Offering Health Insurance for Employees: What are the Best Options?
Many in the workforce count on their employer to provide access to affordable health insurance. In today's health care marketplace, even the smallest employers wishing to offer this important benefit can find plans to help meet the needs of their employees. With so many different choices available, understanding the process of setting up a health insurance plan can be difficult. But with the right support and resources, it can become a welcome addition to your company's benefit offerings.
Importance of offering health insurance for employees
In a tight labor market, a potential employer's benefits package can be one of the top determining factors for individuals juggling multiple job offers. Many large companies offer health insurance, but a 2017 Paychex survey noted that 43 percent of companies with less than 100 employees offer this benefit as well. Health care was the most commonly offered benefit, according to those surveyed. Employees also ranked health and dental plans among the most important benefits for increasing morale, along with monetary bonuses and additional paid vacation time.
Continuing impact of the Affordable Care Act
The Affordable Care Act includes an employer shared responsibility provision, stating that in general, employers with an average of 50 or more full-time equivalent employees during the preceding calendar year must offer adequate and affordable health insurance. If this insurance is not offered to full-time employees and their dependents, the company may face the potential of a tax penalty.
Companies falling under the 50-employee threshold that wish to offer a health plan to employees should also be aware of programs offered in conjunction with the Affordable Care Act. Many of these programs are aimed at small businesses with the intention of helping them find and offer affordable health benefits. Eligible small businesses can purchase health and dental care coverage through the Small Business Health Options Program (SHOP). A small business health care tax credit is also available to eligible businesses offering health care to employees.
While the employer mandate still stands, the individual mandate penalty is reduced to $0 beginning in 2019. However, a few states have established their own individual mandate. Although these policies generally do not directly impact an employer’s need to offer health insurance, an individual mandate at the state level may lead to an increased demand from the workforce to have coverage through their employer.
In a tight labor market, a potential employer's benefits package can be one of the top determining factors for individuals juggling multiple job offers.
Selecting a plan
According to a 2016 Paychex survey on employee retention, 26 percent of employees have left a job due to unavailable or unaffordable health insurance. Companies should be on the lookout for options that can provide quality care at an affordable cost. There are four common types of plans available:
- Health Maintenance Organization (HMO): An HMO is a group health plan in which physicians and medical personnel can either work directly for the HMO or under contract to provide medical care to its members. A primary care provider must provide a referral to see a specialist. There is often an emphasis on disease prevention and participation in programs for better health.
- Preferred Provider Organization (PPO): In a PPO, policyholders can use any medical provider in the PPO network and pay the co-payment amount for each regular service. If you choose to go to an out-of-network provider, you must often pay the doctor's fees directly and file for reimbursement from the insurance company at a greater cost. For that reason, the PPO system encourages its policyholders to see doctors and health providers within the system.
- Point of Service (POS): POS group insurance acts as a combination of an HMO and a PPO. You must usually use a primary care provider, but you can use other network health providers, when needed, without a referral. You may also use providers outside the network without a referral, but you will pay more.
- High-deductible health plan (HDHP): The HDHP features higher annual deductibles and out-of-pocket maximums for single or family coverage than other traditional health plans. However, HDHPs are usually the most affordable option that employers may offer. Depending on the HDHP you choose, you may have the choice of using in-network or out-of-network providers. Using in-network providers saves money. With the exception of preventive care, you must meet the annual deductible before the plan pays benefits. Preventive care services are generally paid as first-dollar coverage, or after a small deductible or co-payment.
In addition, relatively recent options for health care are also available. Consider the following:
- The Qualified Small Employer Health Care Reimbursement Arrangement (QSEHRA) allows companies with less than 50 full-time equivalent employees to contribute tax-deductible funds to an HRA that will reimburse employees for their individual costs of insurance or out-of-pocket medical expenses. A small business that qualifies for a QSEHRA cannot offer a group health plan to its employees.
- Enrollment in a Qualified High-Deductible Health Plan (QHDHP) is required to make deposits into a health savings account (HSA). For a high-deductible health insurance policy to qualify, the plan must meet IRS guidelines relating to coverage, annual deductible, and annual out-of-pocket expenses.
- Association health plans – Employers may unite through an association to offer health insurance to reduce costs and support workers' health care needs. However, certain rules governing association health plans are complex and employers will need to take time to evaluate them, applicable state regulations, and the structure and rules of any AHPs they are considering, to understand if they are truly the best health care insurance option.
A 2016 Paychex survey on employee retention revealed that 26% of employees have left a job due to unavailable or unaffordable health insurance.
Understanding the costs of group health insurance
Group health insurance costs can add a significant amount to your benefits budget, so you'll want to make sure you're getting the greatest benefit for the money you spend. Some of the most important factors affecting health insurance costs can be adjusted to meet your company's needs, and carriers often structure their plan offerings based on the following items:
- Carrier: Identifying the best insurance carrier for your business is a key component in managing cost. Your plan premiums may be higher or lower depending on your choice of insurance carrier and plans offered by that carrier.
- Deductible: Plans with high deductibles typically feature lower premium amounts, and vice versa. You can choose which plan or range of plans provides the best balance of coverage and affordability.
- Co-pay: Offering a plan with a higher co-pay amount may help to reduce plan premiums. Lower co-pays for participants usually translate into higher premiums.
- Prescription coverage: This may be offered separately from your company's main health insurance plan, or not at all. In most cases, the more your prescription coverage pays for generic to highly specialized name brand medications, the higher the premium amount.
- Hospitalization: As with prescription coverage, a specific hospitalization policy may be offered separately from your main health insurance plan, or not at all. Hospitalization policies provide cash benefits beyond your company's health plan; the more coverage you choose, the higher the premium.
You may also further manage health care costs by taking advantage of tax credits, instituting wellness programs, and adjusting deductibles or co-pays.
Budgeting for employee health care
Companies planning to offer group health care insurance should determine how much of their budget can be allocated to group health insurance. You can manage overall health care spending by determining a specific plan premium you'll pay for each employee, or by allocating a specific dollar amount and letting employees choose their own plan.
As mentioned above, if you qualify for a small-business health care tax credit, this could make a difference in your budget. Consider using an online calculator to help estimate the overall costs of offering a health care plan.
Health plan implementation requires compliance with the Affordable Care Act, budgeting, and finding a program administrator, among many other tasks.
Plan setup and administration
Administering a health plan can be time-consuming and complex, especially for the first year or two. Compliance with the Affordable Care Act, budgeting, and finding a program administrator are just a few of the many tasks associated with implementation. Integrating your benefits and HR function into one user-friendly platform is often a cost-effective and efficient solution, even for smaller companies. A third-party administrator that specializes in health care plans can also help your company remain in compliance with the many rules and regulations surrounding the Affordable Care Act and other health insurance requirements. Administrative tasks to be outsourced may include:
- Tracking benefits eligibility;
- Reporting and analysis;
- Communicating to the carrier and facilitating necessary changes in coverage when employees undergo a life change, such as the birth of a child; and
- Terminating coverage when an employee leaves the company.
While there are many considerations to make regarding offering health insurance for employees, it's a decision to make with as much information as possible. Consider leveraging the help of a licensed agent who can help you develop a cost-effective group health insurance program at your business.