Benefits for My Team? What a Headache!
By VICKY BROWN
One of the great ways to up your retention rate with your team, is to offer benefits.
Sure, I know the whole subject can seem massively confusing, and you’re probably afraid of what it might cost for a small business. Well, consider today’s episode your Employee Benefits 101 primer.
So, first off – are you required to offer benefits to your employees. If you have under 50 people, the answer is no – it’s not a requirement. But, if you have 50 people or more, then yes you are under the Affordable Care Act or ACA, and you do have to offer insurance to your employees. The ACA is a complex animal, so if you want, I can address that in another episode. For today – let’s focus on the under 50 employee companies.
Now, while you aren’t required to provide coverage, the fact is – in today’s hyper competitive environment for talent, medical insurance has become a given. And, I think you’ll find that as you’re recruiting, the subject will come up over and over again. So, what are your options?
Actually there are only 3.
1 – offer group coverage
2 – let your employees get their own individual policies and you cover the cost
3 – don’t offer anything
Now, we’ve already talked about how #3 is a bad option. But surprisingly, option #2 is the second worst alternative. That’s because, many times a company will say – oh, just give me a copy of your bill for your individual policy and we will reimburse you for that amount. The problem with this approach is that the feds consider that money, not a reimbursement, but taxable income.
That’s right – to them, it’s just additional salary and has to be taxed on both the employee and employer side. You see, group plans have special protection under the IRS, that’s why your employee can pay part of their premium out of their salary and it won’t be taxable income to you or them. But paying for someone’s individual policy isn’t protected, so it does have a tax load associated.
Now, there is a way to reimburse employees for their individual policies without making that reimbursement taxable. For small employers – again meaning those with under 50 employees, there are two programs, once called a Qualified Small Employer Health Reimbursement Arrangements (also known as a QSEHRA, and one called an Individual Coverage Health Reimbursement Account (or ICHRA) for both large and small companies.
Both programs are relatively new, and have specific rules associated with them. For instance, the QSEHRA has reimbursement maximums, and the ICHRA has strict guidelines on who can be offered the plan (meaning, you can’t pick and choose employee by employee – it has to be a class of employees at minimum).
As I said, these programs are relatively new, and have quite a few guidelines associated with them – after all they are IRS approved plans – so it’s best to speak with your insurance broker before putting either in place.
By the way – what’s a broker, and how much do they cost? Well, I’m happy to say a broker is a licensed insurance agent that is a specialist in the benefits insurance arena (just like your business insurance broker is an expert in business insurance); and again, just like your business insurance broker – your benefits broker won’t cost you a thing. They’re paid by commission from the insurance companies. So, basically, it’s free expert advice and help. I always recommend getting a good broker as the first step in offering benefits. Sure, you can try to go it alone and do something online – but things can get really complicated, really fast. It’s always great to have a professional on your team. And, they can answer employee questions as well.
“… I always recommend getting a good broker as the first step in offering benefits. Sure, you can try to go it alone and do something online – but things can get really complicated, really fast. It’s always great to have a professional on your team.“
OK – onward to medical insurance.
Now, before we talk about the medical plan option, let’s take a look at a few terms that will be helpful for you to know:
Deductible – this is an annual amount that you must pay before the insurance company will begin to reimburse you for services.
Co Pay – this is a fixed amount you must pay for a specific service. For example, if the co-pay for an office visit is $20; when your visit is complete you will have to pay the doctor’s office $20 before you leave.
Out of Pocket fee – an out of pocket fee will be a cost you must pay directly. In the earlier example, your out of pocket fee is $20
Maximum out of pocket – this is a limit on the annual cost to you, once you’ve reached the out of pocket limit or maximum, the insurance company will cover 100% of all covered expenses
Primary Care Physician (PCP) – a PCP provides both the first contact for a person with health concerns, and continuing care of varied medical conditions. PCPs usually specialize in Family Medicine, Internal Medicine or Pediatrics.
In Network doctor – this is a physician that is under contract with the insurance company, and has agreed to discount their services
Out of Network doctor – this is a physician that is not under contract with the insurance to discount fees. You may still receive a reimbursement from the insurance company, but your cost will be more than if you used an In Network doctor.
There are two types of medical plans
HMO’s – which offer a high level of coverage, with low out of pocket costs. With these plans, you’re required to choose a Primary Care Physician for all treatment and they will refer you to a Specialist, if needed.
You can also change your Primary Care Physician throughout the year, if you wish
Most HMO visits include only a co-pay for treatment, meaning you pay one small amount for your visit.
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Now, the other plan type is called a Preferred Provider Option (or PPO)
PPO plans offer you the flexibility of using both In-Network and Out-of-Network physicians,
and you can self-refer, to specialists.
Doctors that are in the network will charge you a discounted rate for services.
So, once you pay the annual deductible, you’ll pay a percentage of the discounted rate, and the insurance company will pay the other percent.
But you have to be careful here to try to stick with in network doctors. Because, if you use non-network doctors, while you’ll still be reimbursed, you’ll have to pay more.
Because PPO’s give you more flexibility to choose doctors outside the network, generally the premium cost is a bit higher than HMO plan premiums.
The other question I hear all the time is how much will it cost. And of course, the answer is – it depends. For small groups, rates are determined by location, age and gender (and listen, as a woman over a certain age – I hear you. But those are the facts).
But keep in mind you, as the employer, don’t have to pay that full amount. Most companies cover a portion of the monthly premium, and the employee is responsible for the rest. Now, can you say you’ll cover $10 a month and they have to do the rest – well, no. There are limits. Most insurance companies have a minimum of something like 50% of the premium, that the company has to cover – or you can do a fixed amount. But again, it has to be something the insurance company considers reasonable. And, also keep in mind, the cost your employees have to pay for insurance will impact the bump you could get from offering insurance in the first place.
Again, the employee contribution amount would be tax free to them and you. By the way, you do need to make sure you have what is called a POP 125 plan in place to make it legally tax free – don’t fret, talk to your broker – they can set it up for you.
OK, so far we have focused on medical insurance coverage. But there are other benefits you can offer your team. Things such as vision and dental coverage, life insurance and even disability programs.
It’s a big list, so we’ll do another episode devoted to what are called, ancillary coverages.
In the meantime, if you don’t already offer insurance – find a good broker and talk to them about what’s possible, and what it might cost. You could be surprised, it’s probably less than you think. And it will be an amazing benefit (hence the name) for your employees.