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Cost Reduction and Control Best Practices: The Best Ways for a Financial Manager to Save Money, 2nd Edition by Institute of Management and Administration

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Chapter 3

Benefits Costs

BEST PRACTICES

CUTTING BENEFITS COSTS

With health care cost hikes continuing to take a large bite out of corporate profit margins, employers are increasingly relying on employee cost sharing to help soften the blow. For the past few years, employers have cited cost sharing as their most effective means to control benefits costs. However, there has been a trend toward increased cost sharing as opposed to increased copays, deductibles, or lifetime limits.

These shifts in emphasis and in the percentage of companies using this approach show that more companies are asking employees to pay for more of their coverage. In fact, in an IOMA survey, 78.7% of survey respondents cited increased cost sharing as their most effective means of controlling benefits costs, up from 59.9% last year (see Exhibit 3.1). Employers, both large and small, are using cost sharing. “All employees are now expected to contribute to the cost of their insurances, even for single coverage,” noted a respondent from a 95-employee agency in New Hampshire. “We implemented a three-tier system of contribution to insurance coverage across the board—the more money you make, the more you contribute to the insurance. We now offer a buy-out of the insurance plan if an employee can show [he or she is] covered elsewhere.”

Exhibit 3.1 Best Methods for Controlling Benefits Costs, Overall and by Number of Employees

Source: IOMA’s 2004 Benefits Management and Cost Reduction Survey

Both of these changes, ...

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