Cut health costs by dangling the right opt-out incentives — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Cut health costs by dangling the right opt-out incentives

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in FMLA Guidelines,HR Management,Human Resources

Issue: Employee health premiums have jumped 73 percent since 2000 and are predicted to rise 10 percent more in 2006.

Benefit: Offering employees a lump-sum payout or other incentive to drop coverage can save your organization huge dollars.

Action: Offer the right incentive, enough to entice, but still save money, and organize your program correctly.

When it comes to employee health premiums, "good news" is relative.

This year, average premiums rose 9.2 percent, ending four straight years of double-digit increases, according to a Kaiser Family Foundation study. But that growth rate is still two-and-a-half times the inflation rate. And a separate study predicts that average premium increases will run about 10 percent in 2006.

Advice: You can shift only so much of the cost burden to employees without inciting a revolt. So, one way to cut costs is to decrease the number of participants in the plan. To do that, more employers are offering employees a lump-sum cash payout or other incentive to decline health-insurance benefits.

Fourteen percent of smaller businesses (200 or fewer employees) now offer to pay employees to skip the health care benefits, according to a recent survey. The most common forms of payouts: salary raises, cash rebates and contributions to retirement plans or private health savings accounts.

"If the incentive is appreciably less than the health insurance, it makes sense," says William Dennis, a National Federation of Independent Business researcher. "But it can reach the point of diminishing returns."

To prevent that problem, Dennis suggests that incentives shouldn't exceed $3,000.

Opt-out incentives attract employees who already have access to health coverage through other means, such as their spouse's work-based plan.

One downside: Employees may take the cash and spend it, leaving them with no insurance and increasing absenteeism if they become ill. For that reason, some employers offering opt-out incentives require proof of coverage from another source.

"When an employee opts out of our medical coverage, we reimburse the employee $100 per month," says the HR director of a Fitchburg, Mass. manufacturer. "To be eligible, the employee must provide proof that he or she is covered by another plan."

Another option: Drop coverage altogether and pay a flat-fee stipend that employees can apply toward insurance. Last year, a Wichita trucking company with eight employees stopped health coverage and began paying employees $300 per month for single coverage, $400 for an employee plus one person and $500 for a family. The company saved about $96,000 in one year.

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