5 Ways to Reduce Employee Benefits Costs

Updated: June 10, 2009

1. Consider Outsourcing HR to a PEO

Outside of providing experienced professional HR support, outsourcing HR to a PEO can substantially reduce the cost of the employee benefits program. A PEO provide groups all of their clients into a "buying pool" when negotiating rates with insurance providers. SMBs can therefore take advantage of negotiated large company rates despite their smaller size. This is especially advantageous as some insurance providers often utilize "age bands" when pricing out a benefits plan for an SMB. Plan costs per employee are determined by what "age band" an employee falls into. The older the employee, the higher the individual plan cost. SMBs with an older employee mix may therefore face higher costs with these providers. Utilizing a third party HR provider for benefits administration eliminates the use of "age bands." Furthermore, third party HR service providers possess some negotiating leverage with insurance providers due to the number of people they bring to the provider's network. SMBs do not have this leverage. They must either sign on based on the quote or find another provider.

2. Choose higher deductible plans

Choosing higher deductible plans reduces the overall cost of the benefits plan. An employer may also find it possible to reimburse employees for all or part of their deductible and still save money as compared to providing a lower deductible plan

3. Offer a more robust benefits package but make employees contribute.

It is not uncommon for employees to pay 10-20% of the cost of their benefits package.

4. Educate your employees

There is a difference between the costs of HMO and PPO plans. Educating your employees on the costs and features of each as well as helping them choose the right plan can significantly impact overall benefits costs. This is especially true for SMBs with a younger age demographic.

5. Check the market

Although switching providers is a time intensive process, it always a good year to check rates of various provides every year. Annual rate increases are not universal across all providers.

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