Instituting Employee Contribution to plans

[Guest Benefits Newbie]

Our company has grown from 62 employees to 130 in a year. When we were at 62 employees we were more than comfortable with paying the Healthcare premiums for both our employees and their familys. It is time to change. We are moving toward requiring the employees to make a 25% contribution for families (employee only premiums will still be covered). Can anyone offer any suggestions around communication of this message. How can I expect for employees to respond?

[Jim Chad]

One suggestion would be to have the premium conversion part of a cafeteria plan set up so that the employee share is pre tax.

[GMK]

That's a great suggestion, Jim Chad.

Even the simplest cafeteria plan, a premium only plan (POP), provides a benefit that employees will notice. There's no tax (not even FICA) on the employees' portion of premiums. (I don't know if state income tax may be due in some states.)

For the employer, the POP is inexpensive, and usually it more than pays for itself, because of the reduced FICA contributions. Administering a POP is easy. Payroll keeps track of the employees' deferrals and taxable income totals, and once a year we send the TPA the census data, which is not complicated, for the non-discrim testing.

Including other benefits through the cafeteria plan, like for medical and dental expenses, makes the plan even more attractive to employees. As with any new plan, look into all the details, including the administrative load, so you know what you're getting into.

[GBurns]

I have found that the communications have to developed around the "buzz" issues that apply to your particular situation and location. Sometimes this can be taken from the news media, but sometimes the "buzz" has to be created. In any case it has to be handled appropriately.

In general, you have to get them to understand and sympathise with the employer.

The communications have to point out that costs are increasing and the company can no longer afford to bear the full burden. While doing this you, at the same time, allude to the unsavory choices that the company might have to make if no way is found to reduce the company's burden. These include reduction in benefits, reduction in overtime and even some layoffs.

If properly handled the employees will easily accept the fact that some will now have to pay a share. Make sure that you tout the great help that the employer provided section 125 cafeteria plan will be to the employees in reducing the impact of their new share.

Paycheck comparisons will be a great help.

[masteff]

Keep in mind that one restriction of adopting a Sec 125 cafeteria plan is limited entry into / exit from the health plan. This means having annual enrollment periods and restrictions on ability to add/drop coverage. Given this, I'd suggest making the change effective 1/1/09. This gives you half a year to communicate the coming change.

One benefits / HR term that comes to mind is "total compensation". Remind employees about the company's share of benefits costs that they never see in their paychecks but still make the employee better off (basic life ins, AD&D, LTD, retirement, etc). And remind them of the full list of other things... holiday pay, vacation pay, sick pay, bonuses, raises, does your company have special lunches?, service and/or safety awards?, work boots?, safety glasses?, uniform service?, holiday dinners?. Help them to see all the other ways the company provides for them and then their small piece of the health ins will fall into perspective (except for that one belly-acher who wouldn't be happy regardless of what you do).

[Kimberly S]

All of these are excellent suggestions.

Keep in mind, however, if each employees last raise was less than or close to the amount of the premium they are now going to have to pay each month, there will still be hostility over the issue.

One of my former employers found themselves in a similar situation some years ago. They alerted employees in advance that they would be requiring employees to pay 25% of the dependent coverage right away, 50% the next year, 75% the third year and eventually 100%. The intention was to allow people to plan and avoid surprises. The result was to cause tremendous anguish over the fact that employees would be seeing falling take home pay for the next several years.

[GMK]

Also expect to hear some grumbling down the road. In a year or so, employees will learn how fast insurances premiums are rising. It is good that they know this, but they may see falling take home pay even if their share of the premiums does not go up from 25%.

Even so, it's worth making this work. If you ask (for example, in exit interviews) what the most important benefit you provide is, most will say it's the health insurance.