The Pitfalls of Benefit Leakage & How You Can Avoid It

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bucket of water leaking with text "Stop the Leak" and AUI logo

 

Most employers are aware that offering health insurance benefits is one of the most important factors in attracting and retaining talented employees. Employers anticipate hefty health insurance premiums—with the average annual employer contribution per employee being $6,485. But many are unaware that improperly managed benefits plans can lead to benefits leakage that may be costing them thousands of dollars each year. Read on to learn what benefits leakage is and the steps you can take to avoid it.

What is Benefit Leakage?

Benefits leakage is the overpayment of health insurance premiums most often caused by the timing of premium payment deductions and changes in personnel. Every time an employee starts, stops, or changes benefits (as happens during hiring, termination, or any qualifying life event), it creates the potential for a company to lose money. When improperly managed, it can take a month or two for changes in benefits to be properly reported or detected, which can lead to substantial benefit leakage at a significant cost to the company. The Aberdeen Group found that 12-15% of all billing from benefits carriers contains leakage, with the potential to cost even mid-sized companies substantially.

What Benefit Leakage Looks Like

Anytime there is a change in a benefits package for an employee, it carries with it the potential to cause benefit leakage if you’re not keeping a diligent eye on how the premiums for those benefits are being handled.

One such example involves premiums paid during an employee’s last month of employment. Typically, employee portions of monthly premiums are deducted from employee paychecks equally throughout the month. If an employee has benefits extending through the end of the month, but they receive their final paycheck halfway through the month, unless their premium deduction has been adjusted to account for the change, only half of their premium will be paid by the employee. The remaining portion will be charged to the employer to cover the cost of the month’s remaining benefit period.

In order to avoid this costly situation, employers need to manually adjust the deduction for departing employees to ensure they are capturing the entire deduction during the first half of the month.

Avoiding Benefit Leakage

Managing benefit leakage is an important part of protecting your company’s bottom line. Companies need to be meticulously aware of the potential circumstances that could lead to benefit leakage and make sure they are being proactive in taking steps to appropriately collect benefit premiums. This includes adjusting premium deductions for onboarding and departing employees as well as making sure all qualifying life events are accurately accounted for in a timely manner.

Having a process in place to consistently monitor employee status, particularly changes that will have an impact on their benefits premiums, will allow you to adjust premium deductions in a timely manner and avoid benefit leakage.

AUI Helps Your Bottom Line by Expertly Managing Your Benefits Plan

Do you have a lot of turnover? Are you tired of asking your employees for missing information?  Our sister company Clarity HR will handle the employer responsibility of benefit administration audit and reconcile your insurance bills to prevent benefit leakage and give you peace of mind when administering your insurance plans. We understand benefits are a significant cost—and keeping these costs down, without sacrificing the quality of the benefits you offer—is key to helping your company thrive. You can trust AUI to help your bottom line by effectively and accurately managing your benefits plans. We’re not just an employee benefits broker, we are a trusted partner who is dedicated to providing the best options, guidance, and advocacy to each and every client we serve.

Contact us today to learn more!

 

We do more than cover small businesses and individuals with the right insurance policies and benefit plans – what motivates our team is helping you save more so you can invest more in your team, family, and goals.

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