How to Build Cost Containment into Your Employee Benefits Plan
By: Benefits by Design | Wednesday October 11, 2017Updated : Wednesday June 15, 2022
It’s no secret that providing an employee benefits plan can be costly to a business. The trick is ensuring that your financial investment pays off.
Now, we believe that any investment in your employees and their benefits plan is a step in the right direction. However, we also understand that many employers are working within a budget.
Whether you’re new to benefits, or already have a plan in place, cost is important.
Here are a few methods of building cost containment into your benefits plan:
New to Group Benefits? Try These Cost Containment Measures
#1. Start Small and Grow
Well-intentioned employers can quickly get in over their heads in providing benefits and end up spending more than they can afford. This usually results in cutting benefits coverage, something that feels bad to employers and employees both.
Instead, consider starting smaller and having your benefits plan grow with you. Prioritizing coverage to the essentials will focus your plan and keep you from spending money on benefits your employees won’t use.
#2. Know Your Benefits Philosophy
Your benefits philosophy is the “why” behind your plan. Every business is going to have slightly different motives here (although there are common philosophies).
Knowing your benefits philosophy will help inform your decisions as to which benefits to prioritize, and therefore which ones to focus your dollars on.
#3. Consider a Health Care Spending Account (HCSA)
A Health Care Spending Account (HCSA) provides coverage for eligible health and dental expenses and can be set up as a top-up to existing coverage, or as a benefits plan in its own right. Employers determine a dollar amount to provide to each employee per year — let’s use $1,000 as an example — which employees can then use on eligible expenses of their choice.
In a company of six people, employers can easily budget for their overall budget spend ($1,000 x 6 = $6,000/year*), and may even elect for additional cost containment by allocating that $1,000 in monthly, quarterly, semi-annual, or annual installments.
*It’s worth noting that there are usually additional administration fees and taxes on top of this, but these too are predictable.
Have a Benefits Plan Already? Try These Cost Containment Measures
#1. Switch (Some) Coverage to a Health Care Spending Account (HCSA)
A Health Care Spending Account (HCSA) can be a viable option to provide cost containment to some health and dental expenses. One of the most common examples is with paramedicals such as massage or chiropractic therapy, which are one of the more frequently claimed (and therefore costly) expenses on a health plan.
Consider removing paramedicals from the Extended Health Care (EHC) benefit and offering an HCSA with a set amount of dollars instead. This will allow employees who want to use their dollars on paramedicals the option to do so, while still providing additional coverage for employees to use on other expenses, as well as cost containment for the employer.
#2. Budgeted Administrative Services Only (ASO)
If you already have a relatively stable benefits plan in place, you may want to explore switching your funding model to a Budgeted Administrative Services Only (ASO) solution.
You’ll be given a predictable monthly bill based on your previous claims experience. This providing a measure of cost predictability that will better allow you to budget for your benefits plan.
#3. Decrease Paramedical Maximums or Offer a Combined Maximum
As we covered above, paramedicals are often a costly benefit. This doesn’t mean they should be removed entirely — after all, the reason they’re costly is because employees want and use the benefits — but can be capped.
Paramedicals often have a maximum dollar amount per practitioner. Once employees hit the maximum, they can’t claim anymore until the maximum resets with a new benefit year. Reducing these maximums may lower your overall costs. Alternatively, employers can set up a combined maximum for all pracitioners — such as $1,000 — to allow employees choice while still controlling costs.