Guide to Implementing Benefits For Your Company The Right Way

In today’s competitive market, employers understand that offering a comprehensive benefits package is extremely important for attracting and retaining high quality employees. In fact, studies show that a better benefits package is rated as more important for prospective employees than a higher salary. 

However, most employers are unaware of all the options they have available to them and wind up paying much more than they need to for a lesser plan. There are many different factors to consider when implementing health benefits for your company. For many business owners and human resources staff, this can be an overwhelming and daunting task. To make the process easier for you, we put together this guide which will breakdown everything you should consider. 

While there are many benefits that you can offer for your employees, such as medical, dental, vision, 401k, etc, we are going to focus on medical plans since those are the most expensive, most important to employees, and subject to the most regulations. 

When implementing benefits, you will want to first (1) know the options available to your company, second (2) know the rules and regulations, and third (3) know how to administer your plan efficiently. These three steps are covered below.

Knowing your options 

First, you will want to know what types of benefits plans are available to your employees. We see companies save hundreds of thousands and even millions of dollars per year when they implement benefits options that are more suited to their goals. Don’t miss out on the best plan for your business because you were not aware of all the options available. 

• Standard Market: This is what you usually think when you think of health insurance and is otherwise known as fully insured plans. These plans cover you for all benefits required through the Affordable Care Act (ACA). They do not ask any health questions, so anyone can enroll. All the rates for these plans are fixed by law, which are filed with the Department of Insurance every quarter and those are the rates at which the plans must be sold. You will typically see these plans named as either Bronze, Silver, Gold, or Platinum. This denotes the quality of the plan. The standard market is where most companies go to get their benefits plans. The problem is that most of the plans in the standard market have been seeing steep increases in premiums year over year. Plans in this market are not allowed to decline people with higher health risks, so now the risk pool is much riskier and so costs are going up for everyone.

• Self Funded: Self Funded plans are exactly as they sound; the employer takes on the risk of an insurer and provides the funds to pay for claims with the exception of their stop loss limit. The stop loss is the point at which the company has paid out so much in claims that they no longer pay out for future claims. This protects the business from catastrophic claims from their employees. The employer must find an insurer to be the stop loss carrier and a third party administrator must be contracted to administer the plan and process claims. While about 63% of employees are covered by fully or partially self funded plans, these types of plans used to be reserved only for large employers above at least a couple hundred employees. 

• Level Funded: Level Funded Plans, while very similar to self funded plans, have made it possible to offer self funded plans to much smaller companies as low as 10 employees (Note that in California and New York, because of the specific laws in those states, Level Funded plans do not become competitive until about 100 employees). Level funded plans can be a great option for smaller companies. They are just like self funded, except for the stop loss limit is much lower, protecting smaller companies from unforeseen claims. Some level funded plans will require health questionnaires be answered by the employees, some require an audit of the employees’ prescriptions to determine risk, and some don’t require health questions at all. It just depends on the carrier. A great aspect of self and level funded plans is that any leftover money in the claims fund at the end of the year will be returned to the business. 

• Health Reimbursement Accounts (HRA’s): This can be a great option for companies that want to offer a higher quality health plan but rates are too high on the standard market. Basically, what a group typically does is offer a Bronze level fully insured plan to its employees, but then the employer agrees to pay a portion of the copays and coinsurances for services for their employees, effectively making the Bronze plan function more like a Gold or Platinum plan or better. The business can end up saving money on the HRA versus a Platinum level plan because they are only paying for a Bronze level plan and the saved money from the difference between Bronze and Platinum premiums can go towards employee claims. With a Platinum plan on the fully insured market the premium payments go into the pocket of the insurance company. With an HRA, the business pays only for a Bronze plan and then makes additional payments if their employees have claims (with preset limits to avoid high costs). So with the HRA, lower claims means more money in the pocket of the business while still providing high level benefits for their employees. Whereas with a fully insured platinum plan, low claims will still result in all the money going to the insurance company. 

• Professional Employer Organizations (PEOs): This solution is a little more hands on, but it can be great for small to mid sized companies. A PEO essentially takes over your employees, handling their payroll, human resources, workers’ compensation, and employee benefits all in one package. The benefit of going this route is that the employees get pooled into a much larger group of employees giving them access to more competitive, large group insurance rates even through they work at a smaller company. Not all companies can qualify for a PEO. It depends on the industry and the health of the group. For companies that want everything handled all in one place, this is a fantastic solution. The technology that they have to administer benefits, payroll, and human resources tends to be pretty strong as well, which makes things easier for your employees. 

• Rx Customization: Prescription drugs are the most complex yet most easily controlled cost associated with the health benefits plan. The removal of lifetime insurance caps under the Affordable Care Act has led to a massive surge in Rx costs in recent years. Additionally, Third party administrators and insurance carriers collect extraneous rebates, administrative fees, and dispensing fees. A prime example is when the insurance company charges a $20 copay for a drug, but only passes $18 to the pharmacy, pocketing the remaining $2 for themselves. With prescription customization, you can now conduct a financial analysis of existing prescription plans and employee prescription needs. Most businesses with under 1000 subscribers are losing 25-45% of their pharmacy plan savings every year. The benefit of the plan analysis is to show what dollars are still being left on the table which can improve the existing plan with no changes to benefits or networks. 

• Minimum Essential Coverage & Minimum Value Plans (MEC/ MV): These plans are meant for applicable large employers as defined by the ACA (above 50 employees) to protect the business from the tax penalties at the end of the year for not offering health insurance. These plans also protect employees from needing to pay the individual penalty for not having insurance. However, that’s about as far as these plans go. They do not offer significant coverage, but they are a cost effective way to protect from the ACA penalties for businesses and their employees.

Knowing the Rules and Regulations 

Employee benefits plans and health insurance plans in particular are subject to many governing laws. Fines for not abiding by these laws can be substantial so it is important to know how to keep your company in compliance and avoid unnecessary penalties. 

• Employee Classes: Some employers want to contribute a higher percentage or have a lower waiting period for managers versus normal employees. This is allowed by setting up employee classes, which can be distinguished by managers versus normal employees, seasonal versus permanent employees, and full versus part time employees. You just want to make sure that when you set up employee classes, you do two things. First, you make sure that these are legitimate employee classes and you are not just preferring one employee over another without justification. And second, that all eligible employees are offered the same benefits. So while certain classes can receive more contribution from the employer or lower waiting periods, all eligible employees still need to be offered the same plans. 

• Non-Discrimination Laws: Basically these laws mean that all employees that are full time, which is defined as working above 30 hours per week, must be offered the benefits plan through your company. You can offer certain employee classes, as we just discussed, different contributions and waiting periods, but if 2 employees have the same job you can’t offer one more contribution just because you like them more than the other. This would be a form of discrimination and would invite fines by the Department of Labor if they were to audit your company. 

• Applicable Large Employer (ALE): These are the companies that are required by the Affordable Care Act to offer ‘affordable’ health insurance for their employees. To be considered an ALE, an employer must have averaged at least 50 full time employees over the preceding calendar year. For a plan to be considered affordable, the lowest cost plan available to the employee must be below approximately 9.5% of their income (the affordability percentage changes slightly year to year). Fines for not offering coverage are substantial and can easily cost applicable large employers hundreds of thousands if not millions of dollars per year. It’s certainly better to get coverage in place than deal with these fines. 

• COBRA: This is the continuation of coverage for employees when they leave your company. When employees leave, they can continue their coverage, but you as the employer no longer have to pay for it and the ex-employee picks up the whole tab. When a company has less than 20 full time employees, the continuation of coverage is not through COBRA, but through State Continuation. State Continuation is administered by your insurance carrier and requires little to no administration on the part of your business. However, if your business is above 20 employees, then your company is subject to COBRA, which means either your company or a third party administrator must run your COBRA, sending out benefits notifications to ex-employees and handling the collection of their premiums. So if you’re above 20 employees at your company, you will most likely want to enlist a third party administrator to handle your COBRA. 

• Small Group Special Open Enrollment: This comes around once a year. During this time, all fully insured carriers on the standard market reduce their contribution requirements down to $0 (meaning the employer does not have to contribute anything), and participation requirements go down to 1 (whereas most carriers typically require anywhere from 50% - 70% of eligible employees enroll). This is for groups with less than 100 eligible employees, but it is highly beneficial for companies that are concerned about meeting participation or not sure if they can afford the higher contribution requirements set forth by the carriers. Please note that while the carriers relax contribution requirements here, the ACA still requires that plans be affordable, so Applicable Large Employers still need to make sure plans are affordable for employees to not be subject to fines. To take advantage of this open enrollment, applications must be submitted between November 15 and December 15 for a January 1 effective date.

Knowing how to administer your plan efficiently 

You know the old adage that time is money. Well this couldn’t be more true with your benefits plan. The more efficiently you can administer your company’s benefits plan, the less it is going to cost your company in finite resources and man-hours. Administering your plan efficiently will result in significant savings for your company. 

• Technology: This day in age, there are plenty of technology platforms available to administer your benefits and they all have their own pros and cons. The main basics you will want to make sure that your platform has is paperless or online enrollment, employee logins, and administrator logins. Employees should be able to see all their plans and pricing on the same portal and enroll themselves and their dependents right there.

• Payroll & Human Resources Integration: Top benefits platforms will also integrate with payroll and human resources functionality. This means that payroll deductions will automatically be pulled from an employee’s paycheck once they enroll through your benefits platform. Human resources management will allow you to onboard new hires, track vacation and PTO, and provide companywide update notifications. 

• Educated Staff: To make processes as efficient as possible, your human resources department should be educated on when and how to best notify new hires that they can enroll in benefits. You HR managers should know what to do to notify the termination of an employee from a benefits plan. And they should know how employees can go about making changes. 

• Broker or Trusted Advisor as Back Office Staff: Your broker or trusted advisor will typically provide a back office staff for you that will handle the vast majority of the plan administration. This way, all your employees really need to do is notify this back office that a change needs to be implemented, and then the back office will take it from there. This back office should also provide enrollment meetings each year during your open enrollment and educate your employees on the benefits and plans being offered to them.

For best results, work with an expert 

From all of the information given above, you now have a strong grasp of how to implement a great, affordable benefits plan for your company. However, there is no substitute for enlisting the help of an expert. If you want to make sure that you fully explore your options, set up your plan within compliance of the law, and implement efficient administration, you should work with someone who does this professionally. 

With the knowledge you gained from this guide, you can now properly vet independent brokers to find the one that will best be able to help your company. 

Benefits brokers often do not cost your company anything. They are paid by the insurance companies to bring them business, but the cost is typically not passed along to you as the client. Because all insurance companies pay brokers about the same commissions, they have no incentive to provide you with a worse plan just because it pays more commission. Good brokers understand that they should always act in the best interest of their clients because that is how long lasting relationships are formed which is much more valuable than a short term gain by providing something that the client doesn’t need. 

Once you find the right trusted advisor or broker, they can educate you on what you need to do to implement a great benefits package for your company.

- Doug Myrick