This column shares a two-pronged approach for responding to spikes in the cost of health plans. One approach is for employees whose employers continue to offer the traditional group health plans. The second is for employers who need to get the price of providing health insurance to their employees down to a manageable level.

Employees

In most situations, employers pay anywhere from 50 percent to 100 percent of the employee’s health insurance premium, but virtually none of the cost of adding a spouse or children to the plan. In these cases, the cost of adding family members is staggering.

I have a client who works for one of the local junior colleges. They pay all of his premium, but to add his wife and daughter to his plan at work would cost more than $900 per month. Since his employer offered health insurance, he and his family did not qualify for a government subsidy. He stayed on his employer’s plan, and we got a lower-deductible health plan to cover his wife and daughter for $385 each month. They are saving more than $600 per month and getting better coverage. What would your family do with an extra $600?

The employee’s lesson // Don’t put your family on your employer’s plan until you have checked on pricing available to cover them on the open market.  In most cases, it’s simply cheaper. We recommend that you contact an insurance broker rather than going direct to the insurance companies, as an ACA certified broker can advise you on which plans best fit your situation. And their advice is free.

Employers

More and more companies are moving away from employer-sponsored group health plans into defined contribution/private exchange plans. Think about it as the difference between a pension (defined benefit) and a 401(k) (defined contribution). Who in their right mind would ever consider setting up a pension plan now instead of a 401K?

Employers for the first time in history can fix their health insurance costs while offering their employees the opportunity to get better health coverage at a lower cost to the employee and the employer. This is the approach that many companies such as IBM, GE, Sears, Walgreens and most recently Hallmark have begun transitioning to in one form or another.

And much in the same way that employees were not “abandoned” when their employers moved from pensions to 401(k)s, health insurance will continue to be an important part of the benefits package. It will simply be offered in a different way.

S&P Capital IQ in May of this year predicted that by the 2020, 90 percent of the people currently on an employer-sponsored group health plan will not be, and as a result, by the year 2025, U.S. businesses will save more than $3.25 trillion in health insurance premiums while providing better benefits to their employees. For more information on the S&P report, click here.

The employer’s lesson // Don’t renew or buy a group health plan until you have investigated the defined contribution option. If you want to compare your current group health plan to the defined contribution model, a free comparison calculator is available at www.ACAMadeEasy.com under the employer’s tab.