You want to offer health benefits. You’ve looked into standard group health insurance plans and were either in sticker shock, or simply did not qualify. You understand the benefits of health coverage for you and your employees, but like half of all small businesses, you’ve decided group health insurance isn’t the answer. So, what is the answer? How can you offer benefits that aren’t group health insurance?
The answer - Individual health insurance paired with a premium reimbursement arrangement.
How to Offer Benefits That Aren’t Group Health
As you probably know firsthand, group health insurance has become too expensive and restrictive. As such, small businesses are transitioning employees to individual health insurance. They are still offering health benefits - just in a different way.
Instead of contributing to employees group health insurance premiums, small businesses are contributing to a premium reimbursement arrangement. In other words, small businesses are setting up formal plans to reimburse employees for their individual health insurance.
This sounds like a big change, but to make it easier to understand, let’s compare it to something we’re all familiar with - retirement benefits. In the past, the standard way to offer retirement benefits was through a pension - a defined benefit retirement plan. As costs began to increase, employers started adopting 401k retirement plans, where they define a contribution to employees’ retirement and employees choose how to invest it. In the retirement sphere, a 401k is a defined contribution plan. When 401k’s were first introduced, this was a big disruption and change, but now it is commonplace.
So, what does this have to do with health insurance? A similar shift is occurring.
Employers who traditionally set up group health insurance plans (a defined benefit) are unable to keep up with escalating costs and transitioning to premium reimbursement programs where they define their contribution to employees’ healthcare (a defined contribution health plan).
How to Offer a Premium Reimbursement Arrangement
To adopt a premium reimbursement program and offer health benefits that aren’t group health, follow these simple steps:
Cancel your group health insurance policy (if you offer one).
Set up a premium reimbursement arrangement (it can be a pre-tax or post-tax arrangement).
Provide employees resources to select an individual health insurance policy. Employees may purchase a plan through the Marketplace in your state and access the premium tax credits, if they are eligible.
Reimburse employees for their approved premium expenses, up to the amount available to them in their allowance. Tip: Most businesses use a premium reimbursement software to ensure compliance and make this process easy.
Why Haven’t I Heard of This Option Before?
You might be thinking - why haven’t I heard of this option before? That’s not entirely surprising.
While many small businesses are adopting this approach to health benefits, the predominate way to offer health benefits still is through employer group health insurance. But with the escalating costs of group health insurance and the new advantages to individual health insurance, it makes common sense for employers to switch to individual health insurance and premium reimbursement.
In fact, in a recent Whitepaper, we predict that up to 60% of small businesses will transition away from group health insurance and adopt premium reimbursement programs by 2017.
Soon, just like we saw with 401k’s in the retirement sector, it will become commonplace to offer benefits that aren’t group health.
What do you think? What questions do you have? Leave a comment below.