If you're reading this article, chances are your organization is off the ground. You've hired some great employees, and now you're ready to offer a competitive health benefits package to further your recruiting and retention efforts.
While this is a significant milestone, it also creates a lot of questions, including: Where do you start with employee benefits? How do you know which plan is right for your employees? Will you be able to find a plan that fits your budget?
This article will explain how you can start offering health benefits to your employees.
Tip #1: Understand the value of offering health benefits
One question on your mind when considering offering health benefits for the first time may be: Is it really worth it? In short—absolutely.
According to our 2022 Employee Benefits Survey Report, 87% of employees value health benefits, such as health insurance.
When you give employees health benefits they value, they'll be more satisfied with their job, take fewer sick days, and even have a higher commitment to helping your organization achieve its goals.
According to studies done by LinkedIn1, organizations rated highly on compensation and employee healthcare benefits saw 56% lower attrition than poorly rated organizations.
If that wasn't enough, let’s go over a few more advantages of offering health benefits to your employees.
Recruit and retain key employees
Employee health benefits are valuable in recruiting key employees and retaining your top talent. The Society for Human Resource Management2 (SHRM) found that healthcare is the most requested employee benefit.
Additionally, our 2022 Employee Benefits Survey Report found that 82% of employees believe the benefits package an employer offers is an important factor in whether or not they accept a job.
Depending on the type of plan you offer, you can benefit from tax savings for offering the health plan. Employees can also get tax savings by participating.
For example, health reimbursement arrangements (HRAs) are tax-free for employers. They also spare employees from income tax—provided their insurance policy meets minimum essential coverage (MEC) requirements.
Finally, offering health benefits keeps employees healthy and working. Having more accessible and affordable healthcare reduces the chance your employees need to take extended periods of sick leave. This allows your organization to be more productive and profitable.
What's more, employee wellness doesn't just include physical health. By offering health benefits, you're allowing your employees more affordable access to therapy and mental health resources they need to avoid burnout.
Tip #2: Analyze the risks and costs of offering health benefits
Now that you know why offering health benefits is so important, your next step is to consider the risks and costs of the plans available.
Like any new expense your organization takes on, investing time to research your available options is essential in finding a plan that meets your organization's needs.
The cost of health insurance will vary depending on the type of health insurance benefits you choose.
For example, health insurance premiums for group health insurance plans typically rise annually. The uncertainty of these rate renewals can make financial planning difficult. This makes cost-controlled options, including HRAs and health stipends, more attractive.
Next, you'll need to consider how much time and effort it will take to administer the health benefit. If you can't commit resources to manage the health benefit, it likely won't succeed.
With a traditional plan, your administrator will spend time choosing the health insurance coverage, filling out forms, remitting premiums, and acting as an intermediary between your employees and the insurer.
An HRA significantly reduces your administrative time, especially if you manage the benefit through an HRA software service like PeopleKeep. These services offload the most tedious tasks, allowing your staff to manage the benefit in just minutes per month.
Tip #3: Research your employee health benefits options
After reviewing the costs and risks, it's time to look more closely at your employee health benefits options.
The three main types of health benefits available to small employers are as follows.
Traditional group health insurance
The traditional approach to employee health is a group plan. But, this type of employer coverage can be expensive.
These plans are generally uniform in nature, offering the same coverage for employees and their family members. This means all full-time employees fall under the same umbrella of care, regardless of their unique healthcare needs. Group health insurance is also dependent on an individual's employment.
While most organizations are likely familiar with this type of employer-sponsored health coverage, there are many alternatives available.
Health reimbursement arrangements (HRAs)
You can contribute to your employee's healthcare costs with an HRA. HRAs are formal health benefits that allow employers to reimburse their eligible employees, tax-free, for qualifying medical costs. Depending on the type of HRA offered, this can also include individual health insurance premiums.
Rather than paying an insurance company for a plan whose costs typically rise every year, employers can offer their employees an allowance that they can then use to purchase the policies, products, and services that work best for them. Because the employer defines their allowance, they can rely on fixed costs every month and year.
Because employees can choose their own health insurance policies with a stand-alone HRA, they have control over their level of coverage. This makes HRAs a great way to empower your workers while still providing quality health insurance to employees.
Three of the most popular types of HRAs are:
- The qualified small employer HRA (QSEHRA) is an HRA specifically designed for employers with fewer than 50 full-time equivalent employees (FTEs).
- The individual coverage HRA (ICHRA) is an excellent option for businesses of all sizes that want to offer differing reimbursement amounts to different employee classes or offer monthly allowances greater than the QSEHRA contribution limit. The ICHRA also helps employers with 50 or more FTEs meet the employer mandate.
- The group coverage HRA (GCHRA), also known as an integrated HRA, is a way to supplement your existing group health insurance and high-deductible health plans (HDHPs).
Direct payments or taxable stipends
Finally, small business owners will sometimes choose to simply give employees extra money for medical care expenses. You simply bump your employees' pay, and you avoid having to put the time or energy into choosing a plan and administering it.
But there's a better way. If you're looking for increased flexibility, offering a taxable health stipend can be an excellent choice. A health stipend works similarly to an HRA, where you reimburse employees for their medical expenses. However, you can also offer them to 1099 contractors and international workers because of their taxable nature.
Employers still have to be careful about compliance, as it's not a formal health benefits plan. For instance, a stipend doesn’t satisfy the Affordable Care Act’s (ACA) employer mandate for organizations with 50 or more FTEs (more on the mandate later). In addition, you'll miss out on the tax savings associated with offering a formal plan like an HRA.
Health stipends are great options for organizations with employees who receive advance premium tax credits, as your employees can continue to receive their credits and use their stipend benefits without affecting their eligibility.
Tip #4: Work with a broker
Next, if you find the health insurance world challenging to navigate, we recommend working with a trusted insurance broker or health insurance concierge service.
Licensed brokers and agents who work for concierge services are professionals who are knowledgeable about small and mid-sized organization health benefits options. They can help you navigate your options when things get confusing.
Tip #5: Understand how healthcare regulations impact your organization
Finally, it's essential to understand healthcare rules and regulations and know which ones apply to your situation.
Here are two healthcare reform regulations every organization should know:
Applicable large employers who fail to offer an affordable plan that meets minimum value or MEC may have to pay a penalty if at least one full-time employee receives a premium tax credit. These are known as the employer shared responsibility provision (ESRP) penalties. If you have fewer than 50 FTEs this doesn't apply to your organization.
This doesn't mean you have to provide group health insurance. An ICHRA can help you satisfy the employer mandate if your employees have individual health coverage that meets minimum value and your HRA allowance is affordable.
Minimum essential coverage (MEC)
Under the Affordable Care Act (ACA), MEC is any type of insurance coverage that meets the individual shared responsibility requirement, also known as the individual mandate.
When the ACA was first introduced, Americans who didn't satisfy the individual mandate faced a penalty with a fee. But, as of 2019, the IRS no longer enforces the individual mandate for most states3. This means your employees don't have to have a policy that meets MEC if they don't want to.
However, while the federal government no longer requires it, certain HRAs require employees to have MEC to participate—or at least to qualify for tax-free reimbursements.
Making the leap to offering your employees health benefits for the first time is an exciting achievement you should be proud of. Choosing the right benefit to meet your employees' needs and budget will help you recruit and retain employees and give you peace of mind knowing you're doing the right thing for your team.
If you're interested in offering health benefits to employees, PeopleKeep can help! Our HRA and employee stipend benefits administration software helps organizations set up and manage their health benefits in minutes each month.
This blog article was originally published on May 13, 2014. It was last updated on July 6, 2023