Question: I have many older employees and pay a lot for health insurance because the cost is determined by the age and health of my employees as a group. What if half of my employees opt not to take the coverage our company offers? Do you have any other suggestions for reducing costs?
Answer: You’re not alone in experiencing a graying of your workforce. From 1977 to 2007, the number of workers 65 and over increased by 101 percent, according to the Bureau of Labor Statistics. This shift is likely due in part to aging workers who do not have defined-benefit retirement plans and have not saved enough in defined-contributions plans, such as 401(k)s, to retire. A retirement confidence survey (pdf) released by the Employee Benefit Research Institute last month showed 37 percent of workers in 2012 expect to retire after 65. In 1991, 11 percent planned to work that long.
You’re probably already aware that employers benefit from the experience and maturity of older employees, particularly if they are knowledge workers, and that many can work productively to a later age. “Many times, older employees use less health insurance than younger workers who are having families and taking care of children. That is also reflected in older workers’ lower absentee rates,” says Ted C. Fishman, an expert on global demographic shifts and author of the book Shock of Gray.
Because some older employees have taken early retirement or severance packages from previous careers, they may be willing to work for less or take part-time or contingent positions, in effect subsidizing their employment later in life, Fishman says: “Older workers can be a huge bargain.”
On the downside, as you’ve seen, insurance companies in many states set their prices based on the demographics of the employees they are covering, taking into account factors such as age and health. In some places, insurers may charge employers as much as 10 times more for policies that cover many older employees, says Michael Capaldo, director of employee benefit consulting for American Investment Planners, a Jericho (N.Y.) financial planning company with more than 1,000 small business clients.
Other states, such as New York, prohibit insurers from taking employees’ ages into account when selling policies. Under Obamacare, insurers that set underlying policy prices based on age will be capped at a three-to-one difference between the oldest and youngest employees in the company, Capaldo says.
Unfortunately, it’s unlikely that your underlying cost will go down even if half of your employees opt out of your coverage because they sign up for Medicare or get insurance from another source, such as a spouse. “They’ll still be considered part of your rating pool because they’re eligible for coverage. Even if they’re not taking coverage this year, that 66-year-old could come back into the plan next year,” Capaldo says.
In terms of best practices for small employers who have many aging employees, it’s important to consider workplace safety policies, worker’s compensation insurance, and loss-prevention strategies, says John P. O’Connor, a vice president in the small commercial insurance division at Travelers (TRV), in Hartford, Conn.
“Make sure your workplace is designed with ergonomics in mind, so you have the right people in the right jobs. Putting an older worker into a physically strenuous job that’s beyond [his] capability is going to be a potential problem. You want to do continuous training for things like lifting and elect worker’s compensation and employer liability coverage if you’re in a state where it’s not mandatory,” he says.
If you have older workers who are driving on the job, make sure they get annual driver safety screenings. And for those nearing retirement, arrange for knowledge transfer, so they are mentoring and training your younger employees, he says.
For the long term, provide retirement plans and encourage your employees to enroll in them, says Rick Unser, a partner in the retirement services practice at Lockton, an insurance brokerage headquartered in Kansas City, Mo, with locations around the world. “By doing employee education, implementing strategies like automatic enrollment and contribution matches to produce the right incentives for your employees to save, you’ll be creating smarter employees and better savers who might retire at 67 instead of 72,” he says. “You may not save money today, but [in a case like that] you’ll save three years of health-care costs, worker’s comp risk, and salary later.”