Health care costs have been trending upward for a number of years. Employers in the U.S. expect the cost for medical plans per employee to raise 5.6% on average in 2023, according to Mercer, a human resources consulting firm. This has led many employers to search for affordable insurance options to lower expenses without sacrificing quality for their employees.
With traditional group health insurance plans, employers use their bargaining power to purchase coverage from insurance companies at a lower rate than individuals usually pay, and they cover a majority of employees’ premiums. The insurance companies pay employees’ claims using the premiums paid by the employer and keeping all unused premiums for themselves.
Level-funded group health plans allow employers to pay for claims themselves, saving money on profits that typically go to insurance companies and are protected by stop-loss insurance that caps their total claims exposure. These plans have become increasingly popular among small employers because they set level monthly payments, the same as a tradition insurance plan. These payments go towards covering the estimated costs of expected claims, administrative costs and stop-loss insurance. But with a level-funded plan, employers can actually see money returned when their group has a healthy, low-cost year.
Here are a few more ways employers can reduce costs:
Reference-Based Pricing (RBP): Rather than using a Preferred Provider Organization (PPO) network for claims discounts and pricing, RBP plans use some other method on which to base medical claim reimbursements to providers. For instance, many plans, like Allied National’s Freedom Plans, use a percentage above Medicare for its reference base. This reimbursement level is often lower than many PPO networks but is still well above Medicare levels already accepted by most providers. These savings immediately translate to lower premiums and lower out of pocket costs.
Staying Within Network: A PPO agrees to provide certain discounts to members who use their services. If an employer chooses to add a PPO instead of a RBP plan to their level-funded plan, members will save money by always using a provider or facility in network.
Premium Only Plan (POP): A POP is a terrific way for employers and employees to reduce taxes on health care benefit premiums. When you create a POP, your employees pay their portion of their health insurance premiums with pretax dollars – a savings of 15% to 40% – which in turn increases their take-home pay. A POP also reduces the employer’s payroll taxes. Employers will contribute less to Social Security and Medicare payroll taxes. State taxes may be lowered if the state recognizes a Premium Only Plan. A POP is created under IRS Section 125.
Class Carve Outs: A class carve-out is a way to offer full major medical or limited health benefits to employees who don’t have coverage. To do this, employers can separate employees into different “classes” such as management-level employees, exempt employees, hourly or salaried employees, full-time or part-time employees. You can even separate classes by job title, job description, wages, etc. In general, employers may treat employees differently provided that they are not violating federal rules that prohibit discrimination. Using a class carve-out allows employers to choose the health benefit plan that is best for each class.
Health and Wellness Programs: Most companies or organizations provide health and wellness programs to help employees live healthier and happier lives. By giving employees access to resources to address their health and wellness, companies can decrease its’ employees need for medical care while increasing productivity in other areas of their lives, like at work.
And here’s what employees who have health coverage can do to keep their individual and plan costs lower with a level-funded health benefit plan:
Generic Drugs: Employees should choose generic drugs over brand-name drugs when available. Generic drugs use the same active ingredients as brand-name drugs. They work exactly the same way, yet the cost for a generic drug is a fraction of what the brand-name drug costs.
Virtual Care: The pandemic helped spur the rise and usage of telehealth or telemedicine and virtual consultations are typically less expensive than in person visits. There’s the old adage, “Time is Money,” and utilizing virtual care can save employees both time and money.
Urgent Care over the Emergency Room: Whether it’s an illness or an injury, things happen in life that require immediate medical attention. While the answer of where to go for care isn’t set in stone, knowing the difference in what is required can help employees identify where to go in situations that could save money down the road.
Urgent care centers or walk-in clinics help fill a vital gap when sick or injured and your regular doctor is not available. A trip to the ER means certain medical conditions need rapid or advanced treatments, including surgery, that are only available in a hospital setting.
Interested? Talk to your local broker about level-funded health benefit plans to see if it’s right for your organization.
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Allied National is a 90 Degree Benefits Company, a subsidiary of Blue Cross Blue Shield of Alabama. Founded in 1970, Allied National is one of the nation's oldest and most experienced third-party administrators. We're the small group benefit experts working to provide unique and affordable group health benefits to small business employers.