Employee Benefits Cost Splitting: Finding the Right Balance

Author: Larry Chester, President

One of the largest challenges companies face when choosing an employee benefits package — other than the astronomical cost– is deciding how much of that cost the company should bear.

The Kaiser Family Foundation Health Benefits Survey 2018 shows employees pay 17% towards employee-only coverage versus 28% for family medical coverage. The cost for the company is $5,711 for employee-only coverage versus $14,069 for family coverage.

When creating your company’s strategy, give careful thought to these questions:

1. How important are benefits in your company? Your benefits package must be aligned with your company’s culture and values. If you are a mature company promoting family values, you know the additional cost of not just salaries but benefits for example.
2. How competitive is talent in your industry? If you’re in a highly competitive industry, you may have to beef up your benefits to attract quality candidates.
3. What is the average age of your employees? If you have predominantly young, single employees, you’re looking at lower health benefit costs per employee.
4. What are the net costs to the company after employee contributions?

There are several modeling approaches to benefits cost splitting:

1. Stipend – Flat dollar amount you give your employee regardless of family status.
   1. Pros: The cost to the company is known with each employee
   2. Cons: The employee with dependents bears much more of the cost
2. Tiered Stipend – single employee, single employee with spouse and/or children.
   1. Pros: The employee with dependents is additionally supplemented, reducing his/her costs and increasing employee satisfaction.
   2. Cons: The company bears more of the cost with dependent units. This increases the compensation package dramatically for that employee.
3. % of Premium across all plans
   1. Pros: Drives employees to plans that cost less.
   2. Cons: More expensive plan. Shifts cost burden to employees, reduces employee satisfaction.
4. Base plan with “buy-up” options
   1. Pros: The company again can drive employees to lower cost plans. Also, the company can weight dollars more heavily to plans they prefer.
   2. Cons: More complicated to understand and use.

Choosing the right employee benefits strategy is a complex process that requires time and a lot of patience. If you want to do it right, choosing the right advisor can make all the difference. Picking someone who asks the right questions and listens to the answers–can save your company money and, just as importantly, improve employee satisfaction, productivity, and retention.