Employers Offer Incentives to Not Participate in Health Plans

August 23, 2005 (PLANSPONSOR.com) - The Small Business Basic Medical Coverage Survey by Salary.com found a little over 14% of employers offer incentives to encourage employees not to participate in their medical plans.

The most popular incentives for non-participation used by employers were cash rebates of a percentage of the cost saved, employer contributions to a Health Savings Account, an increase in annual salary, and employer contributions to other employee benefits.Richard Cellini, Head of Research at Salary.com says, “Salary.com estimates that many companies could offer employees a 10% salary increase (in lieu of plan participation), and still lower total payroll expenses in a given year,” according to a news release.

The news release reported that half of the 304 surveyed companies had health care cost increases yearly of 10% to 20%. Sixty four percent of small business employers report trying one or more strategies to contain health care costs. The most commonly reported strategy (35.2%) was increasing employee co-payments for medical services. Changing medical plan type was the second most common cost reduction strategy used.

A little over 21% of companies surveyed said they have increased the employees’ share of medical premiums in order to curb the company’s cost of providing this benefit.

Other interesting survey results mentioned in the news release include:

  • Only 1.7% of participating companies report joining forces with other companies through a buyer’s cooperative to purchase basic medical insurance. Still, survey results show a substantial uptick in the number of small businesses willing to seriously consider this strategy in the future – making group healthcare purchases a new trend-in-the-making.
  • Despite the variety of medical plans available today, three plan formats have emerged as favorites among small businesses: Preferred Provider Organizations; Health Maintenance Organizations; and Point of Service providers. Less than 10 percent of small businesses responding offer any other format.
  • 32.2% of Micro-Employers (1-20 employees) offer fully-funded medical coverage (requiring employees to pay nothing toward the cost of medical care premiums). As companies grow in size, fully-funded medical coverage becomes increasingly rare. Less than three percent of the largest small companies (200+ employees) offer fully-funded medical plans.
  • 31.7% of Micro-Employers (more than any other small business segment) offer completely unfunded medical coverage (requiring employees to pay 100 percent of all premiums due).
  • Straddle companies (100-150 employees) report the highest per-employee healthcare costs (17.7% of gross annual payroll, versus an average 14.6% for all small businesses). Additionally, Straddlers report a higher rate of increase in the cost of medical coverage (11.4% for 2004/2005) than almost any other group of small businesses. Perhaps as a result, Straddlers offer employees the smallest contribution toward the cost of medical coverage (45.2% on average). Straddlers are also more likely than any other small business segment (except Micro-Employers) to offer employees completely unfunded plans (with 28% of all Straddlers offering such plans).
  • The largest small companies (200+ employees) are able to leverage their relative size for the benefit of employees. On average, these so-called “Giant Midgets” pick up 62.5% of the cost of medial premiums – one of the very best deals offered in the small business category.

The 304 survey respondents reported from 1 to 500 full-time employees. The full survey results can be found at http://research.salary.com .