According to a recent survey, four in 10 American workers live paycheck to paycheck. This means that an unexpected illness or injury that takes someone off the job for more than a few days can have devastating consequences for many of your employees who depend on their wages to survive.
You as an employer can help by offering group disability insurance to your employees.
What it covers
This insurance helps replace a portion of a worker’s income if they loses their income due to an injury or illness. Generally, the benefits are paid monthly for the duration of the illness or injury, and only cover a portion of lost wages.
Typically, disability insurance policies will replace between 50 and 65% of a worker’s income.
Broadly speaking, there are two kinds of disability insurance policies — short-term disability insurance for events that disrupt income for less than 90 days, and long-term disability policies, which cover benefits for a longer period of time.
Advantages of group coverage
Group disability coverage has advantages for both the employer and the workforce. Advantages to the employer include:
Reduced costs compared to offering individually underwritten policies to everyone.
Increased employee loyalty — especially after someone on the payroll has a claim and word gets out that these valuable benefits kicked in.
Tax-deductible premiums.
Easy, streamlined administration.
List billing.
Advantages of group disability insurance to the worker include the following:
Affordability. The employer subsidy makes it possible for workers to get coverage they would be unable to get on their own.
Pre-existing conditions that would make it impossible for employees to get coverage as individuals, may be waived in a group plan.
Streamlined application process — no medical exam required.
No prior year tax returns or income verification are required. The employer reports income information to the disability insurance carrier.
In addition, some policies are portable: If an employee leaves the company, they can sometimes keep the policy, though they lose the employer subsidy. Portability is an important feature, because disability insurance can be difficult to qualify for on the individual market.
Disadvantages
All coverages have advantages and disadvantages. These are some of the disadvantages:
Less flexibility. Managers and supervisors may have different needs and risk profiles compared to rank and file employees.
Less coverage. Some workers may be able to get more robust plans on the individual market than carriers offer via group plans.
Benefits are taxable to the recipient.
More restrictive definitions. With disability insurance policies, the definition of the word “disability” in the contract itself is of paramount importance. For example, some policies, known as “own occ” policies, pay benefits if you cannot work in your own profession. Other policies will not pay benefits if the worker can work in any occupation. All things being equal, own-occ policies are preferable — but they tend to have higher premiums, and are less prevalent in the group disability insurance market.
Taxation of disability insurance
Group term premiums are generally deductible to the company as a business expense, just like any other wage expense. The value of the premiums, however, is not usually taxable as income to the worker.
Disability insurance benefits may or may not be taxable, depending on the circumstances.
Generally, if the recipient didn’t pay taxes on the premiums, then the benefits are taxable as ordinary income. This is true for most employer-paid group health insurance plans. If the employee paid part of the premiums, then a similar percentage of benefits will be tax-free.
It always takes more time than usual to onboard new employees — particularly ones who are new to the workforce altogether — to your employee benefits plans.
Keep in mind that the ritual of choosing a benefits package is a brand-new experience for people who are new to the workforce, and you should prepare to educate new employees on how to effectively choose and use their new coverages, as well as all the details like premiums, deductibles and out-of-pocket expenses.
The importance of this can’t be overstated. If they are not educated on their options and how health plans work, those new to employment can make poor decisions that could have serious financial repercussions. Indeed, a 2021 study found that 29% of Gen Z respondents are carrying medical debt.
If you can help them avoid amassing medical debt, and if they can get the most out of their benefits, you can increase worker satisfaction and retain key talent.
To help these new recruits get the most out of the benefits you offer, you can start by focusing on the following:
School them on health insurance
To many new Gen Z recruits, signing up for health insurance and actually using their benefits is a foreign concept. Many of them may have stayed on their parents’ health plans and they may have no idea exactly how it works. Take the time to help your new hires understand the math behind choosing the right plan for them.
You’ll need to set aside time to teach them about:
Their share of premiums — Explain to them that the payment of health insurance premiums is split between the employer and employee, and that their share of premium may vary depending on the health plan they choose.
Deductibles — Explain how deductibles work and that depending on their plan they may pay the full price for health care services until they’ve met their deductible. This is especially important if they are signing up for a high-deductible health plan (HDHP).
Copays — Every plan has a different copay that your employees are liable for. Typically, the higher the premium up front, the lower the copay. And some copays may only kick in after an employee has met their deductible.
In-network vs. out-of-network care — Most health plans have networks with which the insurer contracts to receive preferential rates that they negotiate with providers. It’s important that health plan enrollees understand that if they seek care outside of the network, they may end up paying for the care themselves with no assistance from the insurance company (except in some circumstances).
Relate to them the high cost of going out of network and the importance of seeking care from in-network providers. Also teach them how to find in-network care and how to shop around for different treatments and procedures.
The freebies — Under the Affordable Care Act, health plans are required to cover a list of 10 essential services, particularly preventative procedures like colonoscopies.
Tax-advantaged accounts — If you offer health savings accounts (which must be tied to HDHPs), flexible spending accounts or health reimbursement accounts, it’s important that you explain how they work, and how employees can fund these accounts with pre-tax dollars.
The various accounts have different rules for what services or medical costs can be reimbursed by these accounts. Explain how and if they can carry over excess funds at the end of the year to the following year for FSAs and HRAs, and how HSAs can be kept for life — and that they can invest the funds in those accounts much like they would a 401(k) plan.
Financial wellness
Most students in the U.S. get very little, if any, education about managing their finances, and it’s falling on employers to help their workers make smart financial decisions so they don’t find themselves swimming in a sea of debt or not having any funds set aside for emergencies.
HR teams and managers can reduce this stress by implementing programs to help educate new hires to understand their benefits packages, particularly if you offer a 401(k) plan. You can teach them about these tax-advantaged accounts and the importance of saving for retirement.
If you match their contributions, explain how that works, particularly how the longer they stay with you the more they are vested until they reach 100% after a certain number of years of service.
Continuing education
You can keep the benefits conversation going all year by having an open-door policy for your employees if they have questions or concerns about their benefits.
Most plans include a number of resources and websites where they can get a full picture of their benefits and how they work.
The takeaway
Educating your Gen Z employees about the benefits they receive from your organization, and helping them make the right decisions, will boost their overall job satisfaction.
The work you do will also show them their employer cares about their well-being, health and financial success. That builds loyalty and helps you retain key talent.
July 1 was the deadline for health plans to make public their in-network negotiated rates, out-of-network billed charges, and more.
While health plans will be required to post this information, employers who sponsor their group health insurance for their employees will need to take steps to ensure that their plans comply with the law, if they have not already done so.
The transparency rules taking effect were ushered in by the Consolidated Appropriations Act of 2021 and rulemaking from the 2020 Transparency in Coverage Rules by the Centers for Medicare and Medicaid Services.
The rules require that non-grandfathered insured and self-insured group health plans post machine-readable files on a public website no later than July 1, 2022. A public website, under the rules, is one that does not require a log-in or password to access.
The machine-readable files should include:
In-network rates for each item or service provided by in-network providers, including any negotiated rates, fee schedule rates used to determine cost-sharing, or derived amounts — whichever rate is applicable to the plan.
If a rate is percentage-based, include the calculated dollar amount, or the calculated dollar amount for each National Provider Identifier-identified provider if rates differ by providers or tiers. Bundled items and services must be identified by relevant code.
Out-of-network allowed amounts and billed charges with respect to covered items or services, furnished by out-of-network providers during the 90-day period starting 180 days prior to the machine-readable file publication date.
What you need to do
Plan sponsors:
Must update the machine-readable files at least monthly. So, you should establish processes to coordinate regularly with the carrier in an insured plan, and with the third party administrator in a self-funded plan. You should confirm the date your insurer will make available the machine-readable files each month.
Should check with your insurance company if they will be hosting on their public-facing websites the machine-readable files, or if the insurer expects the employer to post the machine-readable files on their own public site.
Should Identify the plan or plans you sponsor and retrieve the links to the machine-readable files for each plan.
Should post the machine-readable files on your public-facing website if the insurance company has decided to delegate this responsibility to the employer.
Should post a link on your website to the insurance carrier’s website if the insurance company plans to publish the machine-readable files on its site. However, if the group health plan contract states that the insurer is fully responsible for posting these files, this may not be necessary.
More employers are including narrow provider network insurance plans among their plan offerings to their employees to give them a lower-cost premium option.
Narrow provider networks limit the number of covered providers included in health insurance plans. While these plans have been mainstays on Affordable Care Act marketplaces, employers have been slow to adopt them.
But according to the Willis Towers Watson “Health Care Delivery Survey,” 18% of large employers offer a narrow network — also known as a high-performance network — in their employee health plans. Those numbers are expected to have grown to an estimated 25% in 2022, experts say.
Premiums for such plans cost 16% less on average than plans with broad networks, according to a study in the journal Health Affairs of plans sold on the individual health insurance market.
If an employer wants a more economical premium cost, choosing a plan with a limited (or narrow) network may help. Those who want greater choice may pay more for access to a network with more providers. Narrow networks include all specialties, but a smaller network may offer only two podiatrists, for example, while a larger network may offer 10 or more.
What they are
An insurer that offers the narrow network plan will contract with a local, community-based medical provider, large enough to ensure they have all the specialties needed for the insurance plan.
Typically, these plans feature fewer doctor and specialist choices, but they are, by law, required to have all medical specialties represented in their network. Many people think the plans are restrictive, but that’s not the case. The main driver of these plans is their focus on coordinating care and the central role of the patient’s personal physician.
On top of that, insurers say that providers in these narrow networks have track records of delivering care more efficiently and cost-effectively by focusing on improving patient health rather than billing for more services.
Cost savings: In exchange for a narrower network, up-front premiums are often lower than other plans that have more choices of providers.
Additionally, narrow networks control longer-term costs by encouraging enrollees to go to their primary care providers first with any new health concerns or issues, instead of going straight to a specialist. Increased use of primary care physicians and less use of specialists can also help control your employees’ out-of-pocket expenses.
The drawbacks
These plans are not for everyone. For someone who may not use their health insurance much, a narrow network could be ideal. But for many people the narrow network may not include their personal doctor and hospital that they are accustomed to going to.
And in some cases a specialist could be miles away, requiring a long drive. This is something for parents of young children to consider when choosing a plan.
Also, even if you have staff that focus on staying in-network, sometimes going out of network is unavoidable. And many narrow network plans do not cover any services outside of their network, while others may cover a small portion.
Under the Affordable Care Act, health plan enrollees are protected from massive medical bills because health plans are required to limit the amount of out-of-pocket costs to $8,700 for an individual and $17,400 for a family. But that applies only to services from an in-network provider. There is no limit if your employee goes out of network.
The takeaway
Employers know they need to offer health benefits to attract and retain top employees.
Narrow network plans provide a way to contain costs without sacrificing care, but because they’re comprised of local, community-based medical providers they’re best for a workforce that works at a single location and therefore lives within proximity to the job site/office.
A new study has found that many people in employer-sponsored health plans are enrolling in plans that are costing them more than they ought to be paying.
Many employees choose pricey plans with low deductibles, which force them to spend more up front on premiums to save just a few hundred dollars on their deductible.
As result, many employees are spending hundreds, if not thousands of dollars more on their health care/health coverage than they need to.
Study 1: The deductible angle
A study by Benjamin Handel, a U.C. Berkeley economics professor, found that the majority of employees at one company he studied were in the highest-premium, lowest-deductible plan ($250 a year) their employer offered.
This resulted in them spending about $4,500 a year on health care, compared to only $2,032 had they gone with the cheaper plan (which had a $500 annual deductible) and received exactly the same care.
Study 2: Too many choices?
Additionally, the research paper “Choose to Lose: Health Plan Choices from a Menu with Dominated Options,” published in the Quarterly Journal of Economics, found that more choices also didn’t yield more savings for individuals in employer-sponsored plans.
The study examined the health plan choices that 23,894 employees at one large U.S. employer made. They were able to choose from 48 different combinations of deductibles, pharmaceutical copayments, co-insurance and maximum out-of-pocket expenses. All of the plans offered the same network of doctors and hospitals.
As a result, workers paid an extra $528 in premiums for the year to keep their deductible at $750 instead of $1,000. In other words, they paid $528 to save $250.
For nearly every plan with a deductible of $1,000 (the highest deductible available for those seeking single coverage), the additional premiums required to reduce the deductible, with all other plan attributes fixed, exceeded the maximum possible out-of-pocket savings provided by the lower deductible.
The study also found that the lowest-paid workers were significantly more likely to choose dominated plans (the most expensive).
Both of the studies above looked at plan options with relatively low deductibles when compared with high-deductible health plans, which have become more popular with time.
In 2018, the minimum deductible for an HDHP is $1,350 for an individual and $2,700 for a family. But, under current regulations, total out-of-pocket expenses are limited to $6,650 for an individual and $13,300 for a family with a HDHP.
While these plans have gotten a bad rap lately, a study published by the National Bureau of Economic Research found they are often cheaper for employees, as well.
The authors, both from the University of Wisconsin-Madison, found in a study of 331 companies, that at firms offering both a HDHP and a low-deductible plan, selecting the HDHP typically saves more than $500 a year.
Strategies
To help offset the cost of a HDHP, you can offer your staff health savings accounts (HSAs), which offer a tax-advantaged way to save for health care costs. While there are annual contribution limits, HSAs allow your employees to roll over their balance from year to year. The funds they contribute to their HSA are pre-tax, so the savings are significant.
The Wisconsin-Madison authors surmised that many people choose the costlier health plan for two reasons:
Inertia – It’s easier for consumers to stick with their old plan rather than crunch the numbers to see if a new plan may be more appropriate.
Deductible aversion – When employees see a low-deductible plan they may associate it with better quality care, even though the network and coverage may be the same.
The best strategy to guide your staff to the plan that best suits them is to educate them. You should have workshops for your staff prior to open enrollment, to help them understand why the higher-deductible plan may often be the best choice for them if they want to save money on their overall premium and out-of-pocket expenses.
Ideally, you could encourage them to set aside the same amount of money in their HSA that would be enough to cover their deductible. This way, your employees would not feel burdened by health expenses they may have to pay for during the year.
The health care sector is not immune to the effects of spiking inflation, and the increasing cost of care is likely to spill over into health insurance — but it’s uncertain by how much.
Mid-year is the time that health insurers start setting their pricing for the upcoming year, and they are currently locked in what one trade publication calls “bloody” contract negotiations with doctors and medical networks to secure the highest prices they can for their services.
Hospitals and medical services facilities such as labs and imaging centers, like other employers, have to contend with the volatile job market and the spiking cost of supplies and machinery.
But the effects on health plans are still unclear as insurers can reduce the impact of higher costs by paring down networks, scaling back some benefits. This may be the case for smaller insurers that have less clout than their larger counterparts, but experts say that inflation will have a greater effect on rates than in recent years.
Add to the equation recent interest rate hikes by the Federal Reserve, which will increase health systems’ borrowing costs and even impede funding for new capital projects.
When they negotiate network rates with insurers, providers take into account all of their own costs when tabulating their offers.
Using spiking inflation as leverage
The trade publication Modern Healthcare noted in a recent report that escalating costs have already influenced contract negotiations between medical providers and insurers.
According to Modern Healthcare, providers that are currently in negotiations “can use inflation as leverage, given that physician groups’ and hospitals’ daily operations are tied to the rising cost of gas, food and other goods.”
It predicts also that providers will argue that more people will forgo or delay care as inflation eats into their expendable income, which in turn will increase the cost of care in the long run as those untreated issues develop into serious ailments.
Medical providers and insurers usually negotiate new contracts every three years, so those hospitals and doctors that renegotiated last year or in 2020 will have to absorb their higher costs. Inflation is already built into these contracts, which didn’t anticipate the higher levels we’ve witnessed in 2021 and 2022.
That leaves them in a bind since insurers won’t be willing to renegotiate contracts that include provisions offsetting higher-than-expected inflation.
It’s due to these pre-negotiated contracts that employers didn’t see a surge in their premiums coming into 2022. But that may change as new contracts come into effect.
While the industry was not terribly affected by inflation in 2021, recent data suggests it’s starting to hit health care providers.
Hospitals’ average labor expense per adjusted discharge in March 2022 rose 15% from the same month in 2021 and 32% from 2020, according to the Kaufman Hall “National Hospital Flash Report.”
Meanwhile, providers are paying more for supplies and equipment, as well. Non-labor expense per adjusted discharge rose nearly 26% compared with February 2020.
How will my premiums be affected?
The big question of how much of these increased costs hospitals and other providers will be able to pass along to health insurers and patients remains. For certain, inflationary pressures will be a topic of discussion during contract negotiations for 2023.
While rates for group health plans are still being set, many carriers have already filed 2023 rates for plans they sell on Affordable Care Act marketplaces. Average rate hike filings for 2023 have been hovering around 7.5% in mid-2022.
