Why Encouraging Employees to "Use Up" Their Benefits at Year-End Can Hurt Your Group Plan
As the year comes to a close, many employees are reminded to take full advantage of their benefits before they reset. It may seem like a great idea to encourage employees to "use up" what’s left of their health or dental benefits, but what many employers don’t realize is that this approach can backfire—especially when it comes to renewing your plan.
Here’s why urging employees to maximize their benefits at the end of the year can lead to long-term consequences for your group plan.
The Impact of Higher Claims on Renewal Rates
Group benefit plans operate under an "experience rating" model. Simply put, the more claims submitted by your employees, the higher the cost of your plan when it’s time to renew. This is especially true for small and medium-sized businesses, where even a few extra claims at the end of the year can have a significant impact on premiums.
When employees rush to get extra dental work or medical treatments done before the year ends, it artificially inflates the claim total for that year. The insurance provider takes these higher claims into account when calculating your next year’s premium. As a result, your rates are likely to go up—sometimes substantially.
The "Use It or Lose It" Mentality
Many employees mistakenly believe that if they don’t use their benefits by year-end, they’re losing out on something they’re entitled to. While it’s true that unused benefits typically don’t carry over to the next year, encouraging employees to take full advantage of them without considering the impact can lead to inflated claims.
This "use it or lose it" mindset may also encourage unnecessary treatments, which not only increases costs for your business but can also lead to frustration among employees when their premiums rise due to high claims.
How Experience Rating Affects Your Business
Most group benefit plans are experience-rated, meaning your renewal rates are based on the claims history of your company. If your plan's usage is consistently high, you’ll face more frequent and higher rate increases, ultimately making your benefits plan more expensive for both the employer and the employees.
For businesses already offering competitive salaries, increased benefit costs might not be sustainable, leading to tough decisions like reducing coverage or shifting more costs to employees—both of which can negatively affect morale and retention.
Balancing Employee Satisfaction with Cost Management
It’s important to strike a balance between offering a comprehensive benefits plan and managing costs effectively. Here are some strategies to keep your group plan healthy:
Educate Employees: Make sure employees understand how their benefit usage affects the overall cost of the plan. Regular communication about the relationship between claims and premiums can help employees make more informed decisions.
Encourage Preventive Care: Instead of promoting a year-end rush, encourage employees to spread out their healthcare and dental visits throughout the year. This helps avoid unnecessary claims spikes at the end of the year.
Consider Alternative Plans: Some employers have opted for plan designs that discourage overuse by including co-pays or caps on specific benefits. While these options require careful consideration, they can help control costs over the long term.
Work with a Benefits Broker: Partnering with a benefits advisor like Benefy can help you analyze claims data, identify trends, and offer strategies to reduce costs while maintaining a high-quality plan for your employees.
While it may seem beneficial to encourage employees to fully utilize their benefits at year-end, the reality is that this can lead to higher claims—and in turn, higher renewal rates. Managing the cost of your group benefits plan requires careful monitoring of claims and a proactive approach to employee education.
At Benefy, we’re committed to helping businesses design benefits plans that strike the right balance between employee satisfaction and cost efficiency. Contact us today to learn more about how we can help you manage your benefits program for long-term sustainability.