Our 140-employee company currently contributes 75 percent of employee medical insurance premiums with employees picking up 25 percent through payrolldeductions. However, we are merging with a 40-person company that pays employees$210 a month to be used for medical benefits if they choose. These employeesthen have the entire medical insurance premium deducted, pretax, from theirpaychecks.
We have a three-tier premium rate plan and if we decide to pay each employee$210/month, employees enrolling under the family rate would end up paying more,while employees with single coverage would get extra cash in their pockets. Mostof our 140 workers have family coverage, while most employees of the othercompany have single coverage. How can we determine which way is most beneficialto employees?
- Human Resources Manager, E-learning company, Salt Lake City, Utah
A Dear HR Manager:
Giving employees a set amount of health insurance dollars and letting themchoose the plan and pay the difference in coverage (or in some instances getmoneys back) is an unusual approach to contributions. However, more and moreemployers are considering it. The key issue is to decide if the company wants tobe family-friendly. If the answer is yes, than a set percentage of costallocation is appropriate for all coverage tiers. If not, then a fixed amount ofdiffering subsidies at different tier levels is appropriate (for example, 80/20for employee coverage plus 50/50 of the dependent cost).
A middle ground would be to create specific subsidization for each coveragetier and let the employees select what they want. For example, employee-onlycoverage might get a subsidy of $100, employee plus one $150 and family $200,etc.
The carrier or the employer can set the premium rates for coverage that 1)would communicate the value of the subsidy that the employer would be providingand 2) show the actual cost of coverage. An example might be to use thefollowing rates: $125 for single, $200 for employee plus one and $300 forfamily. The plan would then allow the employee to select the coverage tierregardless of their demographic status. An employee with a spouse who doesn'twant family coverage would be allowed to enroll for single coverage.
There is no simple answer. The employer first must decide how it wants to beperceived by its workforce (family-friendly or demographically neutral). Second,it must determine how to communicate the value of the employer subsidy.
SOURCE: Barry Barnett, principal with the health care practice atPricewaterhouseCoopers, Feb. 27, 2001.
The information contained in this article is intended to provide usefulinformation on the topic covered, but should not be construed as legal advice ora legal opinion. Also remember that state laws may differ from the federal law.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.
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