Group Health Insurance Plans

Employees are looking for healthcare in their benefits packages. How can you offer a plan while still being mindful of your bottom line?

In response to the shockwaves through the workforce generated by the COVID-19 pandemic and Great Resignation, businesses have boosted their benefits packages, especially those related to healthcare. For employers, learning how to reduce employer healthcare costs can be overwhelming. However, doing so is important.

Providing healthcare benefits and managing the associated costs is critical to staying competitive in attracting and retaining employees as well as safeguarding the productivity of those employees. The Paychex Pulse of HR Survey 2022 reveals that 72 percent of employers offer health benefits compared to only 61 percent before the pandemic. And as high as 88 percent of employers rank health-related benefits as extremely important according to the Society for Human Resource Management's 2022 Employee Benefits Survey.

When it comes to reducing healthcare costs, where do you begin? In 2022, healthcare premiums for the average family were $22,463 reported by the Kaiser Family Foundation. This is a tremendous financial burden for many workers. As an employer, you want to offer your employees the best possible healthcare benefits at a cost you can afford. Understanding how health insurance premiums are calculated, costs that are under your control, and ways to reduce employer healthcare costs can help you select a healthcare plan that is the best fit for your business.

Who Sets Group Health Insurance Premiums & How Are They Calculated?

Each state has its own set of regulations for group health insurance, making where you do business one of the most important factors affecting your premiums. Insurance carriers calculate premiums based on applicable regulations along with your group's age, whether the employee is insuring an individual or a family, and tobacco use to calculate the premiums you pay for different plan types. Under the Affordable Care Act (ACA), an individual's health, medical history, or gender cannot affect their premium.

When searching for a health plan for employees, small businesses can benefit from the Small Business Health Options Program (also known as SHOP). This program provides qualified smaller companies with options to offer employees quality health and dental care plans. Participation in SHOP is required to qualify for the small-business healthcare tax credit, which can equal up to 50 percent of their healthcare costs. Managed online, the SHOP marketplace is a resource that offers several healthcare plan choices by state. If a business qualifies, it can enroll and administer the programs online.

Which Healthcare Costs Are Under Your Control?

Research from the Kaiser Family Foundation shows that the average small employer contribution for single coverage in healthcare premiums in 2022 was $8,012 (for large firms it was $7,873). Multiply this amount by your number of employees and you can see how even a small cost-control measure can make a big difference to your budget. Some of the important factors affecting costs are under your control as an employer, and carriers often structure their plan offerings around them. Here is a look at some of them:

1. Carrier: Identifying the best insurance carrier for your business is a key component in managing costs. Your plan premiums may be higher or lower depending on your choice of insurance carrier.
2. 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.
3. Copay: Offering a plan with a higher copay amount may help to reduce plan premiums. Lower copays for participants usually translate into higher premiums.
4. Prescription: Coverage for prescriptions 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.

7 Ways To Reduce Employer Healthcare Costs

Healthcare costs can be difficult to manage, which is why it's important to take time to research additional options early in the year. Here are some ideas for reducing healthcare costs and making the most of the dollars spent.

1. Shift to Plans With Higher Deductibles and Health Savings Accounts (HSAs)

Requiring employees to contribute more to their health insurance is one of the more common employer strategies for reducing healthcare costs. Be aware, however, that employees are financially burdened and typically have little room to absorb more monthly expenses. Shifting to plans with higher deductibles while also offering the tax and retirement benefits of an HSA can help everyone stretch their dollars. In fact, retirement plan benefits came in as the second most popular benefit offered by companies with 20 to 500 employees according to the Paychex Pulse of HR Survey 2022. An HSA is a solution for both.

2. Improve Employee Education About Healthcare

Employees can be given the opportunities to reduce their healthcare costs, and, in turn, their employer's healthcare costs, but they need to be informed consumers to act on those opportunities. It's up to you, the employer, to provide accessible, helpful information that educates and empowers employees to take full advantage of their benefits.

Companies can host employee seminars to teach employees about their health plans and how to reduce their costs — whether that's using urgent care centers instead of emergency rooms when appropriate or understanding how to read their medical bills and review for errors. More tools are also becoming available to allow employees to better compare the costs of care. Regular education and information dissemination may also be needed to connect employees to other employer-sponsored health benefits.

3. Telehealth

Going to the doctor can be time-consuming and difficult. With the advancements in video conferencing through a computer, smartphone, or tablet, telehealth has become an acceptable, alternative healthcare delivery method. Not only is telehealth convenient, but it's one way to help mitigate healthcare costs for you and your employees. Its efficiency makes it less expensive and a more affordable option than an office visit.

4. Wellness Programs

Wellness programs can heighten employees' awareness of their health, which encourages better choices and behaviors. Such efforts may lead to a lower number of claims and higher levels of productivity along with employees who feel physically and mentally healthier and thus more engaged with their work. Smoking cessation programs, fitness class discounts, diabetes management, biometric screenings, stress reduction, and even organized activities sponsored by the business can encourage healthier behaviors.

5. Work/Life Balance

The COVID-19 pandemic thrust the issue of work/life balance into the spotlight and employees' response ushered in the Great Resignation. The Paychex Pulse of HR Survey 2022 reports that incorporating work/life balance into the company culture is one strategy HR teams are using to help employees prevent burnout and manage stress, both of which negatively impact physical and mental health. Supporting remote and hybrid work situations and offering an employee resource group (ERG) are just two of the low-cost strategies employers can use to reduce healthcare costs through a work/life balance approach.

6. Healthcare Assistance Programs

Offering additional healthcare benefits may seem like an odd strategy for how companies can reduce healthcare costs. But providing assistance services can help manage healthcare costs in the long term. Research the cost of an outside or supplemental healthcare assistance service or ask your insurance provider if they have any offerings. Hotlines and other forms of communication such as texting, chats, or video conferencing staffed by nurses, coaches, or other licensed, experienced personnel can help employees with basic health issues, specialist referrals, or even insurance questions. Programs that manage asthma, diabetes, chronic pain, obesity, addiction, and other chronic diseases are another area that can benefit your workers and may reduce employer healthcare costs over the long haul.

7. Deductibles and Co-pays

Companies looking to reduce healthcare costs may consider changing current deductibles or employee co-pays. For employees who rarely visit the doctor outside of preventative screenings, paying more per visit may be preferable to an increased healthcare premium amount subtracted from their bi-weekly paycheck. Understanding how your workforce uses health plans can help you choose a plan that works well for everyone. Deductibles and other forms of cost-sharing, especially for individuals or families with low-income levels, could take up a large portion of a worker's paycheck. Conversely, you want to help make sure your employees understand their options so they can be prepared in the event of a medical emergency.

Select the Right Healthcare Plan for Your Businesses Needs

With many types of group insurance offered through different carriers, it can be difficult to know exactly which plan will help ensure that you and your employees have the appropriate coverage.

The more options you explore when choosing an insurance plan, the closer you can match the insurance needs of your business and employees to your budget. Engage a dedicated insurance agent to help you determine the best way to control costs.

Disclaimer: Insurance sold and serviced by Paychex Insurance Agency, Inc., 225 Kenneth Drive, Rochester, NY 14623. CA License #0C28207.

When it comes to ongoing changes in health care reform, small businesses need all the help they can get. And for many of those small businesses, a Professional Employer Organization (PEO) — where employees become part of a much bigger benefits and administrative employment group — could be the solution to their health-benefits challenge.

What Are Examples of Health Care Reform Impacting Small Businesses?

When the comprehensive health care reform law known as the Affordable Care Act (ACA) passed in March 2010 it made bold and dramatic changes to the way Americans secure both their health insurance and health care services. The ACA implemented potential tax penalties on businesses and individuals to encourage shared financial responsibility of health insurance costs. Since then, health care reform has gone through some changes.

Although the tax penalty for an individual who does not carry basic health insurance was reduced to zero in the tax year of 2019, the same is not true for businesses. The ACA mandates that applicable large employers (ALEs), employers with in general, an average of at least 50 full-time, including full-time equivalent employees, during the prior calendar year, must offer affordable and adequate coverage to full-time employees and their dependents or risk potentially paying a stiff assessment if at least one full-time employee receives a premium tax credit when purchasing coverage from a government marketplace. These employer-shared responsibility provisions for healthcare coverage are also sometimes referred to as "the employer mandate." But what about small businesses? Even though small employers are not subject to the provision, the effect of health care reform is felt in several ways.

With the continued rise of healthcare costs, benefits that improve healthcare affordability remain popular among employees. To help prevent employees from leaving a position to work for ALEs that must offer affordable and adequate health insurance to full-time employees or risk a potential assessment, small-business employers need to find ways to provide similar health benefits for their workforce. One strategy comes in the form of health benefit accounts. For health insurance, some small business employers are using a PEO to access cost-effective health insurance options.

Health care reform has also given small businesses an opportunity to stand out. It's one thing to provide health insurance to avoid penalties, it's quite another to provide this benefit on your own volition. Opting to provide health insurance sends a strong message that you care about the well-being of your employees. A PEO relationship is a strategic one that could be used to provide affordable health insurance solutions while positioning your business as a desirable place to work.

Small-business employers who responded to health care reform by providing health benefits are well positioned for ancillary advantages. Health insurance and health benefits accounts could help improve the physical and mental well-being of your staff, translating into fewer sick days, increased productivity, fewer health claims, and create an overall happier work environment. Additionally, many pre-tax benefits associated with health benefits can help your workers keep more of their income.

Current Affordable Care Act Requirements

Health care reform and small-business requirements are always in flux. Staying current with health care reform could help employers be prepared. Here's a brief review of ACA requirements that both small and large businesses must meet for 2023.

• Small businesses with 25 or fewer employees earning annual wages under $61,400 (tax year 2023) could take advantage of offering health insurance through the health insurance marketplace, Small Business Health Option Program (SHOP). Please note that states choose whether to define smaller employers as having 1-50 or 1-100 FTEs. In CA, VT, CO, and NY the threshold is at 100 FTEs.
• These small businesses — together with agents and brokers — can create an account, choose a SHOP-certified agent or broker and verify their eligibility for coverage. The small business must also pay 50 percent of the employee premiums.
• Larger employers with in general, an average of 50 or more full-time employees, including FTE employees during the prior calendar year must offer adequate and affordable coverage for their full-time employees and their dependents or potentially face financial assessments. For the tax year 2023, the 4980H(b) assessment is $360 per month or $4,320 annualized. There are no exclusions from the assessment for ALEs.
• Small businesses taking advantage of tax incentives by offering health insurance through the marketplace and ALEs subjected to the health care reform shared responsibility provision must comply with Affordable Care Act (ACA) reporting requirements.

How a PEO Can Help

A professional employer organization or PEO creates a model where a small or mid-size business forms a contractual relationship with a larger benefits and administrative employment group. PEOs are a popular resource for small businesses in search of options for outsourcing administrative services for HR management, payroll processing, payroll tax filing, risk management, employee benefits administration, and assistance with maintaining compliance with state and federal laws and regulations.

When it comes to health care, PEOs can be an efficient lifeline for small businesses. With their comprehensive resources and expertise, a PEO may be the best bet for staying compliant with ACA regulations or taking advantage of health care reform.

How does a PEO reduce costs related to healthcare plans? While it does not assume these responsibilities in full for clients, a PEO could help assist you as you navigate your health care obligations regarding these critical areas:

• Calculating the number of FTE employees*
• Determining eligibility, contributions, and employee classifications
• Reporting of qualified medical coverage
• Compliance with tax-related changes
• Changes related to health savings accounts
• Associated tax reporting
• Providing open enrollment guidance and HR support

Paychex HR PEO offers your business:

• Access to more plan designs at competitive prices
• One-stop shopping for most, if not all, benefit and insurance needs, including medical, dental, life, disability, vision, and other insurance such as workers' compensation.

Navigate Health Care Reform With PEOs

Health care reform and small businesses are more inextricably bound than ever before. Learn more about how a PEO can help you find your way through your health insurance obligations and simplify your life as a small-business owner.

Professional employer organization (PEO) services provided by Paychex Business Solutions, LLC (Florida employee leasing license GL7), Oasis Outsourcing, LLC (Florida employee leasing license GL42), and their affiliates, which are licensed or registered to provide PEO services where required by law.

*Please note that this is not a precise calculation. An employer may need to perform additional calculations when the payroll crosses months.

Business owners need to understand the common terms used regarding the Affordable Care Act (ACA), how to make appropriate calculations, and how to comply with their ACA reporting requirements.

ACA Reporting Deadlines: Important Dates for 2023

For Tax Year 2022, applicable large employer must furnish Form 1095-C to applicable employees by March 2, 2023. The deadline for filing paper Forms 1094-C and 1095-C with the IRS is Feb. 28, 2023. The due date for electronic filing is March 31, 2023. The affordability rate for plan years beginning in 2023 is 9.12% (a decrease from 9.61% for plan years beginning in 2022).

Businesses subject to ACA tracking and reporting requirements have several deadlines to meet if they want to be in ACA compliance. There are deadlines for furnishing forms to employees and for filing forms to the IRS. The IRS permanently provided an automatic 30-day extension from the Jan. 31 due date for Applicable Large Employers (ALEs) to provide forms 1095-C to applicable employees. 

The deadline for ACA filing of all paper forms with the IRS remains Feb. 28. However, the deadline is March 31, if filing electronically. The due date is the next business day if it falls on a weekend or legal holiday. It should be noted that all employers with 250 or more returns to file must do so electronically.

Who Is Required To Report Under the Affordable Care Act?

Applicable large employers (ALEs) are required to report under the Affordable Care Act. ALEs have an average of 50 or more full-time employees, including full-time equivalent employees (FTEs), during the prior year. This distinction is a key metric, since only ALEs are subject to the ACA’s Employer Shared Responsibility (ESR) provisions and must fulfill applicable ACA reporting requirements.

What Are the ACA Reporting Requirements?

Employers that meet the threshold to be considered an ALE are required to submit all the proper forms under the ACA. Failure to do so could result in potential penalties each year.

Calculating Full-Time Equivalents for ACA Reporting

To calculate your full-time equivalents, add the hours of service for all employees who worked less than an average of 30 hours a week or 130 hours a month in a given month. Count no more than 120 hours per employee per month. Then divide the total hours by 120 to get your FTE count for that month. This number is then added to the count of regular full-time employees for each month. The total number of full-time employees, including full-time equivalents for each month in the preceding calendar year divided by 12 then determines whether a business is an ALE subject to employer shared responsibility (ESR) provisions.

ACA Reporting Requirements and Health Coverage Offered to Employees

To fulfill their ACA compliance, employers that meet the ALE threshold must offer adequate and affordable health insurance coverage to full-time employees and their dependents or risk an assessment if at least one full-time employee purchases health insurance coverage from a government marketplace and receives a premium tax credit. ALEs are required to complete Forms 1094-C and 1095-C to report information about health insurance coverage offered to full-time employees and their dependents.

The ACA also provides specifics on what constitutes adequate, affordable coverage. The ACA defines affordable coverage as costing the employee no more than 9.5% (adjusted for inflation each year) of the employee's household income for the lowest cost, self-only minimum essential coverage. Plans must also meet a minimum value (MV) threshold — that is, the plan must cover at least 60% of the total allowed cost of benefits under the plan.

How To Determine Affordability?

Recognizing that it is difficult for employers to know the household income of their employees, the U.S. Department of Treasury provided for the following three safe harbors in the ESR final regulations that can be utilized to assess the affordability of an offer of coverage in lieu of using household income.

• W-2 Safe Harbor: An ALE’s offer of coverage for every month of a calendar year is considered affordable if the employee’s required contribution for the lowest cost, self-only coverage that provides MV for the calendar year does not exceed 9.5% (as adjusted) of the wages paid to the employee by the employer as reported in Box 1 of the Form W-2. Special rules apply for partial years of employment.
• Rate of Pay Safe Harbor: An ALE’s offer of coverage for a calendar month is affordable if the employee’s monthly required contribution for the lowest cost, self-only coverage that provides MV does not exceed 9.5% (as adjusted) of an amount equal to 130 hours multiplied by the lower of the employee’s hourly rate of pay as of the first day of the coverage period or the employee's lowest hourly rate of pay during the month for an hourly employee, or of the employee’s monthly salary for a non-hourly employee.
• Federal Poverty Line Safe Harbor: An ALE’s offer of coverage for a calendar month is affordable if the employee’s required contribution for the calendar month for the lowest cost, self-only coverage that provides MV does not exceed 9.5% (as adjusted) of the federal poverty line for a single individual for the calendar year divided by 12.

Keep in mind, premium incentives under a wellness program might impact the affordability calculation. COVID-19 vaccine-related premium incentives under a wellness program, as with other non-tobacco use premium incentives, are treated as not earned, whereas qualified tobacco-related wellness incentives are treated as earned. This means the impact on the employee’s required contribution will be as if the employees did not receive the COVID-19 vaccine. (Note: An FAQ issued by the U.S. Department of Labor, Health and Human Services, and Treasury provides that the COVID-19 premium incentives must meet requirements of an activity-only health-contingent wellness program.)

Example: An ALE offers coverage to full-time employees and their dependents. The employee monthly share of the lowest cost, self-only coverage is $200.

Discount: If the plan has a $50 per month premium discount for individuals who receive the COVID-19 vaccine under a wellness program, the premium discount is disregarded when determining employee required contribution regardless of whether the employee received the vaccine. The employee’s required contribution per month is $200 for ESR purposes. Whereas, if the discount is related to a tobacco cessation program, the employee’s required contribution would be $150.

Surcharge: If the plan has a $50 per month premium surcharge for individuals not receiving the vaccine, the surcharge is added to the employee required contribution regardless of whether an employee receives the vaccine. The employee’s required contribution is $250 (200 + 50) a month for ESR purposes. If the surcharge is related to a tobacco cessation program, the employee’s required contribution would be $200 for ESR purposes.

Additionally, if an employer offers a payment to an employee in lieu of enrolling in the employer's health insurance plan, this opt-out payment impacts the affordability calculation. For ESR purposes, guidance provides:

• Unconditional opt-out payments increase an employee's required contribution by the amount of the payment.
• Conditional opt-out payments do NOT increase an employee's required contribution by the amount of an opt-out payment.

Similarly, employer contributions to a Health Reimbursement Arrangement (HRA) and health flex credits under the Section 125 cafeteria plan may impact an employee’s required contribution as follows:

• HRAs: The employee required contribution is generally reduced by the amount of the employer's contribution to HRAs, as long as the employee may use the amounts to pay premiums for an eligible employer-sponsored plan; or premiums for an eligible employer-sponsored plan and also cost-sharing and/or health benefits not covered by the plan. The HRA must be integrated with an employer-sponsored health plan.
• Health Flex credits: The employee required contribution is reduced by the amount of the employer's contribution to health flex credits only if the employee is limited in using the amount for health insurance coverage or medical care expenses as defined under Internal Revenue Code §213.

Assessments for Failure to Offer Affordable and Adequate Health Insurance

If an ALE fails to offer minimum essential coverage (MEC) to at least 95% of its full-time employees and their dependents, the employer risks being assessed one type of employer shared responsibility payment (ESRP) if at least one full-time employee purchases health insurance in a government marketplace and receives a premium tax credit. The payment is $2,000 per full-time employee (adjusted each year for inflation), after excluding the first 30 full-time employees. This is a 4980H(a) assessment.

There is also a 4980H(b) assessment, which is applied if the ALE offers coverage to 95% of its full-time employees, but the coverage offered does not meet the minimum value and affordability stipulations listed above. This penalty is $3,000 per employee (adjusted each year for inflation) who received the premium tax credit provided by the IRS for individuals without access to affordable coverage.

Gathering and Submitting Data To Meet ACA Reporting Requirements

Each year, ALEs subject to ACA reporting requirements must compile data on applicable employees and submit this information to the IRS. Attention to detail with all forms and requirements is vital, since any missteps, inaccuracies, or delays in processing can result in penalties and interest.

Required ACA Forms for Reporting: Forms 1095-C and 1094-C

The first reporting requirement for ALEs is to provide a copy of Form 1095-C to every full-time employee, regardless of whether they enrolled in the company-sponsored health plan. Employers must also keep a copy of every 1095-C form to send to the IRS to fulfill ACA reporting requirements. Correctly filling out lines 14 through 16 on this form can be particularly challenging for many people.

Employers must also complete Form 1094-C, which acts as a summary for the aggregated 1095-C forms and provides helpful information to the IRS, including contact information and the employer's Employer Identification Number (EIN), the name of a contact person, and the total number of employees.

Preparing for ACA Year-End Reporting

Part of a solid preparation plan involves gathering the data needed to complete the required IRS forms in time for ACA year-end reporting. An ALE will need a variety of information, including but not limited to:

• Employer Identification Number and business contact information
• Key contact person within the company and that individual's contact information
• Total number of employees each month
• Total number of full-time employees each month
• Average hours worked by each employee each month
• Whether insurance was offered to each full-time employee
• The type of insurance coverage offered (if applicable)
• Monthly cost to each employee for the lowest-cost, self-only minimum essential coverage providing minimum value that is offered
• Individual employee names and Social Security numbers
• Proof that 95% or more of full-time employees and their dependents were offered minimum essential coverage

Submitting Your Required ACA Forms to the IRS

Once the employer completes the required forms with the proper information, they should prepare them for transmission to the IRS. As with traditional business tax returns, ACA reporting forms can be submitted electronically or via regular mail. However, employers with 250 or more Forms 1095-C are required to submit all forms electronically.

Prepare for ACA Year-End Reporting in Advance

Verifying, cataloging, and reporting accurate data takes a considerable amount of time. Starting the process early helps to avoid an unnecessary last-minute rush to gather information and can avoid costly late fees and penalties due to inaccuracies. Beginning in the third or fourth quarter of the previous calendar year, employers should begin verifying employee records with each individual employee to ensure that all personnel data is accurate and up to date. Employers should also cross-reference facts such as employee hire dates and average hours worked, in case employees are newly eligible for benefits.

Simplify ACA Compliance Through Outsourcing

Reporting is difficult and can be costly. Having an integrated solution that combines benefits, payroll, and insurance data can take much of the burden off your shoulders at reporting time.

An ACA reporting service such as the Paychex Employer Shared Responsibility Services monitors your ALE status, FTE hours, and the type and affordability of your offered coverage throughout the year*. You can also receive help with end-of-year reporting, including lines 14, 15, and 16 of Form 1095-C for each employee.

*The Coverage Adequacy Service is available only to payroll clients who receive their health and benefits (H&B) coverage through Paychex Insurance Agency or the Paychex PEO and who are not receiving Paychex Flock Benefits Administration Services.