Dear Workforce How Could Our Company Get a Grip on Rising Employee Insurance Premiums

Dear Sickened:

Every fiscal year companies are required to assess their financial situation and determine how to manage benefit offerings within their established budgets. The size of the benefits budget ultimately determines the employer’s ability to maintain competitive benefit programs for all its beneficiaries, and this affects the level of employee contribution amounts that will be required.

There are many methods used to allocate employee contribution requirements, but the key is that employee contribution levels must always be nondiscriminatory. Secondary considerations tend to be ease of administration, communication, adverse effect on participation, and overall competitiveness.

A common method of allocating contributions is to charge a flat percentage of cost. This appears to be the method used by your organization—employees pay 12.5 percent. The total plan costs are then broken down into premium rate tiers (or premium equivalents if self-insured) to equitably spread the costs to all participants based on family status.

Although employees electing family coverage will continue to pay the same 12.5 percent contribution rate, their contribution cost will be higher. The primary advantage of your flat-percentage contribution method is that it solves most of the equity issues and enables you to openly share the entire cost of each benefit offering.

Regarding the timing of negotiating an employee’s election and corresponding contribution, the Internal Revenue Service regulates when participants can change their employee benefits elections under a pretax deduction plan. IRS rules only allow a midyear change to health, disability or group-term life insurance coverage elections when there is a change in the person’s family or employment status. New hires have 30 days from their employment date to sign up. Otherwise, employees must wait until the annual open enrollment period.

For most companies with calendar-year plans, November is the usual time when open enrollment is held. Therefore, if your organization is holding open enrollment, employees should make any changes to their family election now.

SOURCE: Dean Hatfield, senior vice president and health practice leader, Sibson Consulting, New York, November 6, 2008

LEARN MORE: Experts say premium increases are to be expected in coming months as employers subsidize a greater share of employees’ unpaid medical bills.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.