Providing health insurance plans for employees and their families is a critical piece of finding and retaining a talented staff. With health insurance costs continuing to rise, and with the added requirements of the Affordable Care Act, employers have to mitigate the costs of health plans for employees and their families while still providing attractive health insurance benefits. In fact, when considering multiple job offers, your company’s health insurance plan can be a deciding factor.
Historically, health insurance plans offered two options: individual and family. Today, however, some health plans offer multiple tiers to accommodate a variety of family types:
- employee only
- employee and spouse
- employee with children but no spouse
Because the ACA requires employers to cover dependents up to 26 years old, employers are moving toward multi-tier systems to control costs, according to the Society of Human Resource Management. These multi-tier plans break the original family category into three tiers, therefore spreading out these expensive benefits among the different family configurations. Because these multi-tier plans are more specific, companies aren’t paying a flat rate for all families. By specifying the family types, insurance companies and employers can directly assign costs to the appropriate employees based on family size and type.
Benefits of Added Tiers
Many employers offer two-tier plans, in which employees can choose either individual coverage or family coverage, with nothing in between. In the simple two-tier construct, the one-size family plans are expensive for employers. According to a 2014 survey of employer-sponsored health benefits by KFF, the average total premium for family coverage was $16,834, with employers paying $12,011. When you add two additional tiers of coverage (employee and spouse, and employee with children but no spouse), you won’t be paying for unnecessary coverage. Couples who don’t have children or employees who want to insure their children but no spouse can avoid paying the high premiums that larger families pay.
Four-tier plans, while a great way for employers to manage health costs, can put a heavier burden on some employees than on others. With a two-tier plan, everyone on the family plan is sharing costs; couples with no children pay the same rate as a family of five. With a four-tier system, large families share costs only with other large families, driving up those rates. Because large families already bear heavy financial burdens, four-tier systems can make health care unaffordable for them.
The Affordable Care Act defines plan affordability based on the premium cost for employee-only coverage, so if your individual plan costs fall within 9.5 percent of your employees’ household income, you are compliant. However, that doesn’t mean that all of your employees will be able to comfortably pay for family coverage. Even though you will not expose yourself to potential tax penalties, it is worth considering the total costs that your employees will have to pay.
Deciding on the best option (two-tier or four-tier) requires some calculation and consideration. You must find the right balance between company costs, employee costs and ACA requirements. For example, if your company has many well-paid professionals, then the four-tier option might be best, but if your company has a lot of low-wage employees, the four-tier option might be especially burdensome for anyone with children.
Making health insurance plans affordable for all of your employees has additional long-term, cost-saving benefits. Affordable health insurance for everyone from individuals to large families often means lower turnover for your company. While recruiting and training new employees might feel like a fixed cost, you can significantly reduce those expenses when you attract and retain the right people. For example, if you have an employee looking to use his or her health benefits to cover a spouse and several young children, your health insurance plan could mean the difference between looking for a new job and working hard for you.
Choosing the plan with the right number of tiers for your company is a way to help both you and your employees manage costs. You’re likely to see improved morale and higher retention as a result.
Dylan Murray has an MBA from San Diego State University and a bachelor’s degree in communication from Boston University. He is a licensed insurance agent in California, but he works as a professional researcher and writer reporting on business trends in estate law, insurance and private security. Dylan has worked as a script analyst with the Sundance Institute and the Scriptwriters Network in Los Angeles. He lives in San Diego, California, and Marseille, France.