5 Ways To Cut Employee Costs Without Cutting Benefits
With the minimum wage increase last month, some businesses were getting a lot of flack for cutting certain benefits from their payroll. Pay increases may end up costing small businesses more money than increasing benefits. However, it’s important not to get to hasty with benefit cuts as negative push back from employees and stakeholders could end up costing you morale and productivity.
So before you start slicing down your benefit plans, here’s a few tips which will help you save costs, while not compromising the quality of your health coverage and upsetting those who work with you.
Changing Prescription Plans
By and large, prescription drugs are the largest expense on a benefit plan. However, before you cut it completely, there’s plenty of ways to make affordable cuts that don’t end up impacting the majority of employees.
Switch to Mandatory Generic Drugs
Some pharmaceutical companies pay millions of dollars to develop and patent a drug for consumer use. This can be why some drugs cost a great deal of money for consumers. However, once a drug is patented, there are ways to replicate the effect of the drug for a much cheaper price, and therefore create a cheaper drug that still passes all Canadian safety requirements. These drugs are called generic drugs, and by switching your coverage to only offering these, you can save a load of money on your health plan.
Some plans, like The Chamber Plan, offer Generic Drug substitutions, where only the least expensive generic drug is reimbursed. However, doctors can still prescribe some name-brand drugs (if they are eligible) by marking “No Substitutes” on your prescriptions and still have them covered.
Get a Plan With a Formulary
A Formulary is a growing list of drugs approved at a national level that are both clinically effective, cost effective and frequently prescribed. If an employees desired drug is on this list, they will be covered. The Chamber Plan has a Formulary which covers commonly prescribed drugs and many alternatives prescriptions to drugs not on the list. Letting your doctor know about the Formulary can help them pick the right drugs for you.
Put Yearly or Lifetime Limit Caps on Drugs
A second option to take, is to limit the amount you will provide to plan members for drug coverage. A modest cap on drugs is anywhere between $50,000 to $100,000 per year. Take note of how much employees are spending on drugs after a generic switch and if it’s still too much, it may be time to consider implementing a cap or lowering your current cap.
Other Cuts to Make
If you don’t want to cut your prescription drug coverage, or need to save even more money, there are also many other options to take. Below are a few we like to recommend to our clients!
Share the Cost of Benefits
There are many options out there for sharing the cost of benefits with employees.
Deductibles – Employees pay a dollar amount out of pocket, and anything above and beyond is paid by the employer. For example, an employee may pay for a $25 of a $100 treatment, while the employer pays the other $75. These can be paid per calendar year or per appointment.
Coinsurance – In combination with a deductible, and employer can also use coinsurance to split the cost with employees further. The typical rate of Canadian plans is between 80% to 100%. So for that $100 treatment, an employee would pay the $25 deductible, and the employer would pay 80% of the remaining $75.
Sharing Premiums – Employers do need to cover at least 50% of costs minimum, however, it’s becoming increasingly common for employers and employees to have a 50/50 split of health and benefit expenses. Payroll deductions can be set up to cover any employee expenses in addition to other deductibles and co-pay situations.
Cut the Fat
Before you take any of the above actions, it’s important to cut the non-essential things first. Paramedical expenses, like chiropractic, massage, acupuncture, and other practitioners aren’t “need to haves” in the same way prescriptions, medical equipment, and travel insurance is. If you’re not happy with how much you’re paying for benefits, this is usually the first place you should look.