High-Value Employee Benefits at a Reasonable Cost
This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.
Employee benefits can add 35% and more to payroll costs. Cutting benefits might be one way to trim expenses. But, there is more than one path to cost savings.
My inclination is to develop a budget and then find benefits that meet but don't exceed small-business resources. I reversed my thinking on this approach after speaking with Ryan Hanley, New York State licensed life, health, and property/casualty insurance broker for the Guilderland Agency in Albany, New York. He advises to discover employees' needs and wants, design an employee benefits program suited to those needs and wants, and then find ways to pay for the program — all in a fiscally conservative manner.
Some employee benefits that your small business might offer include life, disability, dental, and vision insurance. (Benefits can also include healthcare insurance, flexible work hours, and paid vacation.) Costs can vary widely depending on the employee group and its job functions, industries, locations, and average ages. I've gathered some estimates to consider as you develop your benefits program.
Life Insurance
Life insurance may cost $.01 to $.06 or more for every $1,000 worth of coverage. Benefit amounts generally equal 1-2.5 times the employee's salary. Often, businesses will select coverage based on affordability, not an analysis of each employee's needs for providing replacement income.
Disability Insurance
Disability-insurance premiums are generally expensive, running 1.5% to 6% of each employee's salary. Underwriting guidelines influence costs as well as plan features and benefits, such as:
- Waiting period (also known as elimination period; number of days after disability occurs and start of disability payments)
- Amount of monthly benefit (fixed amount or percentage of income)
- Benefit period (fixed period, such as five years, or from start to retirement)
Selecting an insurance plan and carrier should involve considering processes and costs associated with claims administration and case management that might include return-to-work and rehabilitation components. Note that short-term disability insurance and long-term disability insurance are typically packaged and sold separately.
To address employee expenses associated with a disability, be creative but supportive. Your small business could offer less expensive accident and specified-disease insurance as well as paid sick days and personal leave days either in addition to or in lieu of disability insurance.
Dental Insurance
Monthly premiums can start as inexpensively as $5-10 per month for a basic preventive plan that covers a couple of dental visits each year. Pricier policies with broader coverage can run $50 per month or more; these plans offer reimbursement of expenses for preventive services, fluoride treatments, x-rays, and fillings as well as major dental procedures.
Ryan told me that you can purchase a standalone dental insurance program or a dental rider to your medical insurance. Either way, dental plans can be structured like healthcare plans with dental health maintenance organization (DHMO), exclusive provider organization (EPO), preferred provider organization (PPO), and traditional (indemnity) plans. There are also scheduled plans that pay specific amounts for covered procedures.
Consider the following when evaluating plans:
- Services covered (preventive, basic treatments, major dental procedures, and orthodontics)
- Reimbursement rates and cost-sharing provisions such as annual deductibles, co-insurance, annual limits, and lifetime maximums (there may be separate limits on dental and orthodontics)
- Availability of qualified in-network providers (relevant to DMHO, EPO, and PPO plans)
Vision Insurance
Vision insurance premiums are relatively inexpensive (about $20 per month) and, like dental insurance, can be purchased as a rider to medical insurance or as a standalone product. Policies typically pay for an annual eye exam plus full coverage or a stipend for the purchase of eyeglass frames or lenses either once per year or every two years.
Employee Benefits Program
When you discuss benefit packages with your insurance broker, ask about the number or percentage of employees participating to qualify for group rates. If too few employees participate, then you may need to investigate 1) benefits of greater interest to your employees that will attract more participants, or 2) the possibility of offering individual policies instead of contracting to provide a group plan.
Employers — small businesses and large corporations alike — are tightening budgets in all categories, including employee benefits. To offer a strong program that attracts and retains the best employees, Ryan recommends considering opt-in, employee-paid plans. Employees can still reap cost savings through group rates and the use of pre-tax dollars. Many will appreciate the convenience of making purchase decisions among a narrow number of choices once every year. They may also like having payroll deductions that help them to set aside and pay for ordinary, recurring expenses associated with dental and vision care, and provide asset and income-replacement protection.
Carefully selecting coverage amounts is a crucial first step to controlling costs. Moving from an employer-funded to an employee-funded model can allow a small-business owner to offer an attractive program that employees value, even if they foot much of the bill.
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