Emerging EB Business Insights
Potential Savings of a Balanced Contribution Strategy
AUGUST 6, 2024
Employee contributions toward health plan premiums can impact employer benefits spending more than companies may realize:
- Contributions can inadvertently incentivize employees to choose the higher-cost plan option.
- Smaller businesses do not have an affordability requirement like larger businesses do; therefore, employees may seek employment with organizations that are required to offer more affordable coverage, and often richer benefits.
- Larger organizations often contribute to spouse and dependent coverage. Small businesses should review their competitive positioning with respect to dependent contributions.
Employees want options. Having a balance of members on each plan ensures employees get the coverage they prefer, while helping to keep costs low for the company.
Employers may believe they are offering a wide diversity of plans based on deductibles, but those plans may be closer in value than the employer might think. Evaluating plans by “metal tier” is an important part of understanding if employee contributions and out-of-pocket (OOP) expenses are directing members toward the most cost-effective coverage.
ACA Metal Tiers
Plan richness is determined by how much employees contribute compared to what is covered; this is what underwriters refer to as “actuarial cost value” (ACV). The higher the ACV, the richer the plan. In the Affordable Care Act (ACA) community-rated market, plan value is defined using a “metal” tier system — bronze, silver, gold and platinum.
| Metal Tier | ACV | Coverage | Employee Contribution |
| Bronze | ~65% | 60% | 40% |
| Silver | ~75% | 70% | 30% |
| Gold | ~85% | 80% | 20% |
| Platinum | ~95% | 90% | 10% |
Richer plans (gold/platinum): Lower deductible and higher premium, with fewer OOP costs for employees in copays, co-insurance and deductible limits. These also tend to be more expensive for employers.
Less rich plans (bronze/silver): Higher deductible and lower premium, with more OOP costs for employees. These tend to be less expensive for employers.
Compare Cost Savings Between Contribution Strategies
Modeling adjustments to a contribution strategy can help employers see the potential cost savings between metal tier options and make changes to ensure benefits are balanced. For example, an employer that currently splits contributions evenly with employees for both a lower-cost base plan and higher-cost buy-up is incentivizing the majority of plan members into the richer and more expensive plan. Switching to a defined contribution strategy could potentially lower the amount employees pay for the base plan and increase enrollment in the less expensive option.
To ensure plans are competitive with other organizations, contribution modeling should be paired with benchmarking. Benefit plan benchmarking helps employers determine whether the plans they offer are more rich or less rich compared to competitor companies, and adjust contributions to better manage health plan spending and employee retention.
How USI Can Help
USI leverages its underwriting expertise to help employers understand the value of the health plan options they offer. Using our proprietary contribution decision support tool, we can model several predesigned strategies and evaluate the impact of employee migration on overall health plan costs. This can help clients understand what’s driving employees to specific plans and what changes would provide the most value.
We can also help employers understand how their benefits compare to their competitors’ offerings using our Benefits Benchmarking Study. Every year, we collect plan design data from more than 10,000 employers across the U.S., which allows us to evaluate whether a company’s benefits offering is above or below market value, and provide recommended solutions to improve plan performance.
Looking at the whole picture — including contribution strategies and OOP expense — can help you align your benefits with employee needs, and better manage health plan spending for your company. Contact your local USI benefits consultant or email ebsolutions@usi.com to learn more.
SUBSCRIBE
Get USI insights delivered to your inbox monthly.
