With health care reform dominating our attention and health insurance costs dominating our insurance benefits budgets, the time spent on the management of other benefits, such as dental and disability, can become limited.
For employers with 50 or more employees, an often overlooked savings opportunity is within employer-paid dental and short-term disability benefits.
Because most employer dental plans have an annual benefits maximum between $1,000 and $2,000, dental benefits function more like a spending account than insurance. Many, for example, would not consider paying $350 in premium to insure $1,500 of risk to be cost-effective. Thus, it is important to assess if insuring your dental plan is prudent.
Regarding employer-paid short-term disability plans, the high year-to-year volatility in short-term disability claims causes insurers to seek higher profit margins; however, this volatility is tempered over a three- to five-year period. Thus, it is also important to assess the prudence of insuring your short-term disability plan.
The good news is that many dental and disability insurers are happy to continue adjudicating your claims for a reasonable fee, while your organization funds the underlying claims. Under this arrangement, your underlying benefit design can remain the same or be enhanced through available plan savings. Alternatively, plan savings can be used to enhance other benefit programs or be invested in other key business areas.
If you have at least 50 employees, ask your benefits adviser or broker to compare your historic and projected dental and short- term disability claims to your historic and current premiums.
Alternatively, invest two hours of your time and run this analysis yourself as follows:
1. Ask your dental and short-term disability vendor to provide you with a report that lists the last 24 months of monthly enrollment, claims paid and premiums paid.
2. Ask your dental and short-term disability vendor what they would charge your company per employee per month in administrative fees under a self-funded arrangement.
3. Looking at each plan separately, multiply your total enrollment for the 24-month time period by the per-employee-per-month administrative fee obtained in Step 2. Add this total to your total claims for the 24-month period. Subtract this new total from your total premiums for the period. The resulting number is the amount you would have saved if your plan had been self-funded (or lost if the resulting number is negative).
4. Project out your claims for the next 12 months, add in your projected administrative fees, and compare this total with your projected premiums for the next 12 months. Calculate the self-funded plan’s reserve requirements (run-out claims plus administrative expenses).
5. Finally, in addition to the above mathematics, consider your risk tolerance, tolerance for month-to-month expense volatility, and projected plan enrollment stability. Then, decide if making this funding change makes sense for your organization.
