As an employer, you should always look for ways to contain health insurance costs without cutting current benefit levels.
Review the practices below and determine whether they can achieve cost savings and still provide the right coverage for your employees.
Offer Cash Payment In Lieu of Health Benefits
For employees who have coverage available under a spouse’s plan or another secondary source, offer them the option of a cash payment in lieu of health benefits. This provides a win-win: you save money by paying an amount that’s less than the cost of premiums, and employees increase their take-home pay.
- Determine the potential savings of the plan by surveying how many employees would qualify and are interested in the plan.
- Have your employees weigh the benefits and risks of switching plans.
- Contact the IRS concerning the income tax consequences of the cash payment.
- Explore the feasibility of offering a one-time payment in lieu of health benefits for retirees.
Self-Fund Your Health Insurance
Instead of continually paying premiums to an insurance company, consider self-funding a health insurance plan and hiring a third-party administrator to manage it. This can be very cost-effective if you have employees with relatively good claims histories.
- Employers should have 500 or more employees so that administrators and risk managers can predict claims histories more easily.
- Conduct a detailed cost-benefit analysis.
- Consider purchasing a stop-loss policy from an insurer to cover catastrophic healthcare costs above a certain amount.
- Contact other local governments that self-fund their health insurance to review their plans.
Enter in a Cooperative Agreement
To help minimize the risk in a self-funded health plan, consider entering in a cooperative agreement with other local governments. This way you can share the costs of the plan, stabilize claims costs and negotiate with health providers by spreading costs among a larger pool of risk.
- At least three local governments must participate in the cooperative.
- The total number of covered employees (including retirees but not dependents) must be at least 2,000.
- Other requirements include establishing a governing board to oversee the plan and obtaining a certificate of authority from the Superintendent of Insurance to establish the cooperative.
Other Ways to Trim Costs
- Wellness programs – These promote healthy habits and include health assessment and monitoring, insurance incentives, and fitness and nutrition programs. Examples include discounts for non-smokers, walking programs and employee health fairs.
- Employee awareness – This includes offering incentives for reporting health care billing errors.
- Evaluation of current plan options – This includes analyzing whether cost savings could occur from changes in deductibles, cost caps or types of coverage.
Office of the State Comptroller:
- Cost-Containment Strategies for New York State’s Local Governments Research Brief [pdf]
- Personal Service Cost Containment Local Government Management Guide [pdf]
- New York State Insurance Department
- NGA Center for Best Practices: State Employee Wellness Initiatives
- Government Finance Officers Association: Containing Personnel Costs
- The Nelson A. Rockefeller Institute of Government: Health Insurance Cost Sharing: New York State’s Model for Localities