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February 2, 2021
If you oversee employee benefits for your organization, then you understand how important it is to the bottom line, as it is normally top 2 or 3 on the P&L statement.
Also, and equally important, when it comes to talent acquisition and retention, your benefits lineup is a critical factor.
More than half of employees say health coverage is the greatest factor in job satisfaction, but the current environment makes it hard for organizations to deliver the benefits their employees expect and deserve. For instance, the average premium for family health coverage has risen more than 50 percent in the past decade, topping $20,500 in 2019.
While a tight labor market means organizations need to choose valuable benefits for their people, cost pressures remain a top-of-mind concern for employers. Nearly 1 in 4 employers say budget — not quality of care — is the primary driver of their benefits decisions.
Benefits costs are rapidly increasing, but you can take control. Let’s look at six strategies that can help drive down costs in 2021.
- Implement a Full-Replacement HSA
It is no surprise that more organizations are offering HSA-qualified health plans.
HSA-qualified health plan premiums are markedly less expensive than other plans, and in 2019, HSA premiums averaged 13 percent lower than traditional PPO options. HSA-qualified health plans also enjoy lower annual rate increases. The average increase for an HSA plan is just 2 percent, compared to the 6 percent increase seen with other health plans.
Organizations find that cost savings are so significant they are electing to go with a full replacement strategy by offering HSA-qualified health plans exclusively. The main reason is that traditional plans are starting to lose their appeal because deductibles are on the rise.
In fact, PPO, POS and HMO plans have started to exceed the federally defined threshold for HSA-qualified health plans.
There is a leveling happening across the industry, which makes it much easier for organizations to choose full replacement.
- Offer an FSA Carryover
Offering a Flexible Spending Account (FSA) with your health plan is a great way to unlock tax savings.
With an FSA, both employers and employees save money on taxes. Your employees can capitalize on income tax savings, and everyone enjoys 7.65 percent FICA tax savings. The more employees contribute, the more both parties save.
However, many organizations miss the opportunity to maximize these savings. The challenge is that traditional FSAs are use-it-or-lose-it accounts, so people avoid contributing because they fear forfeiting the funds.
That is why more organizations are adding an FSA carryover option. FSA carryover allows employees to roll over up to $500 into the next plan year ($550 into 2021, with new IRS relief). By lowering the risk associated with losing funds, employees are incentivized to adopt FSAs and boost contributions.
Ultimately, they feel more comfortable using the accounts – and greater spending means greater FICA tax savings for you.
- Implement Active Open Enrollment
Active open enrollment gives you the opportunity to educate and inform your employees on how to properly use their benefits and make the choices that best fit their personal situations.
Unfortunately, only half of employers implement active open enrollment. The result — too many employees simply default to last year’s choice.
Default bias is a real thing. Those who might otherwise elect lower-cost options often remain in more expensive plans because that’s all they know. You need to create an environment for your employees to review and understand their benefits and educate them on what is best for their situation.
For organizations that do not go with the full replace option, active open enrollment can help maximize HSA adoption. The more employees choose HSA-qualified health plans, the more control you can have with your overall healthcare costs.
For organizations that exclusively offer HSA-qualified health plans, active open enrollment is still a good idea because it gives you an opportunity to inspire and motivate your people to maximize contributions.
Like FSAs, HSA contributions bring FICA tax savings to your organization, while helping your people save more for a rainy day. Also, active open enrollment enables you to reinforce the value of the benefits you offer – and shows your workers you care about them.
- Offer an HSA Contribution Match
As mentioned earlier, active open enrollment is a great way to help your employees maximize HSA contributions.
Getting your people to contribute more is good for their long-term financial wellbeing — and it is good for your bottom line too.
When it comes to incentivizing contributions, the employer’s contribution strategy can make a big difference. Many organizations elect to seed HSAs by contributing a lump sum at the beginning of the plan year. However, there’s good evidence that suggests employer matching might be a more effective contribution strategy.
With an HSA match, you commit to contributing a certain portion of what employees contribute, up to a specific threshold.
You can make these contributions as a percentage match or as a dollar-for-dollar match.
- Create an Environment for Engagement, Education All Year
Employee engagement should not end at the close of open enrollment. To truly maximize cost savings potential, employers need to keep their people plugged in and inspired throughout the plan year. That way, they’ll be more likely to re-elect low-cost plan options next year.
Adoptions and contributions are habit-driven activities. The more your people use and appreciate their HSA, the more you can maximize long-term cost savings.
Engagement starts with continuous education. Even some financial professionals don’t know all the perks of an HSA so don’t expect your employees to know.
You need to offer decision-making tools and other support. Give your people webinars and easy-to-digest communications that help them understand the ins, outs, pros and cons of their HSA.
- You Need the Right Strategy and the Right Partner
You need a long-term strategy, and that strategy should align with your organizational goals.
Understand where you are today and have a vision of what you want things to look like. That strategy should include controlling cost, incorporating benefits that matter to your employees to retain top talent and educating employees to create a culture of cost savings and good health.
You need the right partner. You need a partner who is engaged, understands and is involved with multiple facets of your business – a partner who is focused on not just where you want to be next year, but over the next 3 to 5 years.