Healthcare and the costs are a thorny issue, to say the least. Stories of once-successful companies that watched as their healthcare premiums rose by 25% in just a couple of years are common. Not only has legislation such as the Patient Protection and Affordable Care Act (PPACA) been enacted to try to curb healthcare costs, but countless wellness programs have sprouted up with the same aim for U.S. companies.

According to one poll commissioned by Castlight Health, approximately 90% of CFOs surveyed agreed that they would be able to invest more in their businesses if their company’s healthcare costs were lower. If that’s an accurate picture, high healthcare costs are hurting U.S. companies and their growth.

But how much do these expenses cost U.S. companies? What causes them, and where do we see their impact?

Premiums

Collectively, U.S. companies provide healthcare coverage to about 170 million Americans (employees and their families) as part of benefits packages. This often includes paying all or part of healthcare premiums. Which means that these companies have bore the brunt of healthcare costs spiraling out of control.

How out of control are they? Premiums for most workers have risen well over 100% from where they were in 2008, less than a decade ago. (For perspective, $1000 invested in the S&P in 2008 would have grown about 63% in the same time period—and that includes reinvesting any dividends.) Not only do premiums increase over time, but many increase as employees use the healthcare system. This has led to hundreds of billions of dollars spent on healthcare each year by U.S. businesses.

Why are costs so high?

The reasons healthcare costs are so high in the U.S. are varied, and not all experts agree on the root causes. But there are some likely candidates:

• Our aging population
• The ballooning price tag of specialists
• Out-of-control and largely deregulated drug pricing
• The increasing cost of medical and pharmaceutical research
• Uncertainty about the future insurance market
• Regional differences in pricing

Possible ways to contain the costs

There is no magic bullet for reining in healthcare costs, short of outright refusing any sort of healthcare benefit. That is unwise, given that healthcare benefits are a prime way for companies to attract and retain talent. So what other options are there?

1. Explore plans with higher deductibles and HSAs. Higher deductibles help keep premiums down, plus Health Savings Accounts (HSAs) provide employees with a tax break for money they save and spend toward their health expenses.
2. Consider implementing a wellness program. A meta-study out of Cornell University examined 42 independent studies of the effectiveness of wellness programs and found that such programs can reduce healthcare expenditures and absenteeism costs by 25% to 30%, all within an average of 3.6 years. That means lower premiums and a more productive and happy workforce.
3. Educate employees about healthcare costs. Sometimes employees simply don’t know what behaviors are driving costs, and which can save. For example, workers might overuse the emergency room as opposed to using urgent care centers, or consulting with their family doctor. Or they might not know they can refuse tests that seem unnecessary. A little employee education can go a long way toward keeping costs down.

Review your current cost sharing. Benchmark your program against other employers to see how your cost sharing measures stack up. Employer interest in benefits benchmark data has grown over the past decade as the cost of providing healthcare benefits continue to rise. Benchmarking can help you stay competitive.

2016 has been an important year for ensuring compliance with the new Patient Protection and Affordable Care Act (PPACA). Such compliance has meant new forms and, in many cases, exploring new options for covering employees. Naturally, many Americans are asking who, ultimately, will foot the bill for all the additional coverage and administrative costs. Will the PPACA bring down our debt as a nation, or simply add to it?

Part of the PPACA’s aims is to bring down future healthcare costs by encouraging preventive services: annual check-ups, dental visits, and so on. Underinsured and uninsured people typically did not take advantage of these measures, which led to more severe problems—and more expensive healthcare needs—down the road. Inevitably, it was the taxpayers who would have to cover these expenses.

When the PPACA was first presented to the public, it was predicted that the decline in costs associated with emergency and catastrophic care would cover a good deal of the costs of affordable preventive care for the underinsured. And so some news outlets reported—erroneously—that the PPACA would be “self funded.” Although cost controls are an important part of the picture, the PPACA is also funded by taxes at the state and federal level, as well as by the penalties that individuals pay if they elect not to be covered.

A more detailed rundown of the PPACA funding sources is as follows:

• The Medicare tax rate has been increased by 0.9%. (The increase went into effect in 2013; a chart of those liable for the increase can be found on this IRS webpage.)
• A 3.8% tax increase on unearned income for high-income taxpayers (where high income is defined as $200,000 for an individual and $250,000 for joint filers) has been introduced. This tax applies to dividends, rents, net capital gains, royalties, and gross income from interest but does not include interest on distributions from retirement plans, amounts subject to self-employment gain, tax-exempt bonds, or veterans’ benefits.

• A new tax on health insurance policies that cost more than $10,200 for an individual or $27,500 for a family per year (“cadillac plans”) brings their tax rate to 40%. The idea here is to discourage people with high incomes from avoiding taxes by having their companies compensate them with expensive, full-coverage plans. Contributions to “cafeteria plans” that allow employees to choose from among different health benefits are also limited to $2,500.
• Under Section 9008 (b) of the PPACA, manufacturers and importers of branded drugs have to pay a new annual fee. Manufacturers or importers of certain medical devices also face a new 2.3% tax.
• Under Section 9010 (b) of the PPACA, health insurance providers also must pay a new annual fee.

• The adjusted gross income floor on medical expenses deduction has been increased from 7.5% to 10%.
• A new 10% tax has been imposed on indoor tanning services for individuals.

Many of these sources of funding will be discovered as individuals and families file their taxes. They affect HR departments insofar as they change the calculus for certain kinds of plans, particularly high-cost plans and cafeteria plans.

PPACA Changes in 2016

That said, businesses are still struggling with other aspects of the PPACA—particularly the paperwork required to be in compliance, definitions of things like “small employer” and “exempt employee,” determination of part-time and full-time employees, and so on. The fact that the PPACA is being deployed in phases, with changes occurring gradually over the years, can further complicate these issues.

To help businesses navigate these changes, here is a short list of things you should aware of now in 2016:

1. As of January 1, the term “small employer” is defined as organizations having 50 or fewer full-time employees (as opposed to 100 or fewer). Individual states still reserve the option of expanding the size limit of a small employer (as long as it does not exceed 100 employees), so it is worthwhile checking with your state if you employ 51 to 100 full-time employees.
2. All employers, regardless of size, are required to file information returns to the government. Though the deadline to file these forms was extended, the new deadline has already passed and future years are unlikely to be extended.
3. In 2016, the coverage that employers offer to employees must provide minimum essential coverage to eligible dependants as well. (Previously, employers were required to offer coverage only for employees themselves.)
4. There will be a tighter focus on compliance for CY 2016, with a planned increase in the number of audits. To avoid costly audits, employers will need to ensure that forms are accurate and filed in a timely manner, and that their insurance offerings are also in compliance with PPACA regulations.

Healthcare law compliance—and the threat of expensive audits—can foment change in any organization’s benefits offerings and administration. Sonus Benefits is keeping abreast of these changes so that we can help your organization choose the best plans that fit your company and all its requirements. If you are still struggling with plan changes, talk to us.

There are many articles out there advising employees on how to assess the value of their particular benefits package. But there are few guides telling benefits administrators how to assess and measure the value of their overall program.

Not all programs are an equally good fit for all organizations. Worse, whether a program is a good fit or not can change over time. If benefits administrators do not periodically revisit the value of their programs, the consequences could include added costs, stunted uptake, and ineffective incentives.

The impact of a benefits program needs to be measured against other options for attracting and retaining talent. For example, suppose an organization employs around 1,000 people, with an average salary of $50,000. Is it worthwhile giving the top half of this workforce a 5% pay raise? Or would added benefits be a better investment? Giving a 5% raise to the top 500 employees would cost an additional $1,250,000 a year. For a fraction of this amount, the same company could offer most of those employees better benefits.

Still, benefits are not cost neutral. And there are several reasons why you might not be getting the value out of your benefits program that you should be. So choosing which benefits to offer takes careful consideration. This decision should be reviewed periodically, well before the chaos of open enrollment periods.

Here, then, are three things to consider when weighing the value of your program:

1. Good Old-Fashioned ROI for Your Benefits Program

An organization’s investment in its employees starts at the hiring stage and continues well after they have ceased full-time employment. A good benefits program will help attract and retain the best employees. So the cost of your benefits program can be seen as an investment in employees, and the return on that investment will help establish the value of the program.

Consider the costs associated with replacing a valued employee— expenditures saved if that valued employee stays, and thus money that is “freed up” for other organizational needs:

• Recruiting and advertising the position
• Interviewing
• Onboarding and orientation
• Additional employee training
• Compensation and benefits during orientation
• Lost productivity (until the new employee hits “peak productivity”)

In fact, estimates place replacement costs at 16% to 20% of annual salary for employees making $50,000 or less. (For employees making more, the percentage can be even higher.)

Chances are, if you have a sizable employee pool, you already have statistics on employee turnover and might even know the costs associated with that turnover. To see what portion of employees would stay, make benefits discussion a part of your exit interview (below). If you know how many employees would stay with a better benefits package, you’ll be able to figure out the money saved from having a better package, and hence the return on that investment.

2. Unscheduled Absences: A Warning Sign

Unscheduled absences by themselves cost U.S. businesses $660 per year per employee, meaning larger employers are losing millions of dollars in direct costs and lowered productivity. Unscheduled absences, besides being bad in and of themselves, are also a warning sign that benefits packages are not working.

Why? Obviously, personal illness is one leading cause of unscheduled absences. Many absences due to personal illness occur because employees need procedures done that require a significant part of the work day—procedures that could have been prevented with the right measures. Unusually high absences for personal illness might be avoided with better wellness programs and/or better health insurance coverage.

Still, it is estimated that only about a third (34%) of unscheduled absences are for personal illness. The rest occur for a variety of reasons, among them the need to care for sick family members and deal with home or car issues. Having benefits that recognize and simplify that kind of work-life balance might be in order.

Whether sick leave is health related or due to a pattern of abuse is a large question. But organizations can actively reduce absenteeism through intelligent investments. Employee wellness programs can promote better health and management of chronic conditions. And a human resource management system (HRMS) can make information about absences available to managers, so it’s easier to identify possible patterns of abuse and address them with employees.

3. Exit Interviews: Are the Benefits Attractive to Talent?

At the risk of seeming obvious, the best way to assess the value of your benefits program is to ask those who are (or are not) taking advantage of them. Because the goal is to attract and retain talent, a good time to do this is at the exit interview. Be straightforward: Ask to what extent benefits played a role in the employee’s decision to leave. This will give you a good feel for whether or not you need to alter your offerings.

If your employee pool considers your benefits program to be valuable, enrollment is high, and unscheduled absences are not a program, then your program is doing what it was designed to do. Proving its value, then, is simply a matter of providing numbers that show the cost savings of retaining your talent…which should reflect a substantial ROI.

On the other hand, if your benefits program is not contributing to employee attraction and retention, the cost of a better benefits program must be weighed against other alternatives. Again, though, benefits programs will often be less costly than, say, a modest pay raise.

Knowing this, however, requires crunching the numbers. If you would like further assistance in comparing costs and/or making a case to management, contact us. We’ve helped many clients assess the value of their current benefits program and found ways they can save in the long term through better programs and better service.

If you are searching for a benefits advisor, you will want one who can give you solid, objective advice that takes your organization’s needs, goals, and demographics into account. There are many good benefits advisors out there with years of experience and excellent reputations, but has their business model evolved?

Alas, even well-meaning advisors can be tempted by opportunities to expand their book of business. The very best advisors are not trying to sell you something—they are more vested in serving you and your organization.

Following best practices is prudent from a fiduciary perspective when selecting an advisor and crafting a plan. Still, there are several red flags to look for that might signal an advisor who is more interested in selling than serving and educating. For example:

They focus on products, not strategy.

All benefits packages should have a strategic value based on your goals. The advisor truly needs to understand the outcomes you want from your benefit program. For example, are you trying to anticipate future changes or do you have compliance concerns? Reduce to administrative burden of your benefits offering? Encourage employee participation and honesty communication? Create a plan for long-term reduction in cost or claims? Any number of products can be part of the overall strategy—but you will not know what works for your organization until that strategy is set. When a benefits advisor talks on and on about your “options” without asking questions and trying to sketch out a strategy, it is a sign that he/she is a little too eager to move product.

They try to sneak in services you don’t want– or need.

Benefits plans should not viewed as a “one-size-fits-all” sale. Still, many advisors will try to craft a plan for you based on what THEY feel is best for you and your employees.. The advisor just “assumes” certain parts of a plan will need to be included, whether it will benefit you or not. You should never feel pressured to buy something you don’t want and that your organization does not need.

They only discuss claims, never touching on support or troubleshooting.

Employers need a good working relationship with their advisors, and that includes good communication across a broad spectrum of issues or concerns. Lack of consistent communication is cause for concern. Good advisors not only help with claims and service but are true advocates for you and your employees before, during and after a claim.

They only want to talk when the renewal date comes around.

If an advisor only checks in around the renewal date — and mainly wants to talk to the business owner or other decision maker — that may be a bad sign. Communication needs to be ongoing. Quarterly meetings are advised as is regular contact with all people in an organization with a stake in maximizing benefits outcomes.

Find that advisor that seeks to understand – understand your current situation and what you want to accomplish. By understanding these two things you can build a plan. The “value proposition” should be more about the outcomes than the products.

The Employee Retirement Income Security Act of 1974 (ERISA) is the federal law that establishes minimum standards for pension plans offered by employers in the private sector. ERISA created standards for participation in pension plans, as well as vesting, benefit accrual and funding standards for plans beginning in 1975 or later. It requires a copy of the plan to be furnished to all plan participants. ERISA also codified the basic legal premise that anyone exercising discretionary control over a pension plan has a fiduciary obligation to its participants. This is significant because ERISA allows plan participants to sue those in control of the plan if they breach this fiduciary obligation.

If you are a small business owner, CFO or HR professional in 2015, you need to be well-versed in your company’s ERISA obligations. The best way to fulfill your fiduciary duties is to comply strictly with ERISA’s recordkeeping, reporting and filing requirements, which can be cumbersome. ERISA’s basic compliance obligations include the following general requirements.

If you are an employer offering benefits to your employees, you must:

• Provide a written plan document for each plan you offer, including specific details, such as the Plan Number.
• Provide a Summary Plan Description (SPD) to each plan participant within 90 days of his or her enrollment.
• Provide each plan participant with a Summary of Material Modification (SMM) whenever there are material changes to the plan. This must be done within 210 days after the plan year-end for the year in which the modification occurred.
• File an IRS Form 5500, Annual Return/Report of Employee Benefit Plan. A short-form version is available for small businesses with fewer than 100 employees, and an EZ version is available for One-Participant (Owners and Their Spouses) Retirement Plans.
• Provide a Summary Annual Report (SAR) to plan participants by the mandatory deadline, which is 9 months after plan year end or 2 months after filing of the Form 5500.

The Patient Protection and Affordable Care Act (ACA) is another federal statute whose provisions overlap with ERISA in several areas. While ERISA was originally focused on employer-created pension plans, it has been expanded to encompass health care plans in certain circumstances. Retiree healthcare benefits are a prime example of benefits subject to both ACA and ERISA. While the ACA does not require you to provide health insurance benefits to employees, you may be subject to penalties if any full-time employees receive a tax credit through the healthcare exchange. ACA defines full-time employees as those who work 30 or more hours each week, tempting some employers to limit or reduce certain employees’ hours in order to eliminate them from this “pay or play” equation. These statutes are at odds here because this practice is arguably a violation of ERISA and other federal anti-discrimination statutes designed to protect employee rights.

Medical Loss Ratio (MLR) rebates are another point at which ERISA and ACA overlap. ACA requires some insurance companies to provide these rebates to employees, making them benefit plan assets which are further subject to ERISA regulation. As the employer you must be sure to include this in your benefit plan or SMMs, which should allow you to retain that portion of the rebate equal to the percentage of premium originally paid by the employer. For a comprehensive review of your ERISA rights and responsibilities, contact Sonus Benefits at www.www.sonusb.dev.

Article Sources

http://www.dol.gov/dol/topic/health-plans/erisa.htm http://www.hrknowledge.com/benefits/benefit-compliance/erisaedge/ http://ppaca.com/ 
http://www.irs.gov 
http://moulderlaw.com/how-the-aca-erisa-510-and-flsa-18c-interact/