A big milestone for any small to mid sized organization is offering a health benefit for the first time. Your organization is off the ground, you're looking to hire a star employee, or perhaps you need a health benefits package to improve employee retention.
So, where do you start when you're ready to offer employee health benefits? Here are 5 quick tips to offering health benefits for the first time.
Tip #1: Understand the advantages (and value) of offering employee health benefits
Most employers are familiar with the reasoning: Offer the right health benefits, and jump-start your organization’s growth. When you give employees health benefits they value, they'll be more satisfied, miss fewer work days, be less likely to quit, and have higher commitment to helping your organization achieve its goals. Here are three key advantages of offering health benefits to your employees:
- Recruitment & Retention of Key Employees: Employee health benefits are a valuable tool in recruiting key employees and retaining your top talent. While the importance of this for your organization may depend on industry competition in your area and the age and demographics of your workforce, it will be an important factor in your overall compensation package.
- Tax advantages: By offering a traditional group health plan or an alternative solution like a health reimbursement arrangement (HRA), you increase the value of your overall compensation package at the most cost-effective rate of virtually any other benefit. You save FICA taxes and your employees can save as much as 40% on FICA taxes plus income tax deductions.
- Employee wellness: Insurance coverage keeps employees healthy and working. Preventive care and more affordable access to health care prevents your employees from taking extended periods of sick leave, allowing your organization to be more productive and profitable.
Download our eBook: 11 Strategies for Employee Retention on a Small Business Budget.
Tip #2: Analyze the risks (and costs) of offering employee health benefits
Small to mid sized organizations\ must always assess the costs and risks of employee health benefits, just like they do for any other new expenditure. Following are some guidelines for assessing costs and risks for a new health benefit:
- Assessing costs: Your costs will vary depending on the type of employee health benefits you choose (more on your options in tip #3). For example, health insurance premiums typically rise every year. The uncertainty of rate renewals with a group health insurance plan makes financial planning difficult, but organizations can have much more control over costs with alternatives like an HRA.
- Administrative commitment: If you can’t commit resources to manage the health benefit, chances are it won’t succeed. Estimate and budget for the administrative time of offering employee health benefits. With a traditional group health insurance plan, your administrator will spend time choosing the coverage and then spend regular time filling out forms, remitting premiums, and acting as intermediary between employee and insurer. With an HRA, administrative time is reduced, especially if you choose to manage the benefit through HRA software services. These services offload most management, allowing your staff to manage the benefit in just minutes per month.
Learn more about HRA Administration Software.
Tip #3: Research your employee health benefits options
It’s important for organizations to understand their options. The three main types of health benefits today are as follows:
- Traditional group health insurance: Also called "employer-sponsored" health insurance, a group health insurance plan covers all employees and their family members. These plans are generally uniform in nature, offering the same benefits to all employees or members of the group. Unlike individual health insurance, group health insurance is purchased by an individual (or family member) indirectly through the individual's (or family member's) employer. Group health insurance is dependent on an individual's (or family member's) employment.
- Health reimbursement arrangements (HRAs): Rather than paying an insurance company for a plan, whose costs typically rise every year, employers can fix their costs on a monthly basis by establishing an HRA. HRAs are an affordable alternative to employer-sponsored group health insurance plans. Defined contribution health plans by themselves are not health insurance plans, rather you offer employees a tax-free allowance to spend on individual health insurance policies and other medical expenses. HRAs like an ICHRA satisfy the employer mandate for companies of 50+ employees to offer health coverage.
- Direct payments (aka taxable stipends). Organizations will sometimes just choose to give employees extra money for health expenses. This seems like the easiest route, but is more costly, and employers still have to be careful about compliance.
Learn more about your options by downloading the Small Business Guide to Health Benefits.
Tip #4: Work with a trusted insurance broker
To help you evaluate your best options, work with a trusted insurance broker who is knowledgeable about small to mid sized organization health benefit options.
Tip #5: Understand how healthcare reform impacts your organization employee health benefits
There are two key healthcare reform regulations every organization should know about health care reform:
- Employer Mandate: Applicable large employers (those with 50+ FTE employees) must offer "minimum essential coverage" that is "affordable" to their employees. Applicable large employers who fail to offer minimum essential coverage that is affordable will be required to pay a "penalty" on their tax return. Less than 50 FTE employees? This does not apply to your organization, though the benefits described in this article are still compelling.
- Health Insurance Exchanges: The Federally Facilitated Marketplaces (FFMs), also known as the Healthcare Insurance Exchanges, are places where employees can find individual insurance plans that meet the Affordable Care Act’s criteria for providing minimum essential coverage. These requirements include 100% coverage for all preventative care and treatment, acceptance regardless of pre-existing conditions, and at least 60% actuarial coverage for all healthcare costs.
Questions about the employer mandate? See our FAQ: ALEs and Employer Mandate.
HRAs are an ideal way for employers to reimburse employees for the cost of insurance plans employees purchase on the exchanges.
Most states use Healthcare.gov for their exchange, but some states run their one. See our State-by-State Open Enrollment Guide to Open Enrollment for information about the exchange for your state.
It’s an exciting time for an organization that is making the leap to offering their employees a health benefit. But it’s also extremely important for an organization to choose the right benefit to meet their employees’ needs and to fit their budget, now and into the future.
Questions or comments about these tips? Leave them in the comments section below.
This article was originally published on May 13, 2014. It was last updated January 1, 2020.