If you’re a new business owner, or you’ve had your business for a while but haven’t created an employee benefits package, we can help.
As a business owner you already know the importance and value of being able to offer and provide benefits package for your employees and prospective employees. But you probably know that medical insurance can be the most costly component of any benefits offering.
What You Need to Know About Medical Insurance for Your Employees
One of the first things we need to agree on is that, while you are not legally required to do so if you have less than 50 full-time employees (FTEs), it’s still a winning approach for both you and your workers.
According to federal law, Small employers need not provide their employees with health insurance coverage. But there’s a direct benefit for the employer who does. They may qualify for the Small Business Health Care Tax Credit. This credit is equal to 50 percent of the cost of premiums the employer pays for employees’ health insurance.
There are requirements, of course, such as having to purchase your employees’ health insurance through a Small Business Health Options Program (SHOP) Marketplace. This is a health insurance exchange specifically for businesses with 50 or fewer full-time employees.
In addition, here a few key requirements for qualifying for this tax credit. As an employer you must:
- Have no more than 25 full-time equivalent employees (Employed relatives don’t count)
- Pay your employees average annual full-time wages of no more than $54,200 (Tax year 2019)
- Offer health insurance coverage to every full-time employee
- Pay at least 50 percent of the annual premiums for your workers’ health insurance
Why Employee Benefits Are a Good for Employers
If yours is a small business as defined by the IRS for health coverage purposes, and you qualify for the health care tax credit, then your biggest obstacle to offering a comprehensive employee benefits package is overcome.
Most employees, especially in today’s job market, fully expect a benefits package and often fail to realize that most benefits are actually that – benefits offered; not entitlements mandated by the government.
Nonetheless, most employees expect, at a minimum, a retirement plan, disability insurance and some type of help with medical insurance.
Some great advice comes from an article in Entrepreneur magazine,
“Give employees the benefits they value, and they’ll be more satisfied, miss fewer workdays, be less likely to quit, and have higher commitment to meeting the company’s goals,” says Joe Lineberry, a senior vice president at Aon Consulting, a human resources consulting firm. “The research shows that when employees feel their benefits needs are satisfied, they’re more productive.”
Having said all this, it’s probably worth noting that employers are not required to provide health plans (except in Hawaii), dental, vision and life insurance plans, retirement accounts such as a 401k, or even paid vacation time, holidays or sick leave.
With some exceptions, however, most businesses offer some or all of these benefits. If you want to keep your employees for the long term, and be seen as a company to work for by job candidates, it’s a “no brainer.”
One of the often-overlooked benefits to employers of offering a substantial employee benefits package is improved profitability and cost-effectiveness in workforce operations.
An article at the Virgin Pulse website notes that,
“Employee benefits can improve your company’s bottom line by engaging employees to participate in wellbeing programs, such as Virgin Pulse. Healthier employees mean reduced healthcare costs for your organization. Employees with fewer health risks experience fewer sick days, fewer trips to the doctor, and spend more time working in your organization, bringing their best selves to work every day.”
What employer would not want to experience that?
Medical Insurance Coverage Options for Small Business Employers
We cover the various types of health insurance plan coverage available to individuals and employees in other posts here, but we want to provide a brief look at options for employers.
Unfortunately, the cost to cover an employee under group health insurance rose nearly 200 percent since 2003 from $2,196 to $6,435 in 2018. And average costs were projected to increase another five percent in 2020, according to a survey by the National Business Group on Health.
Nonetheless, the available Small Business Health Care Tax Credit can offset a substantial amount of those projected costs for employers. And there are more options today than in previous years.
The most popular employee health care benefits options for small groups in 2019 include:
- Qualified small employer health reimbursement arrangements (QSEHRAs)
- Established in 2016, a QSEHRA allows small businesses to offer employees a monthly allowance of tax-free money. The employees can choose to pay for health care, potentially including personal insurance policies, and the business reimburses them up to their allowance amount.
- Traditional group health insurance
- Group health insurance policies are plans chosen by the business that provide coverage to employees and, in most situations, their dependents. Employers pay a fixed premium for the policy and typically pass on a portion of the premium cost to employees. With these plans, employees are responsible for copays and deductibles for services.
- Group coverage HRAs
- A group coverage HRA allows a business to offer employees a monthly allowance of tax-free money in addition to the group policy, typically a high deductible health plan (HDHP). Employees use the funds to pay for health care and the employer reimburses them up to their allowance amount.
- Self-funded health insurance
- Opting for a self-insurance arrangement requires the business to assume the financial risk of providing health care benefits to employees. Rather than paying a fixed premium to an insurer, the business pays for employee out-of-pocket claims as they occur and avoids the costly premiums and restrictions of group health insurance.
In addition to these common medical insurance and health care alternatives, there is now something called association health plans.
According to an article at PeopleKeep,
“A new rule issued by the Department of Labor in 2018 expanded the availability of association health plans (AHPs) for small businesses. AHPs allow small businesses to band together within industries, professions, or geographic regions to either purchase large-group coverage or self-insure.
Once the benefit is in place, it works much like a regular group policy or self-funded health insurance benefit would. However, AHPs aren’t subject to the ACA’s rating rule, which prevents insurers from varying costs in a specific region based on things like sex, age, or health status. They also don’t need to cover the essential health benefits that ACA-compliant policies do. Administration is typically done by the association, rather than by the small business members.”
J.C. Lewis Insurance Services is a family-owned and operated California health insurance agent licensed to do business in California, we specialize in medical insurance plans for small businesses, as well as for individual and families, and people with Medicare.
We can tailor our recommendations to your particular needs since we are licensed with most major carriers in California. You save time and money, and we can quickly define your particular needs and recommend the best products and price to meet those needs.