CFOs: 4 must-ask strategy questions about your health plan
Guidance for tough health insurance decisions
CFOs are becoming more and more involved in the organization’s health plan decision because benefits are less straightforward and more expensive than they used to be. Most CFOs never imagined the depth of understanding about health insurance necessary to accomplish their objective of maintaining the financial health of the organization. It can take great effort to keep up with all the changes, tax laws, and new options.
Today, we’ll look at four questions that address the strategies that every CFO must investigate.
1. Is this the year to offer an HSA-based plan?
Most likely, you’re already considering (or implementing) an HSA-based health plan as a 2013 Kaiser Family Foundation survey found that the number of workers covered under these plans has quadrupled, from 5 percent in 2007 to 20 percent in 2013. But if you aren't, it's definitely a strategy that should be at the top of your list to consider.
HSA-based plans are beneficial for both employers and employees. The main HSA benefit for your organization is savings. In fact, we save employers an average of 20% on healthcare costs the first year they move to an HSA-based health plan. How does offering an HSA-based health plan save the organization money? First, money contributed to an HSA is done on a pre-tax basis and therefore doesn't have taxes associated with it. Second, with a pre-tax deduction you avoid payroll taxes (which costs you 7.65%). To maximize tax savings, it makes sense to make your contributions pre-tax whenever you can.
How do HSAs save employees on the cost of healthcare? HSA-based plans typically have lower monthly premiums and offer employees a triple tax-advantaged bank account.
As we transition towards a more consumer-driven healthcare system, offering employees the option for an HSA-based health plan allows them to have a little more skin in the game that often lead to better health decisions.
2. Is now the time to move to a Private Exchange?
You need to figure out if this year is the time to move to a Private Exchange. Think you’re alone in this decision-making process? On the contrary, Accenture predicts that by 2018 enrollment on Private Exchanges could outpace enrollment on public exchanges. Research by HighRoads shows that 50 percent of employers are in some stage of private exchange evaluation.
A Private Exchange allows long-term cost savings for employers and more options for employees. A Private Exchange is also highly beneficial in that it allows the organization move to a Defined Contribution strategy. As the Private Exchange gains traction and popularity because of its advantages, you’ll want to investigate whether this year is the best time to adopt this new strategy.
3. Is it time to drop the health plan and help employees find a plan on the individual market?
Healthcare reform has caused many employers to drop their group health plans in favor of helping their employees find and pay for a plan on the individual market. Why? Because the tax benefit is now stronger in the individual market than in the group market. Under this strategy, instead of focusing the health benefit on a particular plan or carrier, these employers will focus on the money (Defined Contribution) and support they give employees to help them purchase individual health insurance.
Many small groups have dropped or are considering dropping their group health plan because healthcare reform makes many employees come out ahead if they are allowed to purchase individual insurance through the state or federal exchanges. As small-business owner Keith Perkins told The New York Times, he offered his employees insurance for 20 years, but dropped his group health plan last year because not only would employees benefit from having access to subsidies and more plan options, but also because he was tired of picking one health plan to meet the diverse needs of his employees.
Dropping your group health plan and helping employees find coverage on the individual market is a strategy that must be considered.
4. Is this the year to go self-insured or join a Captive?
Larger groups may want to consider going self-insured. A self-insured group health plan is one in which the employer assumes the financial risk for providing health care benefits to its employees. In practical terms, self-insured employers pay for each claim as they are incurred instead of paying a fixed premium to an insurance carrier under a fully-insured plan.
The self-insured option for smaller groups is called a Captive. A Captive is a strategy where several smaller companies join together and pool their risk together on a self-insured strategy. This helps employers reduce cost of group health plan by evading the ACA taxes on fully insured plans and pooling resources.
This is a riskier option because you are acting as the insurer, but it may make sense if you have determined your risks are more predictable.
The heat is on to pick the right health strategy that will be best for your organization this year. It’s wise to avoid making a hasty decision. Instead, spent time with your broker evaluating the pros and cons of each strategy for your organization to ensure you leave no stone unturned.
If you liked this post, you may also like Employers anticipate 4th quarter health insurance renewals.
Clients can maximize HSAs as retirement accounts The number of Americans with Health...