Five Ways To Cut Your Health Insurance Costs

Nearly one-third of all health-insurance premiums increased to 30 percent or more. At that rate, the average cost of health insurance per employee will exceed $3,000. Seventy-three percent of senior executives believe health-care costs will continue to increase 20 percent or more each year for the next three years. The message here is clear: If you haven't already gotten serious about cutting your company's health-insurance costs, now is the time. It can be done. The first thing you should do is learn how the system works--or doesn't work. Most small employers spend fewer than four hours a year thinking about their company health plans. Learn what your options are. Your insurance agent can help you shop for cheaper plans. But don't stop there. Compare plan benefits, insurance-company records, and service guarantees.

Consider Blue Cross and Blue Shield plans and HMOs (health-maintenance organizations), even if your agent doesn't handle them. The Blues in some areas, offer clear advantages to small companies. Experts regard HMOs as the best buys in health care. Find out if your company is eligible for new, low-cost health insurance plans now available in five states. In addition, foundation-funded pilot projects in several parts of the country are demonstrating that it is possible to cut health-coverage costs 30 to 40 percent. In short, health insurance isn't as simple as it used to be. And the pace of change is accelerating, offering new hope for a truce in the business battle with exploding health-care costs. The next couple of years present as much potential for change as at any time in the past 20 years. You can be part of that change by putting at least some of the following 5 ideas to work for your company.

1) Increase Cost Sharing By Employees

This recommendation is at the top of every consultant's list. Small companies tend to pay far more of their workers' total health-care bill than large companies do. Yet research shows that insulating employees from the costs of care encourages unnecessary use of health services. Fifty-two percent of the companies responding to the Nation's Business health survey said they pay 100 percent of their employees' health-insurance premiums. But 45 percent said they intended to implement or increase employee contributions to these premiums. An equal number said they plan to increase employee deductibles. Insurance companies first attached $100 deductibles to major-medical plans in the early 1950s. But 40 percent of employers still set deductibles at $100 or less. Raising a $100 deductible to $250 would cut premium costs for single coverage by about 11 percent. A $500 deductible would cut costs by about one-fourth. A $1,000 deductible would save about one-third.

2) Allow Employees To Pay For Health Premiums With Tax-Free Dollars

Set up a so-called flexible spending account, which allows your employees to pay their share of health-insurance premiums and un-reimbursed health-care expenses with pretax dollars. A flexible spending account could save employees 20 cents to 35 cents on the dollar, because state and federal income taxes and Social Security taxes are not imposed.

Moreover, the company saves by reducing the employee's base salary on which it pays Social Security and other taxes. Hire an outside payroll accounting firm to handle the paperwork. You can pay the service fee and still come out with a net savings. The monthly administration fee would run between $2 and $5 per employee.

3) Transfer High-Risk Employees To The State's High-Risk Pool

Insurance premiums soar whenever someone in a small-group plan becomes very ill--with cancer or heart disease, for example. As an employer, you should explore the possibility of moving employees with serious health problems into a state high-risk pool and then negotiating a lower premium for the healthy members of your group.

4) Switches To An Open-Enrollment Blue Cross And Blue Shield Plan

Blue Cross and Blue Shield plans operate as de facto high-risk pools in a number of states by providing "open enrollment" periods during which any group can buy insurance. Among the 74 Blue Cross and Blue Shield organizations nationwide, 21 offer open enrollment. All the Blues once used community rating to set premium levels. But that began to change in the 1960s when commercial insurers started to lure away firms with low risks by offering them cheaper health insurance.

5) Replace Your Traditional Health Plan With An HMO

Unlike traditional health insurance, HMOs cover all medical needs, including routine preventive care, for a flat monthly fee that typically is less expensive than traditional health insurance. Moreover, two types of HMOs, the staff and the group models, have proven to be more effective at controlling costs than any other form of health-care delivery. Staff models employ physicians directly and put them on salary.