Key Elements of a Good Health Benefit Plan for Small Companies
The National Business Group on
Health estimates that the average cost of coverage for an employee and their
family will be $15,375. This is obviously bad news for small employers, even
though they are not required by the federal employer mandate to offer coverage
if they have 50 or fewer full-time equivalent employees. However, many small
employers feel that offering health benefits is necessary as a way to attract
and retain valuable employees.
Another advantage to offering group health insurance is that it’s usually less
expensive to spend money on employees’ coverage than using the same money to
provide higher wages. Payroll and income taxes are not assessed on employers or
employees on funds used to purchase health insurance. Generally, taxes also are
not assessed on the portion of premiums that employees pay.
Most employers assume that traditional group health insurance is their only
option, and many employees like traditional health insurance because they’re
familiar with how it works. Employers purchase coverage through an insurance
broker and pay a fixed premium to the insurance provider. Employees who are
participating in the plan usually pay a portion of the premium and are responsible
for the copays and deductibles.
The downside to traditional insurance is that group health insurance premiums
have increased significantly in recent years. The least expensive policies
usually have higher deductibles, which can be difficult for employees to pay.
In this environment, many small employers are looking beyond traditional
coverage for affordable options, which include:
QSEHRAs
A Qualified Small Employer Health
Care Reimbursement Arrangement (QSEHRA) allows companies with fewer than 50 full-time
equivalent employees to contribute tax-deductible funds to a health
reimbursement account (HRA). Employees purchase the health care they need, like
individual insurance policies, prescriptions, medical services and dental
services and then are reimbursed. Expenses that are reimbursed through a QSEHRA
are free of payroll taxes for businesses and their employees, including social
security, Medicare and unemployment tax.
A small business that qualifies and chooses to offer a QSEHRA cannot offer a
group health plan to its employees. Also, it can limit the benefit to only
full-time employees.
ICHRAs
New and effective Jan. 1, 2020, is a plan called Individual Coverage Health Reimbursement Arrangement (ICHRA). Similar to a QSEHRAs, an ICHRA is a company-funded, tax-free health benefit that allows businesses to reimburse their employees for personal health care expenses. The difference is that this arrangement is available to businesses of any size. With no annual allowance caps, businesses may offer different amounts of tax-free money based on different classes of employees: full-time, part-time or seasonal.
Self-funded Health Insurance
Self-funding is when a company pays
for employees’ out-of-pocket health care claims as they arise instead of paying
fixed premiums to an insurance provider. The Self-Insurance Educational
Foundation says cost savings in non-claims expenses alone can range from 10 to
25 percent. You will probably also want to contract with a third
partyadministrator (TPA) to handle claims management.
Previously, self-funding only was an option for large businesses that could
afford potentially high claims. To reduce the possibility of high claims
depleting a claims fund or risking unknown monthly costs, many companies opt to
do level funding by pairing the fund with a stop-loss policy limiting the
potential financial burden. Self-funding, or level funding allows employers to
keep unused money from their fund.
Taxable stipends
Another option for employers is to give employees an informal wage increase (taxable stipend) to purchase health care services. The downside is that the funds are taxable for both the employees and the business and employees might not use the funds for health care premiums.
Association Health Plans
Some states allow companies to band
together to purchase health insurance at lower prices than purchased
separately. However, the rules for Association Health Plans (AHPs) are up in
the air. A federal judge ruled in March 2019 that several key aspects of the
Trump Administration’s 2018 rules relating to AHPs are unlawful. The Trump
Administration could appeal that ruling, but the judge also granted the option
to revise the new rules. Some observers are concerned that increased access to
AHPs could destabilize the ACA-compliant individual and small group markets.
Please contact us if you have questions.