Ways to Save on Healthcare for Employers

When it comes to offering health benefits to employees, every employer has two primary goals: improve coverage and lower costs.

Achieving those goals may help encourage a healthier workforce, while reducing absenteeism and presenteeism, both of which can sap productivity and make an employer less competitive. More importantly, medical care ranks as the second largest expense (behind salaries) for employers, so it is vital employers maximize the value of their health benefits.

Rather than watching health plan premiums go up year after year, what if employers could cut costs by up to 15% or more compared to their existing benefits package?

While that might sound too good to be true, the growing popularity of level-funded plans is making that possible for some employers when they move from a fully insured plan. Tellingly, a recent report found that 42% of small firms use a level-funded plan, up from just 7% two years ago.

To help employers, especially small and mid-size businesses, navigate the transition from fully insured to level-funded (or even self-funded) health plans, here are three steps to consider:

Evaluate Your Plan Options 

Historically, employers often selected either a fully insured plan or, as companies grew larger, moved to a self-funded arrangement, which yielded potential savings but came with additional financial risks if medical costs exceeded expectations.

A third option employers have recently adopted more often is a level-funded plan, which offers the potential savings available through self-funded plans but with less financial risk. In short, employers with level-funded plans pay a fixed monthly fee to cover claims, administrative fees, and stop-loss insurance, which helps protect against unexpectedly large claims.

If medical claims are lower than expected, the employer can potentially keep some of the surplus refund at year end.

Rather than watching health plan premiums go up year after year, what if employers could cut costs by up to 15% or more compared to their existing benefits package?

Request an Underwriting Analysis 

To determine if such upfront savings would be possible for your business, the next step is to request an underwriting analysis to review your company’s previous medical claims and other factors to help determine what reduction may be available. This can be coordinated by an insurance broker or by connecting directly with a health insurance company that offers level-funded plans.

Generally, employers with relatively younger and healthier workforces may save the most. In fact, employers with UnitedHealthcare level-funded plans on average paid 18% less than comparable fully insured plans.

Leverage Various Types of Technology 

Once an employer opts for a level-funded plan, it is important to help employees and their families play a more active role in their well-being and adopt ways to save on out-of-pocket costs. One way to achieve that is by including a wearable device well-being program, where individuals use smartwatches or fitness trackers to monitor activity levels and may earn financial incentives for meeting certain goals.

Employers with level-funded plans should also include coverage and resources related to virtual care, offering employees a more convenient and affordable way to access medical care, including primary care visits, urgent care visits, behavioral health care and chronic condition management. With the ongoing spread of the virus that causes COVID-19, encouraging the use of virtual care is especially important as an alternative to in-person care.

By considering a move to a level-funded plan and adopting these additional strategies, employers may make offering medical coverage to their workforces more affordable and personalized.

 

Marc Neely PhotoMarc Neely is CEO of UnitedHealthcare of Colorado and Wyoming.

 

 

 

The benefit of benefits

Attracting and retaining top talent is just one of the many challenges you face as a lawyer that is also a business owner.

You can offer lucrative pay, many fringe benefits, and unlimited PTO. Still, if you don’t provide solid retirement planning options, you may not attract and keep the employees you want.

Having the right kind of plan is a crucial part of the overall compensation package.

Thankfully, there are several options to consider when it comes to offering retirement plans.

Defined Contribution Retirement Plans

Defined contribution plans are the most common retirement plan. The employer, employee, or both make regular contributions that are typically tax-deductible, but there are also Roth options. Individual accounts are set up for employee participants. Benefits come from any amounts credited by any party plus any investment earnings on the account.

With defined contribution plans, the employee is the party taking the risk. Any portfolio changes will impact future balances in the retirement account. Large employers usually offer these plans to employees, although small law firms also have several distinctive choices that range in complexity.

Simplified Employee Pension Plans (SEP-IRA)

Law firm owners are attracted to SEP-IRAs for many reasons. They are simple to set up, administrative costs are low, and employers can decide how much they will contribute annually. Those who use them have higher annual contribution limits when compared to standard IRAs, or even 401(k)s. At its core, a SEP-IRA can be likened to a traditional IRA that accepts employer contributions.

One significant advantage of these accounts is that employer contributions are vested immediately. Employees have the freedom to manage the investment decisions within limits allowed by the plan’s trustee. SEP-IRAs were initially created to encourage retirement benefits among businesses that would otherwise not have employer-sponsored plans. Sole proprietors, partnerships, and corporations can all establish SEPs if they desire.

401(k) Plans

Firms with part-time staff who work under 1,000 hours each year may want to offer an individual 401(k) plan. The IRS allows part-time staff to be excluded from these plans. The required contribution amounts can change each year. For 2020, it was the lesser of $19,500 as an employee up to 100% of their income.

However, the total contributions from both employee and employer can’t exceed $57,000 annually. Employees who are over the age of 50 can make catch-up contributions in the amount of $5,500. If you select an SEP-IRA instead, this isn’t an option, and employees in this age range won’t be eligible to save as much as $63,500 per year.

Small business/group 401(k) plans are typically best suited for large and growing law firms. In these 401(k) plans, the contribution amounts remain the same, including catch-up contributions, but the employer becomes the one to set rules on their contributions.

Firms that elect to have a significant employer match or contribution can increase employee participation in the plan and grow their retirement savings. Firms may choose to use the simplified IRS “safe-harbor” provisions instead of deciphering and attempting to stay within the strict guidelines for an employer match. Vesting schedules can be used as a retention strategy.

Guaranteed Income Annuities (GIA)

An income annuity lets people convert a portion of their retirement funds into a stream of guaranteed lifetime income payments. They use a single lump-sum of money known as a “premium,” or ongoing but flexible premium payments, depending on GIA type. In return, the person receives a check on a monthly, quarterly, semi-annual, or annual basis that is guaranteed for the rest of their life. Check disbursement can start when the person chooses but is usually at or shortly after retirement.

An income annuity helps ensure employees don’t outlive their savings, always providing a steady monthly income. It’s also not impacted by the performance of the stock market.

Cash Value Life Insurance

Cash value life insurance policies often play an essential role in funding supplemental retirement benefits. These policies offer many benefits and are tax-sheltered. Other benefits include:

  • Individual ownership with the security of company creditors
  • Significant equity can be built in a tax-sheltered policy
  • The cash value can be invested in equity options that have downside market protection
  • Immediate death benefit protection for beneficiaries
  • Greater internal rates of return when compared to taxable alternatives
  • The opportunity to leverage company contributions into greater benefits with low interest rates
  • No ERISA requirements which allows plans to be set up with varying contributions and vesting schedules to favor certain partners or employees

Consult with a Wealth Management Firm

You’re in business to help legal clients, not to decipher and apply for retirement benefits. Hiring a wealth management firm can help you focus on what you do best while still providing your employees the top retirement benefits they deserve and expect.

Mark Candler and Dave Owens of Maia Wealth are go-to wealth advisers for lawyers and law firms in Colorado. Specializing in debt reduction, investment management, retirement efficiency, and legacy planning, Mark Candler and Dave Owens are trusted professionals for attorney-focused wealth management strategies in the Denver metro area.