At some point in almost every conversation I have with a credit union executive team or HR manager, a common questions comes up; “How can we reduce employee cost for covering family members on our group health plan?”  The good news is, there is a solution.  The bad news, it’s not easy.  If you’re the kind of person that enjoys a challenge and bucking the status quo, keep reading.

To be fair, I want to warn you, it would take an entire book to fully outline every facet to accomplish your cost reduction goals.  But, I’ll give you the CliffsNotes version.

Step 1 – Is your plan fully-insured or self-funded?  If your medical plan is fully-insured, meaning, you pay a fixed monthly premium to an insurance carrier, you have no control over family cost.  It is fixed at the beginning of each plan year and the only alternative for employee cost reduction is for the employer to pay for more of the dependent cost.

If your plan is partially self-funded, there are strategies you can deploy.  When a plan is self-funded, you only pay for claims as they occur.  In a fully-insured plan, you pay for claims in advance.  Think of self-funding as a monthly liability, you only pay for what you use.  If your group has lower than expected claims in a given month, your liability (expense) for that month is lower.  Conversely, in a fully-insured plan, if your group has lower than expected claims, you will pay more than is necessary to the insurance company.  This fundamental difference in self-funding allows you to control your contribution strategy or how much your employees will pay for family coverage.

Step 2 – What percentage of your employees and dependents participate in your plan?  When your plan is self-funded, it is imperative to get as many employees and dependents on your plan as possible.  In general, the more members on your plan, the better spread of risk you will achieve.  The law of large numbers is the basis behind insurance.  The larger the pool of members sharing in the risk, the lower the cost per member.  If your healthy children are being covered on an employee spouse’s plan, your group plan will suffer.  You must incent employees to add family members to your group plan.  This may seem like a catch-22, but if you increase your group participation, the liability (cost) per member will go down.

Step 3 – Do you have a 5 year employee benefits strategic plan?  If you think managing your benefits plan from year to year will accomplish long-term cost containment goals, you will be sadly mistaken.  Many organizations wait, with anticipation, for their broker to show up with their renewal offer from the incumbent insurance carrier.  Depending on the rate increase, the team will make a decision to have the broker go out to bid or just negotiate with the incumbent carrier for a lower increase.  Just saying this makes me cringe.  This is not managing, it is reacting.  It is critical that you develop a 3-5 year employee benefits strategic plan.  Without a plan, would be like building a house without a blueprint. And, you wouldn’t do that.

As mentioned earlier, reducing the cost of family coverage isn’t a simple fix.  But, if you are determined to attract and retain the best employees possible, it is a worthwhile pursuit.