My company provides great medical benefits! What does that mean (and is it true)?
Benefits have become an expected part of compensation and are valued as such by both employers and employees. Often you will see in a job posting, “we provide great medical coverage” or “we pay 100% of your premium”. Reviews by employees regarding what it’s like to work for a company will often note “benefits are great”. Are the benefits really great? What should employers be doing to appropriately provide job seekers accurate information about their benefit offerings, and what should they be doing to ensure the program is actually providing value by supporting your employees’ holistic well-being, while remaining sustainable?
A common misconception between employers and employees alike is that benefits are great because the employer is paying the full cost of premiums. New companies will often identify their top benefits strategy to provide at least one medical option to the employee at no premium cost, meaning an employee will not share in the cost of the coverage each paycheck. The thought behind covering the full premium cost is often that leadership wants to be able to show prospective employees they care about their health so much, they are paying for it all. The intent is good but this strategy often indicates leadership is not fully understanding the actual value of the benefits they are offering, or they are underestimating the total cost of offering medical coverage year over year. Paying the full cost of medical care, whether the plan is fully insured or self-funded, is not sustainable for companies to maintain as their population grows or as their employee population ages.
The free medical coverage being offered is often a high deductible health plan (HDHP). Do not get me wrong. I’m a HUGE advocate for an HDHP and, given appropriate education and planning, believe this is the right plan for most individuals. Employers should understand the actuarial value of the plan(s) they are offering. The majority of employer-sponsored plans meet or exceed 60%, meaning the plan is likely going to pay, on average, at least 60% of covered benefits, leaving the remaining 40% as out-of-pocket costs to the participant. It’s important to educate employees to understand clearly what would be covered under their medical plan, when it would be covered, and what their expected responsibility will be.
The need to understand benefit value is so important, the government set requirements in an effort to communicate plan design, and even added metallic labels for plans offered on the healthcare exchange (Bronze, Silver, Gold, Platinum) in hopes of making the actuarial value clearer to consumers. For example, a valuation of 60% noted above would be considered a Bronze plan. Under the Affordable Care Act (ACA), an employer must provide a Summary of Benefits & Coverage (SBC) or pay a penalty if they fail to do so ($1,406 per incident in 2024). Most employers will also provide a benefit highlights or enrollment guide, which is often drafted by a broker or third party administrator (TPA) for smaller companies. Unfortunately, most employees do not know how to read these documents correctly and the internal team providing the information is often not able to explain the plans adequately.
For example, for the 2024 plan year, under an aggregate deductible plan, the employee will pay at least $1,600 out of pocket towards a deductible as an individual, $3,200 if they are covering any dependents before the plan pays for any expenses, outside of preventive services. (For the purpose of today’s blog, we’ll stick with an aggregate deductible for simplicity to avoid distracting from our topic. We’ll tackle embedded vs. aggregate deductibles in a future blog, so stay tuned or register to receive our blog via email here!) Even when providing the health plan documents required, employees do not always understand how much they will be expected to pay out of pocket when they see a doctor, especially if they are covering dependents since the full $3,200 deductible would need to be paid before the plan pays for services, or prescriptions if the medical plan includes prescription drug coverage. The employee may not be paying a premium each paycheck, but they will definitely have a cost to use the coverage, but without proper education, may not have saved to pay for it.
It is possible the employer is also contributing benefit dollars to a Health Savings Account (HSA) on the employee’s behalf to assist with paying the out-of-pocket costs of an HDHP. The employee would also have the option to contribute to an HSA if they enroll in the HDHP, allowing them access to triple tax advantages of an HSA. It’s important an employer educates employees as to how the HSA works. It is very different from Flexible Spending Accounts (FSAs) which have been around longer and many employees have encountered in the past, often resulting in a loss of contributions they made without understanding how the plan worked. Past experience can leave them apprehensive in maximizing the contributions they can set aside, which can help them now if needed, but even more in planning for retirement. Understanding the age demographics of your company is also very important as it will affect what aspect of the program is most important to the individual.
An employer will commonly offer a buy-up plan as an option for an employee to share in the premium costs if they prefer a benefit plan that pays for services sooner, or one that has a lower deductible than the free plan. Due to compliance requirements, the second option still cannot be less than $1,600 for an individual, or $3,200 for family coverage if the buy-up is to be considered an HDHP, and will have significantly higher premiums if it is not an HDHP.
If there is more than one plan option available, employees are often led to believe that if they don’t have a chronic illness or if they are relatively healthy, they should enroll in the HDHP, but if they have a lot of doctor visits, they should choose the buy-up plan as they will pay copays or coinsurance versus having to meet a higher deductible before the plan pays. This is not necessarily true and can mislead individuals into enrolling in coverage that is too rich (leaving them over insured paying for coverage they will likely not use), or lead them to feeling duped if they do need to see a doctor and didn’t understand the HDHP.
Employees are used to paying high premiums for insurance they never use (such as home, life, or auto), but healthcare doesn’t have to be the same way if chosen correctly. The choice between plans really depends on several factors, which does partially include how much you are expecting to use your health plan. However, for most people, the total annual cost of premium for a more expensive medical plan that includes copays and coinsurance for utilizing coverage will likely be more expensive than the HDHP for the full year, especially if the employer is contributing to an HSA to assist with out-of-pocket costs.
So, how can you ensure your company is truly offering great benefits that promote holistic well-being?
It starts with first understanding what coverage your company is offering and what the true impact to employees is if they utilize the coverage. Zero premium plans often do not equate to great benefits for your employees. Brokers will typically provide the plans most often offered by your competitors, while considering what your main priority is in offering coverage and, if asked, will provide you the actuarial value of the plan.
Ongoing benefits education, preferably starting before the employee is even hired, is critical in building a great benefits offering and showing candidates/employees their well-being is a priority to the company. Expecting individuals to understand plan documents, SBCs or benefit guides enough to make a decision they can’t legally change during the year is not helpful to the employee, especially in the U.S. where medical coverage is extremely complex and continues to get more expensive. The employee will think their benefits are great because their employer told them they were great, until they actually have to use the coverage which causes distrust between the employee and their employer, and financial stress to the employee.
Your benefits can’t be great if they aren’t being used. Make sure your employees understand the importance of preventive visits, and encourage them to use any embedded programs to promote healthy living and healthy habits. Not utilizing applicable preventive benefits, or programs to better maintain your health is wasting benefit dollars for the employer and the employee. If your plans are fully insured, the insurance company likely includes various wellness initiatives at no additional cost. Make sure you are promoting them. If you provide benefits that are self-funded, make sure your offering includes initiatives to promote healthy habits. The best way to keep medical plan costs low is to avoid catastrophic claims, as much as possible. This can be achieved through early detection of illness, and promoting chronic care management. Highlight the importance of shifting from a reactive to a proactive mindset for healthcare. It’s not possible to have a healthy company without healthy employees.
It’s complicated, but don’t worry. We’re here to help! Contact Centurion At Work today to find out how we can ensure your holistic well-being program is worthy of the claim, “we provide great benefits!”
