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  How About a Pay Raise Instead of a Health Plan?
How About a Pay Raise Instead of a Health Plan?
  Significant incentives (such as lump-sum salary increases, cash rebates, and contributions to other employee benefit accounts) are increasingly offered to employees who opt out of company health plans.  
 

By Dan Malachowski, Salary.com

Results recently released from Salary.com's 2005 Small Business Basic Medical Coverage Survey show that nearly 90 percent of small businesses are paying more than last year on basic medical insurance for their employees. And these soaring healthcare costs are forcing small businesses, in many instances, to adopt measures that lower employee take-home pay. But there may be something you can do, as an employee with alternatives for healthcare coverage, to cause a swing in the other direction: Talk to your employer about exchanging your benefits for as much as 10 percent in extra pay.

A Win For Employees

Karen Doyle is the Human Resource Manager at Colorado State Employees Credit Union in Denver, Colorado. CSECU is one of the rising number of American small businesses (200 employees or fewer) that are either offering employees significant incentives not to participate in the company medical plan, or actively encouraging employees to enroll in their spouse's plan. Doyle opted out of her company's health plan because her husband's plan costs the couple less in monthly premiums and co-pays. CSECU happens to offer up to $100 per month, $25 for each dependent, to every employee who chooses not to participate in the company's health plan. While that may not be a huge amount of money, Doyle feels that "it is nice to have that available to pay for other benefits such as life insurance, or other insurance projects offered through my employer".

Salary.com's study found that incentives such as lump-sum salary increases, cash rebates, and contributions to other employee benefit accounts, such as a 401K plan, are offered by 14 percent of small businesses to employees who opt out of company medical plans. Some companies that were surveyed indicated that they give the cash value of the savings on their health benefits to plan non-participants. This can add up quickly. Richard Cellini, Head of Research at Salary.com, estimates that "many companies could offer employees a 10 percent salary increase (in lieu of plan participation), and still lower total payroll expenses in a given year".

Use the benefits section of Salary.com's Salary Wizard to calculate the average amount your health plan costs, based on job title and metro area. Keep in mind that data in the Salary Wizard reflects pay practices at companies larger than those covered in the survey discussed in this article.

A Win For Employers

The rising trend of employees not participating in company health plans isn't just a win for employees. Employers also benefit. Doyle estimates that healthcare costs at her company have risen 10 to 20 percent in the last year. She is seeing a growth in employees opting out of her company's health plan because the plan may be more expensive than the alternatives. "As health costs increase for us, perhaps premium payments under spousal coverage are easier [for employees] to handle," says Doyle. About 12 percent of her workforce has chosen to opt out of medical coverage.

Small businesses like CSECU are able to transfer some of this cost to larger businesses, which pay smaller premiums for employee health insurance, because of volume discounts. In addition, double or unnecessary coverage is eliminated. Most employees who opt out of their company's health plan know they can be covered somewhere else, whether it be from a spouse's plan, parent's plan, or college/university plan, if they happen to be a part-time student.

If you are able to obtain health coverage from somewhere else, ask your Human Resources department what kind of incentives, if any, you can earn by opting out of your company's health plan. Who knows, you may be able to put a few extra dollars in your pocket. Perhaps enough to cover those rising commuting costs due to gasoline prices- or much more!

Click here to download Salary.com's 2005 Basic Medical Coverage Survey.

Other interesting survey results:

-- Few Companies Band Together to Purchase Group Insurance: Only 1.7 percent of participating companies report joining forces with other companies through a buyer's cooperative to purchase basic medical insurance. Still, survey results show a substantial uptick in the number of small businesses willing to seriously consider this strategy in the future - making group healthcare purchases a new trend-in-the-making.

-- Three Clear Winners Have Emerged: Despite the variety of medical plans available today, three plan formats have emerged as favorites among small businesses: Preferred Provider Organizations; Health Maintenance Organizations; and Point of Service providers. Less than 10 percent of small businesses responding offer any other format.

-- Micro-Employers Offer the Most Generous Plans: "Micro-employers" (1-20 employees) lead all small businesses when it comes to picking up the full cost of medical coverage. 32.2 percent of Micro-Employers offer fully-funded medical coverage (requiring employees to pay nothing toward the cost of medical care premiums). As companies grow in size, fully-funded medical coverage becomes increasingly rare. Less than 3 percent of the largest small companies (200+ employees) offer fully-funded medical plans.

-- Micro-Employers Also Offer the Least Generous Plans: Micro-Employers are also most likely to disappear altogether when it's time to settle the tab for basic medical coverage. 31.7 percent of Micro-Employers (more than any other small business segment) offer completely unfunded medical coverage (requiring employees to pay 100 percent of all premiums due).

-- Straddle Companies Experience the Worst of Several Worlds: "Straddle" companies (100-150 employees) occupy the awkward mid-range of the small business category: too large to be lean, yet too small to enjoy economies of scale. Straddle companies report the highest per-employee healthcare costs (17.7 percent of gross annual payroll, versus an average 14.6 percent for all small businesses). Additionally, Straddlers report a higher rate of increase in the cost of medical coverage (11.4 percent for 2004/2005) than almost any other group of small businesses. Perhaps as a result, Straddlers offer employees the smallest contribution toward the cost of medical coverage (45.2 percent on average). Straddlers are also more likely than any other small business segment (except Micro-Employers) to offer employees completely unfunded plans (with 28 percent of all Straddlers offering such plans).

-- Giant Midgets Stand Tall: The largest small companies (200+ employees) are able to leverage their relative size for the benefit of employees. On average, these so-called "Giant Midgets" pick up 62.5 percent of the cost of medial premiums - one of the very best deals offered in the small business category.

Salary.com Small Business Survey Methodology

Salary.com's Small Business Basic Medical Coverage Survey was conducted in July 2005. Approximately 300 small businesses (each employing 1-200 individuals in the United States) completed the survey. The full survey results are available at research.salary.com.

Salary.com invited a cross-section of small businesses across America to participate in the survey. Companies were grouped into the following size categories: 1-20 employees; 20-50 employees; 50-100 employees; 100-150 employees; 150-200 employees; and 200+ employees. Salary.com compensation professionals reviewed the data for consistency and accuracy, and excluded data that appeared to be invalid.


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