Most times when we walk into a prospect meeting , one question we always ask is, How do you share in the premium costs with your employee?” Often the answer is a percentage or a defined contribution. We ask them how this was developed, and the answer is shocking, We have always done it this way” or “I inherited it.”
A strategy that aligns with company goals is important to control benefit costs successfully. Have you ever thought about how your cost share is inhibiting your ability to have control over your costs? Is it something you even pay attention to?
At NationalHR we recognize that cost sharing strategy is one of the most important aspects of developing a long-range plan for cost containment strategy.
- Paying a percentage is a mistake. If you get a 12% increase and pay 50% of the employee premium your cost rises at 6%. This is dictated to you by the insurance company. If you define your contribution and advertise we give every employee $500 to shop for their benefit plan what do you when there is an opportunity to reduce costs. Take contribution away from the employees. This is a moral killer.
So what is the answer?
- The answer is to divorce the cost sharing strategy from the insurance premiums. It is a strategy that uses elements of defined contribution but allows the flexibility to reduce the contribution when there is an opportunity to reduce the employer costs. Essentially you back into the employer costs by setting the employee costs at a level that achieves your organizational goals and is reasonable for the employee.
Managing the employee costs is a matter of managing expectation. If costs go down and you raise the employee 3% most employees perceive this as a win. The additional savings allows you to give back in the years that you need to.
This is critical to controlling costs over time. Think forward and long term. Don’t make a knee jerk reaction to a rate increase.