Choosing an employee benefits package can be a complicated process. There are a wide range of providers to choose from, and each provider offers multiple plan options with different coverage levels, cost structures and eligibility requirements. Comparing these options without a consistent framework makes it difficult to see how one plan’s total cost and coverage compares to another’s. An effective evaluation framework helps you identify which options deliver the coverage your staff needs while keeping your costs within budget.
Health insurance is typically the largest expense in an employee benefits package. In addition, the type of plan you choose determines the amount of control your employees have over their care, as well as the monthly costs for both your business and your employees.
The three most common health insurance plan types include:
In addition to the plan type, several other factors determine the actual cost of a plan for both your business and your employees, and the value these plans provide. These include the plan’s:
The premium is the fixed monthly cost of coverage, which you and your employees typically split at a percentage you set. The deductible is the amount an employee pays out of pocket before the plan starts covering costs, and the out-of-pocket maximum caps how much an employee pays in a given year regardless of how much care they need. A plan with a lower premium usually carries a higher deductible, so comparing these three figures together shows the real cost difference between plans and helps you evaluate the quality of coverage you’re providing for your employees.
Network size also affects the value of a plan. A larger network gives employees access to more doctors, specialists and hospitals without paying out-of-network rates, while a smaller network usually comes with a lower premium in exchange for fewer provider choices. Checking whether your employees’ current doctors participate in a plan’s network before switching prevents unexpected costs or forced provider changes.
Dental and vision coverage aren’t automatically part of a medical plan. Some carriers bundle dental and vision into the same plan as your medical coverage. Other businesses purchase dental and vision as standalone plans through a separate carrier, which gives you more choice over the specific coverage levels and provider networks for each one.
Dental plans typically divide coverage into three tiers:
Vision plans follow a simpler structure. Most plans cover a routine eye exam in full or for a small copay. They also include a fixed annual allowance toward glasses or contacts, so employees pay any amount above that allowance out of pocket.
A 401(k) is the most common retirement plan small and medium-sized businesses offer. Employees can contribute a percentage of their pretax income directly from each paycheck, up to an annual limit set by the IRS.
Employers can add to that contribution in two ways:
A matching contribution generally costs your business less overall since it scales with employee participation. A fixed contribution generally costs more since the amount stays the same across your entire eligible workforce.
Vesting schedules determine when an employee gains full ownership of your contributions. There are three common vesting schedules:
If an employee leaves your business before they’re fully vested, the unvested portion of your contributions moves into a forfeiture account. You can then use that money to offset future employer contributions, cover plan administrative costs or reallocate it to other employees’ accounts, depending on your plan’s terms.
The premium is only one part of the cost associated with your employee benefits package. Additional costs that must be evaluated include:
Offering more than one plan tier gives employees a choice over their level of coverage and the amount they’re willing to contribute from their paycheck. A base plan typically carries a lower premium, with your business covering a higher percentage of the cost. Higher-tier plans offer more comprehensive coverage, with employees covering a larger share of the higher premium in exchange for lower deductibles and copays.
In addition, dependent coverage varies between plans and is worth comparing when choosing your benefits package. Domestic partner coverage isn’t guaranteed by every carrier. Some carriers require plans to include it, some make it optional for you to add, and some exclude it entirely or require proof of cohabitation before extending coverage.
The way your business contributes toward the premium also determines your cost when employees add dependents to their plan. A percentage-based contribution causes your cost to increase as employees add higher-cost dependents, since you’re covering a percentage of a larger premium. A fixed-dollar contribution keeps your cost the same regardless of how many dependents an employee adds, since your contribution amount doesn’t change with the number of dependents being insured.
Comparing plan types, coverage tiers and cost structures across multiple providers takes time, and it requires an experienced eye for the nuances of this process that many in-house HR professionals lack. Outsourcing your employee benefits administration to a PEO company ensures it’s performed by an expert, and it gives your business three specific advantages:
For small businesses, outsourcing employee benefits to a PEO company offers the ability to provide your team with more competitive benefits packages. It also helps ensure the costs associated with this important component of your employee compensation remain sustainable for both your business and your staff. At PassioHR, we can help you provide your employees with the best possible benefits packages at an affordable price.
PassioHR provides comprehensive PEO services to small and medium-sized businesses in a wide range of industries. Our team includes employee benefits experts who can recommend a customized benefits package that addresses the needs of your business and your team. With our broad spectrum of employee benefits offerings, you’ll be able to receive the exact services you need. Our team can also cater our plans to the needs of businesses with a remote workforce and multi-state employees.
When you work with PassioHR, you’ll benefit from our Elevated Engagement Plus™ Approach designed to create a more successful and inspired organization. This collaborative approach to employee benefits services engages your leadership team in discussions that will help us understand the specific needs of your staff. Based on your insights, we’ll recommend the right suite of employee benefits packages for your team to receive the coverage necessary to address the needs of their families. Our team will also manage the entire enrollment process to provide you and your employees with a hassle-free experience.
Contact us today to schedule a consultation.
An HMO requires employees to choose a primary care physician and get a referral before seeing a specialist, with coverage limited to a defined network of providers in exchange for a lower premium. A PPO allows employees to see any provider without a referral, including out-of-network providers at a reduced coverage rate. PPO plans typically have a higher premium than an HMO.
Group health plans commonly require an employer to contribute a minimum percentage of the employee-only premium to remain compliant with the carrier’s participation rules. This minimum contribution requirement is separate from any additional amount an employer voluntarily covers to make coverage more affordable for employees.
A 401(k) employer match is a contribution an employer makes to an employee’s retirement account, tied to the amount the employee contributes from their own paycheck. Employers commonly structure this as a percentage match up to a set percentage of the employee’s salary.
A PEO company pools employees from many client businesses into a single, larger group when negotiating with insurance carriers, giving a small business access to group rates typically limited to much larger employers. PEO services also include administrative support that removes tasks such as enrollment, plan document generation and compliance management from the business’s internal team.
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