Whether you're a business owner or an employee, you've likely heard of group health benefit plans.
What you may not know is that these "traditional" insurance-sponsored plans generally possess some significant drawbacks that are not readily exposed at first glance.
Despite their shortcomings, group health benefit plans are still a common way for businesses to offer benefits to their employees. In this case, the employer pays a premium to the insurance company, which in return compensates employees for covered health and dental expenses.
However, it is important for business owners to know what they're getting themselves and their employees into when they opt for a traditional insurance plan.
1. Limited Eligible Expenses
Unfortunately for employees, group health benefit plans are typically very limited when it comes to the types of expenses that may be claimed. Generally, these plans cover basic health and dental expenses only, including basic dental, prescriptions and some vision. Individuals who require other types of medical expenses (for example, orthodontic or chiropractic) for themselves or their family members are usually "out of luck" in terms of receiving compensation from this type of plan.
A "copay" or "copayment" refers to the case where an individual must share in the cost of a health or dental expense with the insurance provider. Often, traditional insurance plans will cover up to a certain percentage or maximum dollar amount for an eligible medical or dental service, forcing the individual to make up the difference. For example, a group health benefits plan may state that the insurance provider will pay up to a maximum of $200 every two years towards prescription eyeglasses; if the pair of glasses in question costs $450, then the individual must pay the remaining $250 personally.
3. Not All Employees Are Eligible
Of course employers want to provide excellent coverage to all of their employees. However, it's important to recognize that some group health benefit plans exclude certain employees from coverage. For example, if you hire someone with a pre-existing medical condition, the insurance company can refuse to cover them. The same can happen to employees who are over a certain age. In addition, part-time employees are usually excluded.
4. Not Used By Employees
Given the restrictive nature of most group health benefit plans, some employers are finding that they simply are not being used by their employees, which leads to a significant waste of time and money. Instead, recent studies indicate that employees are seeking customization of benefits, permitting them to pick and choose which medical expenses they wish to have covered for themselves and their family members. The limited menu of eligible expenses covered by traditional plans are of no use to many individuals these days.
The cost of traditional group insurance seems to increase year after year. This effect is commonly referred to as "premium creep" and is often an unforeseen growing expense for employers. In fact, many employers are shocked when plan renewal time comes around and premiums increase by 10% or more each year when inflation is currently running at less than 2% annually.
6. Cost Uncertainty
As identified in the previous point, traditional plans are associated with premium creep, which introduces an element of cost uncertainty for employers. Given that traditional plans generally increase each year at an unknown yet significant rate, employers are faced with the inability to accurately budget for employee health benefits. This can become a real issue for employers who are attempting to allocate sufficient funds to benefits program that will attract and retain desirable talent, while ensuring that other business initiatives are also suitably funded.
7. Not Really Insurance
In essence, insurance is generally reserved for unforeseen events that possess a low probability of occurring along with a high cost if experienced. Consider your home burning down: it's relatively unlikely to occur, but if it does, there is a tremendous cost associated with the event. In this example, insurance is a must-have.
Now consider the basic types of health and dental expenses covered by traditional group "insurance". The expenses covered include services such as a dental cleaning, obtaining prescriptions and vision checkups. The probability of these types of events occurring for the average person is likely to be moderate-to-high, but the cost of such occurrences are considered to be relatively low.
And remember that insurance should be designed to protect you against the risks of the unknown. Yet, these regular health and dental expenses are generally expected. So why is traditional group insurance actually considered to be "insurance"?
In fact, if one examines the ever-increasing premiums paid by a business for this type of "insurance," one will find that the costs of the coverage outweighs the out-of-pocket costs of paying for these expenses personally.
8. Better Solutions Available
Even if they did know all of the drawbacks associated with traditional group health benefit plans, many employers still opt for them because they’re not sure what other options there are.
However, there are much better options available to employers seeking to provide adequate health and dental benefits to their employees.
When it comes to routine healthcare costs, a business owner will have a difficult time finding anything that outshines a Health Spending Account (HSA). With an HSA, employees and their dependents will be able to access a much wider range of healthcare products and services. In addition, an employer can determine in advance each year how much they want to spend on funding an HSA, which provides cost-certainty.
Business owners use an HSA as a tax vehicle to convert personal medical expenses into a legitimate business expense. In the process, the business saves thousands of dollars in taxes. With no premiums, restrictions, and considerable savings, the HSA has become the go-to alternative for employers in the know.
And, importantly, an HSA helps employees live happier, healthier, more productive lives through a suite of health and wellness benefits they actually want.
Are you an incorporated business owner with arm's-length employees? Learn how the Olympia Health Spending Account can provide cost-certainty and significant value for your employee benefit program by downloading our free guide: The Beginner's Guide to Health Spending Accounts.