How Businesses are Handling Changes in Employee Benefits Coverage

Aug 20, 2013

23257515The U.S. is facing massive changes in healthcare costs, as provider fees rise and insurance covers less. CFOs and other senior executives responsible for determining medical benefits costs for employees and their dependents must balance the costs to both the business and the employee to remain competitive and attract the best talent.
Recently, an international Hardesty client began hiring staff in the U.S.  The client, unfamiliar with what American employees might expect, needed real-life scenarios to set benchmarks that would help establish what percentage of employee medical insurance costs the business would cover. As is often the case when our clients face an unprecedented situation, more than a dozen Hardesty partners immediately collaborated, offering their own business experience as a guide.
What we learned was that many businesses, at least those our partners have served, are quickly adapting to insurance changes and the new terms of The Affordable Care Act (ACA). Some of the experiences we gathered included the following:

  • In a December 2012 survey by Kaiser, the average employer contribution for employee-only  was 82-85%, and the average dependent contribution was 67-75%. According to Hardesty partners, the benchmarks were much broader, with companies paying 60-100% of the employee premium and 0-100% of the dependent premium.   Employers paying 100% of the employee’s costs and 50% of the dependent cost are considered generous in most industries.  Employers in hot talent markets such as tech or oil & gas may need to pay more in order to be competitive.
  • Dependent coverage can vary widely, from 0% to 100%, though 100% coverage is very rare.  Under the ACA, employers will not be required to pay any portion of the premium for dependent coverage.
  • Some companies choose to pay a flat dollar amount of the premium.  This is allowable under the ACA as long as the flat dollar amount exceeds 60% of the covered healthcare expenses.
  •   Some companies that do not currently offer health insurance but have over 50 employees with average annual wages below $21,000 are considering paying the penalty in 2015 rather than providing insurance.  The penalties will increase after 2015 so that may no longer be a viable alternative in 2016 or beyond.
  • Employees often balk at the cost of premiums but a thorough explanation of the total after-tax cost provides a better understanding and higher acceptance of the terms.   For example, a high deductible plan where the employer pays 100% of the premium may cost the employee more out-of-pocket than a low deductible plan where the employer pays only 70% of the premium.

Healthcare decision-making can be daunting, but our client was provided with the information they needed to proceed with their U.S. hires within a matter of hours. At Hardesty, sharing knowledge is an important part of the way we create value for our clients. All of our clients gain immediate access to the collective knowledge of the entire team, for any issue that financial leaders might face. Our clients have a strong advantage over those who must rely on an individual executive to make tough decisions.
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