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Thayer Partners Blog

How to Get Affordable Health Insurance for Your Employees

[fa icon="calendar"] Feb 15, 2016 9:00:00 AM / by Chris Wilmerding

Chris Wilmerding

How_to_Get_Affordable_Health_Insurance_for_Your_Employees.jpgMost employers want to offer their employees health insurance, but with out-of-control healthcare costs and tight budgets, offering health benefits often isn’t financially feasible. Luckily, fully funded health insurance plans aren’t your only option.

You can reduce your health insurance costs—your company’s second biggest expense—while still providing your employees the high-quality health benefits that they want and need. Consider implementing one of these two cost-effective plans.

Self-Funded Health Plans

Your first cost-effective measure to consider is to finance your company’s healthcare premiums in a different way with a self-funded health plan. This type of plan can offer cost savings of up to $1,000 per employee, which can have a dramatic impact on your health insurance costs.

With a self-funded health plan, you pay for your company’s healthcare plan and use a third-party administrator to perform all operational functions. Essentially, you own your healthcare plan, rather than rent it from an insurance carrier.

Because you don’t work with an insurance company, you can reduce your insurance premiums because you don’t have to give them any savings you have on claims. The insurance company calls this profit. You also only have to pay for the claims that are incurred—which is dissimilar from using a traditional health plan, where you pay for your benefits package upfront. If the costs of claims are lower than expected, you get to pocket the savings or re-invest them to grow your company. In addition, self-funded health plans aren’t subjected to state health insurance premium taxes, which means that you can save from 2% to 6% of the premium’s dollar value. With self-funding, you receive the same high-quality benefits that you would get from a fully insured plan, but at a much lower cost.

What you will ultimately end up paying for a self-funded health plan will depend on several factors, such as how many employees are enrolled, what coverage you choose to offer, and the health and demographic of your employee population. But in the majority of cases, such a plan will lower health plan costs.

Choosing to self-fund your health plan is a long-term strategy that can be an affordable way to offer health benefits if you have more than 25 employees, have a healthy employee population, and a healthy balance sheet and cash flow.

High-Deductible Health Plans

The second option you can consider in order to reduce your health insurance premiums is to marry a high-deductible health plan with a health savings account (HSA). With a high-deductible plan, employees would have to meet a high deductible before the insurance company would start paying for health services and products. The 2016 maximum deductible for an individual is $6,500 and for a family it is $13,100, but the deductible in high-deductible plans is often much lower. Generally, the higher the deductible, the lower your insurance premiums.

With such a plan, the insurance carrier wouldn’t pay for every bump and scratch your employees get but would pay for all qualified medical expenses above the deductible amount so the employee would be fully covered. But when paired with a cost-effective tax-advantaged health savings account, your employees can use the HSA until that high deductible is met.

High-deductible plans can encourage employees to avoid needless medical services, shop more carefully for healthcare services and products, and reduce health spending. The HSA, which is owned by the employee, can let employees set aside pre-tax dollars for healthcare, can be rolled over the next year, and can even be invested in the stock market and/or saved for future medical expenses.

For many employers, the cost savings of lower monthly premiums is worth the high deductible and makes it possible for them to contribute to their employees’ health spending accounts, but there are strings attached. It must be set up, so consult a health plan expert. Health reimbursement accounts (HRAs) are similar to HSAs and are often paired with high-deductible plans. One major difference is that only employers can contribute money to HRAs. Another difference is an HRA is only used to reimburse employees for qualified medical expenses after they are incurred.

If you are serious about controlling your health plan’s cost, high-deductible health insurance is a good choice for nearly all employee populations.

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Topics: Health Insurance

Chris Wilmerding

Written by Chris Wilmerding

Chris Wilmerding is Principal of Thayer Partners, an independent investment management firm located in Westwood, MA providing financial planning and wealth management counsel to individuals and their families.

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