The Board of Trustees is responsible for the management of a school’s financial resources. As schools continue to work though these difficult economic times, many are deciding that cutting costs is necessary. If this is the case at your school, then the Board may charge the Management Team and the Finance Committee with looking at the school’s health insurance costs. Health insurance, the most costly of all employee benefits, is truly unique and differs from all other forms of insurance. It is a far more visceral, emotional, and personal benefit that affects your employees and their families. Hence, making big changes here can truly be an emotional minefield if not well thought out and communicated. Consider the following measures as cost-saving vehicles.
- Implement a high-deductible plan or Consumer Driven Health Plan (CDHP). Formally known as Health Savings Accounts or Health Reimbursement Accounts, both of these approaches can—if properly structured—substantially reduce health premiums by as much as 20% to 30%. Both, however, also have certain important nuances to understand in light of IRS requirements (especially for the HSA plans), including how both need to interface with any existing Flexible Spending Account (FSA) plan you may sponsor. In a nutshell, the HSA plan is more employee-friendly (controlled by the employee) and much more federally regulated than the more employer-friendly HRA plan, which is controlled by the school.
- Move the school’s contribution from the more typical percentage-of-premium to a flat-dollar amount. You can continue to pay the same amount at first, if you wish, but this approach allows you to control your future contributions as opposed to being tied to a stated percentage. Over time, this will save you money, but will mean that your employees pay more toward their own coverage.
- Establish a wellness program that has cash rewards or other incentives (e.g., a half-day off for meeting certain goals). Statistics show that for every $1 spent, employers see a $3 to $5 return in the form of reduced claims and/or reduced absenteeism. These programs are inexpensive, and an Employee Assistance Program (EAP) can be part of one as well.
Long Term Disability
Options to reduce the cost of LTD include increasing the elimination or waiting period from, say, 60 or 90 days to 90, 120, or even 180 days. If your plan is a 70% or 66% reimbursement model, consider reducing this to 60%, which the great majority of schools offer. This alone can lead to a savings of 10% to 15%. Other areas to review include “options,” if you have any, such as COLA or pension supplement. These are important options and, while they can be eliminated to save dollars, you should understand the implications of doing so. A combination of the above measures can save the school 30% in the cost of LTD.
Short Term Disability
When it comes to short term disability, many schools self-insure through a combination of paid time off and sick leave. For those schools that insure this risk and currently have a 0 or 7 day elimination period, ask your agent what the savings would be to move to 7 days or 14 days, respectively.
Flexible Spending Accounts (FSA)
If you do not already have a Flexible Spending Account plan (IRS Section 125), or have one with poor participation (less than 50%), you may find some savings here as well. By establishing or reinvigorating a plan, a school will save its portion of the FICA tax (7.65%) on all pre-tax payroll dollars contributed to the plan by its employees. Some schools can set up a plan at no cost due to these tax savings.
Ancillary Programs (e.g., Dental and Vision)
Many schools already offer voluntary programs, which are often offered on a group discount basis, thereby providing employees a savings vis-à-vis what they could find on their own. The benefit to the school is that it costs nothing to offer these programs and can help improve morale.
It is important that you speak to your agent or other professionals you may rely on before making any changes to your different coverages. All schools have unique characteristics, needs, and exposures; no one change is right for every school.
Additional ISM articles of interest
ISM Monthly Update for Risk Managers Vol. 2 No. 3 Managing Risk by Understanding Your Insurance Policy
ISM Monthly Update for Risk Managers Vol. 1 No. 2 How to Read an Insurance Policy
ISM Monthly Update for Risk Managers Vol. 2 No. 4 For the New Year . . . Items to Check in Your Group Long Term Disability Policy
Additional ISM articles of interest for Consortium Gold Members
I&P Vol. 35 No.9 How to Scrutinize an Insurance Policy
I&P Vol. 34 No. 3 Reducing Insurance Costs: Employee Benefits
I&P Vol. 27 No. 13 Options for Managing Your Health Care Insurance Costs
I&P Vol. 34 No. 5 Reducing Insurance Costs: Property and Casualty Insurance
I&P Vol. 30 No. 12 Employee Benefits for Faculty: Examine Your School's Contribution to Health Insurance
