There are many ways to structure your employer contributions for your employee benefits. It comes down to many factors. These factors are budget, tier structure, rating structure, and your school’s philosophy.

Budget is usually the number one concern of all charter schools. Charter schools have tight budgets and receive less money than the school districts. Many schools will pick a number they think is appropriate for employee benefits. For example, a school might give $500 per employee per month to pay for medical, dental, vision and life. But is $500 enough in today’s health insurance market? For many years health insurance premiums have risen by double digits, year after year after year.MoneyPilesArrow

Let’s say the medical insurance premium for a single employee is $300 today. In just six years, with premiums increasing by an average of 10% each year, that employee’s premium has just gone to $531.47. Over your $500 employer contribution and we haven’t even factored in the dental, vision and life insurance premiums yet.

So will your budget increase year after year with the rising health insurance costs? Has this been factored into your budget? If you plan to pass these rate increases onto your employee, does that help with employee satisfaction? In turn does that translate to retaining your experienced and qualified staff? What is stopping your employee from going to the local district and getting a job where their benefits are paid for 100%?

Does your school have a contribution philosophy? I’ve met many schools over the years that have their view on how they want to purchase employee benefits or how to share the cost with the employees. Some schools only want to pay for the employee only, while other schools believe that teachers and staff don’t make enough money, so the school covers the cost of the entire family’s benefits.  I am going to review a few different methods of cost sharing and the pros and cons of each approach.

% of Premium

Covering a percentage of the premium is a very common practice among charter schools. A typical contribution for a charter school using this method is the employer pays 100% for the employee and 50% for dependents. Another example is the employer pays 80% for employees and dependents. This option is very beneficial if your school has age-based rates, meaning each employee has a different rate and the rate is based on the employee’s and their dependents age.

One of the pros to covering a percentage of premium is the percentage may not have to change in future years. Adjustments to the rate increase will automatically be factored in year after year. Another benefit is that each employee pays the same proportionate cost. If your school was offering a flat dollar amount to each employee, and you had aged based rates, the older more experienced employees would end up paying a lot more than your young teachers.

For example, let’s take the same $500 per month contribution I mentioned before. A 26-year-old employee costs about $311 for the Kaiser Gold plan in Southern California, and a 55-year-old employee costs about $677 for the same aged-based plan. The younger employee would not have to pay anything out of pocket because the $500 would cover the entire $311. However, the older employee would have to pay $177 a month out of their paycheck. If the school paid 100% for employees instead of the flat dollar amount, then both employees would have to pay $0.

There are a few cons with using a percentage of premiums for your contribution structure. If the school only covers the employee’s premium, the family premiums may be too costly for the employees to pay. If your premiums rise by too much one year, and your employee contracts indicate you will pay 100% of their benefits, you are going to be stuck paying for 100% of the rate increase. There are a few solutions to this that we can discuss another time.

Employer Flat Dollar Cap

I’ve already talked about this method in my previous examples and have alerted you to some of the cons. The employer contributes a fixed dollar amount regardless of premium or family size. As premiums rise, if the employer cap does not increase, employees will end up paying more and more each year out of their paychecks. However, this is an easy way for charter schools to know what their fixed cost is each year for benefits. Many health plans do not renew at the same time as the school’s fiscal year. Therefore, schools may not always know what their rate increase will be at the time of their budgeting meetings. So setting a fixed employer flat dollar cap for the year will ensure the benefits are staying within the budget.

Tiered Dollar

Group Of TeachersThe Tiered Dollar contribution method is when an employee contributes a fixed dollar amount based on family size, regardless of premium. For example, your employee will pay $30 for single, $150 for 2-party, or $350 for the family. The school pays the remainder of the premium. Employees usually like this type of contribution structure as it perceived as fair. However, employees do not always share the cost equally in this method. With the Affordable Care Act changes, if you have less than 100 employees then each dependent in the family could have a rate. So a family of five would cost the employer much more than a family of three.

Employee Flat Dollar

The last contribution method I am going to talk about is the Employee Flat Dollar. The Employee will contribute a fixed dollar amount regardless of premium or family size. For example, the employee pays $100, and the employer pays the remainder of premium. The Employee Flat Dollar is a simple method to explain to your staff. Everyone pays the same amount regardless of age or family size. However, your employees with large families will be receiving a much greater value than that of your single employees. As premiums increase year after year, the flat dollar amount employees are paying may not keep pace. You may need to adjust the flat dollar amount from year to year to stay within budget.

I have for you a simple to read chart that you can download that explains the pros and cons of each cost sharing method. You can download this document by clicking here.

I hope you now have a better understanding of how to structure your employer contributions for your employee benefits. Should you need any assistance in deciding what contributions method you to use at your school, feel free to reach out to me.

How are you structuring your contributions for employee benefits at your charter school? I would love to hear everyone’s contribution philosophy!

If you have any questions or need any assistance with your employee benefits for your charter school, please contact me at (760) 622-6080 or using my Contact Form. You may also contact me through any of my social media accounts.

—Juliet Lucero

About Juliet

Juliet Lucero is an Account Executive with Keenan & Associates. She provides employee benefits consulting to charter schools in California. She has been in the insurance industry over 15 years and has been working with charter schools since 2003. Juliet has saved Charter Schools millions of dollars over the years with her innovative solutions. Her goal is to keep charter schools in compliance with the ever-changing laws while maintaining a competitive and affordable benefits package.