Is my benefit plan’s cost sharing sustainable?

By: Billi Moyer

The rate of inflation for health care is well above Consumer Price Index (CPI). As rates for your group benefit plan escalate, are the cost sharing arrangements of your plan aligned to produce the results that you want over time?

Traditionally, plan costs were contained through deductibles where employees would pay a fixed dollar amount before receiving benefits from the plan. While this is effective at having employees participate in cost sharing, the flat dollar amounts remain constant while plan costs increase. A flat dollar deductible which represented 10% of costs in 2002 now represents only 3.6% of costs for the average plan and as a result the employer has to cover a larger percent of the cost.

Another component of a cost sharing arrangement is employee participation in premium payments through payroll deductions. Although this arrangement can be more effective at combating inflation, employees are likely to increase their usage of the plan to receive value for their money. When employees contribute through payroll there is a tax advantage to applying their payment to certain benefits first. (more…)

What is a pre-existing condition clause?

By: Joanne Martelli

A pre-existing condition clause states that a plan member will not receive Long Term Disability benefits if they are disabled due to an illness they received treatment for during a specified period of time before and after becoming eligible for group benefits. The length of this exclusion period varies from contract to contract.

This clause is a standard—but often overlooked—provision in group benefits contracts. Insurers include it for new hires because medical evidence of insurability is not required for new plan members. This is an advantage to the newly hired employee.

However, the insurer does not want to risk a costly LTD claim for an illness the new employee already has, since it has no medical information for guidance. So they include the pre-existing condition clause.

Plan administrators often fail to review this clause with new hires, and new employees may mistakenly believe they automatically have this benefit. (They would, however, be eligible if they were to be diagnosed with a new illness or disease.) This oversight can lead to unnecessary confusion and emotional stress for an employee. (more…)

Can I be rewarded for taking on more risk?

By Billi Moyer

The well known relationship between risk and reward applies to employee benefits plans. Employee benefits are group insurance programs. Insurance is protection against risk. So by taking on more risk you can be rewarded in the form of a lower premium.

Many companies are switching to Administrative Services Only, or ASO arrangements. This move saves the company the risk premium because, in effect, the company is acting as the insurer. The insurance company only administers your plan. But is the reward of lower premiums worth the associated risk?

There are three types of accounting arrangements for employee benefits—non-refund, refund and ASO.

At the risk of over-simplifying these arrangements, in non-refund your premium changes based primarily on your group’s claims. With refund accounting, if your claims are lower than the insurance company projected you are refunded a portion of your premium (and if they are higher your premium increases).

With ASO, you pay the insurance company to adjudicate your claims. Your company pays all the claims group members make. Many small companies are switching to ASO because they can save money up front. They are assuming more risk.  (more…)