In today's health care landscape, it's common for a business owner to ask "can I offer employees a voucher for health care, allowing them to find their own insurance plan?"
The answer is: Yes. Using a pure defined contribution health plan approach, businesses can provide allowances for employees to use on health insurance - like vouchers for health care.
In fact, more and more business owners and nonprofits are using a voucher-like program instead of offering a one-size fits all group health insurance plan.
How to Set up a Health Care Voucher Program
The most common approach to providing a voucher-like defined contribution health care plan is to set up a limited-purpose Section 105 medical reimbursement plan. By using a Section 105 medical reimbursement plan, the employer stays compliant with ACA, IRS, ERISA, and HIPAA regulations, and they can offer allowances on a tax-free basis. In fact, a Section 105 plan is one of the only compliant ways a business can provide health benefits in this way.
Setting up a Section 105 plans is quite simple:
- The business establishes formal written Section 105 plan documents.
- The business determines the amounts available to each employee monthly for reimbursement of qualified health insurance expenses.
- Employees submit health insurance expenses, and once approved, the business reimburses the employees up to the available amounts.
To ensure compliance and easy administration, nearly all businesses use a defined contribution software provider to set up and administer the Section 105 plan.
Why a Health Care Voucher Strategy Is Gaining Popularity
This type of health care voucher-like approach is gaining popularity in the US, especially with smaller businesses and nonprofits.
A driving force is cost. In the past, small businesses and nonprofits have relied on group health insurance to offer employee health benefits. However, continual increases in health care costs have adversely impacted most businesses’ ability to provide health benefits in the traditional way. Small businesses have been particularly hurt, and many have dropped group health insurance plans because they have become too expensive. Employers don't want to drop health benefits all together. But, they do want to find ways to get more value out of their health benefit dollars.
On top of cost, employers and employees find this type of arrangement attractive because:
Employees choose the health plan that best fits their family (rather than a one-size fits all plan chosen by the employer). Employees can shop for their health plan through the new state health insurance marketplaces, through a health insurance broker, or from any insurance company.
Employers fix their costs by giving employees a "voucher" - a monthly health care allowance -- rather than needing to contribute a certain amount to the group health insurance premiums.
Once implemented, it takes less than 5 minutes per month to administer online (much less time and administrative commitment compared to a group health insurance plan).