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Dropping Employee Health Coverage? Think again.
By Connie Gee
Many CFOs and other decision makers are contemplating the idea of eliminating employee healthcare benefits as a viable cost containment option. The first top-level thought is that you can hardly blame them. Considering healthcare is an escalating cost, dropping plans would represent an annual savings of several million for most companies.
Granted, it is tempting to think that these savings from not paying premiums or self-funded administrative fees, insurance industry fees and Human Resource administration costs could be potentially reallocated to revenue-driven business investments. Although if you do lean towards this choice, are you aware of the consequences? Consider these corporate soul-searching questions:
- What will be your return on investment from your greatest asset?
If you fail to invest in employees, it may cost you in terms of innovation, ultimately hurting the long-term value of your brand. Employees may see plan cancellations as “corporate greed” or label it short-term thinking for the sake of shareholder value. Yes, shareholder value is in the forefront, but decision makers cannot underestimate the bottom line impact of motivated employees who build customer loyalty.
- How will you make up the lost value of the benefit?
If you consider subsidizing employees to buy their own insurance, will you subsidize to the same value of what you have taken away, or will you reduce it by the amount you may have to pay to the government for lack of coverage? If you subsidize to the same value, you have just increased your costs, including additional payroll tax liability for the employee and for the company. You also give up any tax deduction benefit for providing healthcare benefits.
- Would a subsidy be enough to cover a public option?
If so, for how long? History shows that government programs start out at a low cost the first year but quickly double within a year or two as administrative costs increase. You may also discover that there are more budget items than had been planned or admitted.
- How will your company’s Workers’ Compensation costs be impacted?
As wages and medical costs go up, so do Workers’ Compensation rates, which have been known to jump almost 200% in a year. The financial implications of an increase in injuries, a rise in legal fees and higher premiums could be detrimental. Even worse, disloyal employees could look to Workers’ Compensation as an opportunity to acquire early retirement through a cash settlement or as a way to be paid two-thirds their regular pay – while on leave. Most employees could also be eligible for additional government entitlement programs and payments. In response, you could increase investments in prevention methods such as workstation and equipment assessments, staff training, education, and monitoring of safety procedures.
- What effect will this have on unemployment compensation?
Employee morale and productivity of certain workers feeling “shortchanged” is inevitable. After all, the company just reduced its compensation package. Employees may suddenly not be motivated to give the 150 percent they have been asked to give in recent years; in turn, you may be faced with a decision to reduce the workforce and grant undeserving claimants unemployment benefits.
- Will not having a healthcare benefit impact recruitment?
If your turnover rate increases, you will need to compete to replace outstanding talent. Benefit packages have always greatly influenced a candidate’s decision to accept or decline an employment offer. If your benefit plan has been effectively communicated to potential and existing employees, it most certainly has helped promote a positive image and a distinct competitive advantage in recruiting. Without the healthcare benefit, your competition could have a differential advantage, which would leave you strapped to find an alternative offering, thus, again increasing costs elsewhere.
IMPROVING benefits opposed to reducing…
While mulling over the above questions, think about the quality of your benefit plan. It’s vital for management to monitor efficiencies and accountability of all parties concerned. Whether through training or professional planners, an enhanced understanding of healthcare planning can result in bottom line savings. Employees who are smart healthcare consumers can help you save money. They know about generic drug options and have the sense to use a 24/7 nurse-line instead of an emergency room for their suddenly sick child. They also understand the importance of examining medical bills for accuracy just as they would bills at a restaurant or auto shop.
CONTROLLING your healthcare costs...
When a CFO makes the strategic business decision to play an active role in assessments to manage healthcare costs, the benefits will pay off. There are qualified, medical consulting experts who can help every step of the way, whether in setting up a self-funded program or in improving quality of care through wellness initiatives and risk management.
Consistent and reliable assessment of your plan is vital in containing costs. Early identification of solutions to reduce risks and reverse trends can result in cutting healthcare costs, which proves to be a more affordable option than the consequences of dropping benefits altogether.
About the Author
Connie Gee is Vice President of Med-Vision, LLC, which uses data analytics to customize action plans that improve quality of care and decrease healthcare costs. Founded in 2005, Med-Vision specifically caters to the needs of self-funded employer plan sponsors and currently impacts more than 75,000 health plan members Gee’s full profile is available at http://www.linktoexpert.com/conniegee. Self-funded employers interested in Med-Vision services may visit www.med-vision.com or contact Gee directly at 813-205-1577 or connie.gee@med-vision.com.
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