09 Jun A Small Group Employee Benefits Strategy – Are There Reasonable Options?
What is a small company to do about health insurance?
Until a company reaches 50 employees (FTE – full-time equivalent), health insurance is not a requirement. Therefore, not offering health insurance is an option for many small groups. Most business owners want what’s best for their employees, and a robust employee benefits package is attractive to most employees. When it comes to benefits, all companies face the dilemma of how to structure them, and smaller companies face the additional dilemma of limited choice.
Total employee compensation
Because of this limited choice, health insurance may or may not be a feasible option for a business. But all companies can put together a total employee benefits compensation package with their employees’ welfare in mind. Employee compensation takes many different forms. The first and most obvious form of compensation is salary, but here are some additional examples of employee compensation:
- Paid time off
- Work and company culture
- Free and/or close parking
- Meals, snacks, and coffee
For many companies, the benefits package is second in costs only to salaries. Health insurance is the centerpiece of many benefits packages. If you want health insurance to be a part of your business’s benefits package, let’s look at what small group employers face when trying to craft their employee benefits strategy or offer health insurance.
The Affordable Care Act
Without going into great detail, the ACA made health insurance affordable in name only. Underwriting for both individuals and fully insured small group plans is a thing of the past. Pre-existing conditions can no longer be imposed under any circumstances. This, along with other requirements lumped together as Minimum Essential Coverage (MEC), escalated health insurance costs.
To give an example, I recently quoted a Gold Level Plan for a three-person group ($3,500 deductible with $7,000 out of pocket) for a 52-year-old male with a monthly premium of $770.84 just for himself and another $705.29 for his 50-year-old wife. Individual coverage for a similar plan would have been $916 for him and $838 for his wife. There can be subsidies for individual coverage purchased on the exchange, but only for those earning limited incomes.
Lack of competition
One problem in North Carolina is a lack of competition. North Carolina offers only two options for companies between 1 and 26 employees and offers only one viable statewide option on the individual marketplace. More choices exist when a company reaches 26 employees, but these choices are still very limited.
In the past, a strategy to control health insurance costs focused primarily on shifting costs, resulting in significantly higher deductibles and out-of-pocket expenses. Even with this cost-shifting, premiums continued to soar. Employees question the value of a benefit with high monthly premiums and high out-of-pocket expenses. Employers (understandably) are reluctant to implement expensive benefits that may not be appreciated.
Are there any realistic alternatives?
The short answer to this question? Yes.
The long answer? There are some alternatives:
- ICHRA (Individual Coverage Health Reimbursement Arrangement): In theory, an ICHRA makes sense. Regulations now allow a company to contribute to an HRA (Health Reimbursement Arrangement), which an employee then uses to pay health insurance premiums on a pre-tax basis. Employees have to purchase health insurance (MEC) to avoid taxation on this contribution. Individual insurance in states like North Carolina is so expensive that it really doesn’t solve the problem. But this is a step in the right direction.
- Plans without Minimum Essential Coverage: The ACA, mostly because of the Minimum Essential Coverage (MEC) it requires, has driven up health insurance costs. Non-insurance plans are available that are not compliant with the ACA; they may appeal to certain individuals. It is important to understand these plans and what differentiates them from traditional insurance plans. In certain circumstances, a plan of this type may be all that a person needs.
- PEO (Professional Employer Organization): This may be an option for employers who have between 10 and 150 employees. Because HR Services, Compliance, and Benefits Administration have become more challenging and expensive, many businesses have chosen to outsource Human Resources to a PEO. This is a decision that should only be made after careful analysis. There may be savings because of economies of scale, but this is not always the case.
- Benefits package without health insurance: Offering health insurance may not be an option for certain employers. However, other benefits may be affordable and attractive to employees, and can be offered on a group and a pre-tax basis. Dental, Life, and Vision are often made available to employees as part of a benefits package, as are Critical Illness Coverage and Short Term and Long Term Disability.These coverages can be made available either on a voluntary (employee-paid) or non-voluntary (employer-paid) basis. It is important to note a benefits package can be made available even without health insurance.
Don’t fall into the trap of implementing a benefits package without doing the proper analysis. If you do, this can be a very expensive mistake. Decide which benefits align with the needs of the employees and are affordable. Remember that once a benefits package has been implemented, it is impossible to take it away. The good news is that you do have options, so take your time and plan wisely.
Let’s Talk. Contact me if you would like to learn more or would like more information.