Ways to Reduce The Cost of Employee Benefits

Are Employee Benefits Costs Rising?

Employee benefits costs continue to rise, creating challenges for employers striving to offer competitive packages while maintaining financial sustainability. According to a recent study, total employer compensation costs for private industry workers—including employee benefits—averaged $43.94 per hour worked in June 2024. This upward trend shows no signs of slowing, driven primarily by increasing healthcare costs and regulatory changes that make cost control difficult.

Despite these challenges, businesses can take strategic steps to manage and reduce employee benefits costs while maintaining an attractive benefits package.

Why Offering Competitive Employee Benefits Still Matters

Before exploring cost-saving strategies, it is essential to understand why investing in employee benefits remains crucial.'

A strong benefits package helps attract and retain top talent. In many cases, employees prioritize benefits over salary when choosing an employer. Competitive benefits not only position your company as a desirable workplace but also improve job satisfaction and productivity. Additionally, satisfied employees are less likely to leave, reducing costly turnover and hiring expenses.

How to Reduce the Costs of Competitive Employee Benefits

There are several effective strategies to reduce employee benefits costs without compromising quality:

Assess Employee Utilization of Current Benefits

One of the most important things to do when attempting to reduce the costs of competitive employee benefits involves taking a closer look at what your current offerings are working and which parts, more crucially, aren't.



Remember that you pay for benefits whether your employees are utilizing them or not. If there are aspects of your current policies that employees have no interest in, get rid of them and replace them with something else. You can likely save a bit of money and even if you don't, it could still improve the quality of your benefits to the point where you're getting more for every dollar you're spending.

Educate Employees About Offered Benefits

If your evaluation reveals low benefits utilization, the issue may be a lack of awareness rather than a lack of interest. Effective communication ensures employees understand and take full advantage of their benefits, maximizing the value of your investment.



Consider distributing a detailed employee benefits guide, hosting informational webinars, or offering one-on-one consultations. When employees make informed decisions about their benefits, they can select cost-effective options that still meet their needs.

Choose Cost-Effective Health Plans

At a bare minimum, you should be comparing different health insurance plans and carriers to find the one that makes the most sense for both your business and your employees. 

Conduct surveys to understand their healthcare priorities and explore plan designs that optimize affordability and coverage, such as:



• High Deductible Health Plans (HDHPs) with Health Savings Accounts (HSAs)
• Health Reimbursement Arrangements (HRAs)
• Tiered or narrow network plans
  

Offer Flexible and Supplemental Benefits

Providing flexible benefits allows employees to customize their coverage based on individual needs, often at a lower cost to employers. Examples include:

• Flexible Spending Accounts (FSAs): Employees set aside pre-tax funds for qualified medical expenses.
• Cafeteria Plans: Employees select from a menu of pre-tax benefit options.
• Supplemental Benefits: Offering voluntary benefits such as dental, vision, disability, and life insurance gives employees more choices without significantly increasing employer costs.



Double-check that these are the types of things people actually want before you offer something nobody will take advantage of.

HRAs

Short for Health Reimbursement Arrangement, an HRA is an employer-funded account that reimburses employees for out-of-pocket medical expenses. It is usually paired with lower premium plans that have a higher deductible; the employer then covers part of the deductible through the HRA, creating a net savings compared to traditional plans. Since only the employer funds an HRA and any unused funds the employer keeps.

HSAs

Short for Health Savings Accounts, HSAs are tax-advantaged accounts funded by both employees and employers. Employers may choose to match employee contributions or make a defined contribution for each enrolled employee. HSAs are paired with High Deductible Health Plans (HDHPs), which typically feature lower monthly premiums. Employees benefit from HSAs by making pre-tax contributions that grow tax-free, with tax-free withdrawals available for qualified medical expenses. These accounts also roll over annually, allowing employees to accumulate savings over time.

Alternative Funding Solutions

For employers seeking additional cost-saving opportunities, alternative funding methods provide flexibility and potential savings:

Level Funding

Level Funding is a hybrid approach between fully insured and self-funded plans, where employers pay a fixed monthly amount for claims, administrative fees, and stop-loss insurance. If claims are lower than expected, employers may receive a refund or credit.

Self-Funding

With self-funding, employers directly pay employee healthcare costs instead of purchasing traditional insurance. While riskier, self-funding can be cost-effective for businesses with a young or healthy workforce. Self-funding is usually geared towards larger businesses.

Meeting With an Employee Benefits Consultant

For the best results, you'll always want to meet with an employee benefits consultant like the team at AEIS. We'll take the time to get to know your business and your people so that we can find out how to meet your needs and save as much money as possible at the same time.

We'll be able to conduct a thorough benefits analysis, giving you all the actionable information you need to select the right plan. We can also help with cost management strategies moving forward.

Reach Out to AEIS for Your Employee Benefits Needs

If you're interested in finding out more information about how to save money on employee benefits, or if you have any additional questions that you'd like to go over with someone in a bit more detail, please don't delay - contact the team at AEIS today.

Disclaimer: Any information related to compliance, laws and regulations, or other subject matters in this blog is intended to be informational and does not constitute legal advice regarding any specific situation. The content of this blog is based on the most up-to-date information that was available on the date it was published and could be subject to change. Should you require further assistance or legal advice, please consult a licensed attorney.