Today’s competitive staffing environment means employees have choices when it comes to their employer, and small businesses are increasingly looking to advanced benefits offerings to become more attractive to employees. It’s not unusual for healthcare to form the greatest part of the cost of providing benefits, creating a tension between businesses and staff members each year during the benefits renewal season. With the rising costs of healthcare, it’s crucial that organizations look for ways to reduce their benefits contributions — without losing benefits that are important to retain top talent within the organization. Businesses are increasingly turning to defined contributions as a way to lower healthcare costs without sacrificing a great deal of the benefits that employees expect.
What Are Defined Contributions?
When you hear the term “defined contributions”, you may be thinking in terms of employer defined contributions. While that is a common practice, it’s also possible to have defined contributions where employees contribute the same set amount to their benefits plan. These are also referred to as standalone Health Reimbursement Arrangement or HRA. With an HRA, businesses or non-profits are able to contribute to an employee’s wellness benefits at a pre-defined level. Employee contributions are pre-tax, providing additional benefits for the employee and encouraging higher adoption amongst staff members. These healthcare spending accounts allow employees to make informed decisions about their healthcare and be more informed shoppers when it comes to the utilization of their benefits.
How Can Defined Contributions Reduce the Cost of Benefits?
Businesses see this as a way to reduce or eliminate some percentage of the premium increases that are a part of each year’s renewal. The strategy is to encourage employees to take a more active role in the management of their healthcare benefits while managing costs at a corporate level. Utilizing a defined benefits plan generally requires the use of advanced benefits contributions software that helps maintain the HIPAA-compliant records that are required by the government. There are complexities with defining and communicating this type of plan to your employee base, but ongoing administration is generally considered to be easier for human resources departments and benefits brokers alike. The education of staff members should begin early in the year, allowing plenty of time for questions that could lead to detailed follow-up or investigation, especially for businesses that are considering changing their benefits contributions model. With a defined contributions model, employers often find that introducing the terminology and approach early in the year allows time for staff members to master the steep learning curve of this new way of approaching their healthcare benefits. Younger employees with fewer ongoing medical expenses are more likely to adopt this type of model than older individuals.
Will Employees Accept These Changes?
There are a variety of out-of-the-box ways that organizations are seeking to maintain minimum healthcare levels without raising costs above what employees are able to handle. Traditional health plans work much differently than these newer options, such as the high deductible health plans. It’s too easy for employees to select a high deductible plan with the idea of saving money on the monthly premiums, only to find that their healthcare levels are not what their family needs. This underscores why it is so important for education to be a key part of any change to your healthcare plans. This ongoing communication from your human resources department and benefits broker is what helps staff members become more comfortable with their options to be sure they are making the right decision for their families. Proactively providing tools and education can reduce the possibility of buyer’s remorse — disgruntled staff members who are immediately looking for ways to return to their previous (and more expensive!) healthcare plans.
Getting creative with your employee benefits contributions may allow your business to retain the benefits that your employees need without letting costs skyrocket out of control. Your employee benefits agent can help you walk through various scenarios to be sure you are making the right decision for your business. Contact the professionals at Stanley M. Davis today at 510-895-4800 to schedule your complimentary initial consultation or download our free benefits tool: A Smart Small Business Tool for Employee Benefits Contributions.