.
- We have a fairly standard demographic mix, with some older individuals, but most of the new employees coming in much younger. However, 35% of the group was over age 60, and these were many of the senior officers and owners.
- Our employee rate was going from $487.73 to $587.17 and the family rate from $1548.54 to $1864.26.
- We have a rich plan of benefits with a $0.00 deductible, $15/$35 office visit copay and a $2500 out of pocket maximum.
The first thing we did was to consider different plan designs, offered by the incumbent, as well as, other carriers. However, there is no free lunch. The alternative plans were lower priced because they provided lower benefits with greater out of pocket consequences for my staff. In considering this alternative, we had to discuss two very important points. Could we financially afford to continue offering our current plan and was a reduction in benefits consistent with our overall employee compensation package? That’s right; we view benefits as a form of compensation and were we willing to reduce staff compensation to save money? The answer was no, since we are fortunate to have a good balance sheet, our staff is terrific, and long term, compensation and benefits are a means of acquiring and retaining great staff.
Next, we considered the new tax favored HSA compatible plan designs, which would have reduced our pre-renewal rate by almost 25%. These high deductible programs promote consumerism amongst the participants and are simply logical, but would they meet the needs of our organization? With almost 35% of our group over age 60, we felt that there would be an inadequate time frame for the older staff to accumulate enough dollars in their HSA account, and the inability to offer Rx copays until the high deductible was satisfied could create a serious financial burden. Furthermore, the 25% savings was not a real savings as we were going to make an immediate $1100 employer deposit into everyone’s HSA account. Otherwise, we would have gone from a Zero Deductible to a $2100.00 Deductible program.
Finally, we evaluated the cost/benefit of potential change in carriers, notwithstanding the fact that some were as much as 15% lower. While 15% represents a lot of money, a change of carriers also costs a lot of money due to reenrollment expenses, lost productivity and the burden placed on a limited HR Department, at our busiest time of year. We concluded that the savings was really transitory and that the best option for my company was to absorb the increase and renew with our current carrier.
However, we were creative and with the help of our agent, we found a way to maintain the same benefits without changing carriers or changing benefits, but reducing our premium payment by over 15%, through the creation of a tax favored Health Reimbursement Arrangement (HRA). If your agent has not explained HRA’s to you, shame on them!
Our program has historically provided free insurance coverage to employees. Periodically, however, some employees have inquired about not participating in the health plan as they were covered as a spouse under their spouse’s plan and did not desire “double coverage”. Because we take a very conservative position on opt outs, we have said that you cannot opt out of a program that is given, without charge, to all employees in the same class, even by signing an opt out election form. Why? Since there has been considerable case law where an employee has sued regarding coverage that they voluntarily rejected, due to the fact, they “did not understand”, etc. However, there is no requirement that an employee pay for coverage where the employer requires a contribution.
We ultimately decided to charge all employees $30.00 per month for health insurance (pre-tax) and nothing for the dental, life and disability coverage. For those employees that desired to opt out of the health plan by not making the required contribution, we required that they sign an opt out form and provide us with proof that they had other, comparable coverage. We then provided each of them with a $200.00 per month Health Reimbursement Account Debit Card, which they could use for deductibles, out of pocket expenses, vision, certain over the counter drugs and other eligible 213 (d) expenses. Three employees opted out of the health plan and received $2400 per year for items not normally covered under health plans. At the same time, we were able to reduce our health insurance premium cost by almost $15,000.00 per year while still being able to continue paying for a rich health plan (95%) and 100% of dental, life and disability coverages. It was truly a “win/win” situation.
Every carrier will periodically present you with an unfair or unaffordable rate increase, and if you will keep these simple principals in mind, you will survive and may even make lemonade from lemons.
- Raise your expectations for your insurance agent. Even in a market with few options, if they are creative, they will bring you solutions. If the one good idea they had has long since died of loneliness, find a new agent!
- Remember, there is no free lunch. There will always be a carrier around willing to aggressively pursue your business. Balance the potential savings against the costs associated with changing, reenrolling, new networks, etc. It may be more expensive than you think.
- We can always reduce rates by reducing benefits or charging more for coverage. This is what we refer to as a “cost shift” to your staff. Evaluate whether this reduction in compensation is consistent with your overall compensation plan and always attempt to provide your staff with the best health plan that you can afford. They deserve it!
- You are limited only by the collective creativity of you and your agent!
