How to Use Individual Health Plans to Offer Health Benefits

Written by: PeopleKeep Team
Originally published on October 27, 2015. Last updated August 14, 2019.

Small business owners want what is besHow to Use Individual Health Plans to Offer Health Benefitst for their employees. They seek to provide healthy wages, safe and enjoyable work environments, robust benefits packages, and other perks that can attract and retain dedicated team members. Sometimes, however, it can be difficult to balance the need to provide employee benefits and the need to control company costs. Traditionally, employee health benefits have provided one of the greatest challenges. Simply stated, many small businesses cannot afford group health insurance plans. Fortunately, many small businesses have learned that they can use individual health insurance for health benefits. While the concept of premium reimbursement is not complicated, company owners need to follow certain procedures to ensure that their reimbursement benefit packages are legally compliant. For those currently not offering health benefits, the following steps should apply.

Step 1: Set a Monthly Healthcare Allowance

Small businesses can choose the amount that they wish to reimburse employees for the purchase of individual health plans. Businesses can base this amount on specific criteria, including family status, job title, etc. This amount is known as a real dollar contribution. In order to stay legally compliant, it is important for small businesses to set up their reimbursements within the structure of a real dollar contribution health plan. The easiest way to set up and administer these plans is through a defined contribution software provider.

Step 2:  Refer Employees to the Health Insurance Marketplace

With their monthly real dollar contribution available for reimbursement, employees use the health insurance marketplace to purchase their own individual health plans. Recent changes in healthcare legislation have created a robust market for high quality individual health plans. This exchange features a broad variety of policies, allowing employees to select their own benefit levels and cost structures. Because it allows them to tailor their policies to individual needs, this freedom of choice is usually seen as a valuable benefit.

Step 3: Reimburse Using a Defined Contribution Software Provider

By using a defined contribution software platform, employees can manage their reimbursement accounts and employers can keep track of approved reimbursements within one platform. By running their communications and transactions through a system, companies can stay organized and compliant with laws and regulations.

Step 4: Integrate Reimbursement and Payroll Processes

Because real dollar contributions are a paid benefit to employees, it is important for companies to integrate their reimbursement processes with their existing payroll processes. Not only does integration reduce bookkeeping and clerical work, it also ensures that both parties achieve the tax savings they deserve. Because reimbursements do not represent a salary increase, employees are not required to pay income taxes on their reimbursements. Similarly, reimbursing companies are not expected to pay payroll tax for these disbursements.

Small businesses owners want what is best for their employees, but many managers find themselves choosing between health benefits and their bottom line. Fortunately, there is now a way for these companies to offer health benefits using individual health plans. This process involves setting a monthly healthcare allowance, referring employees to the health insurance marketplace, and reimbursing premiums through a defined contribution software platform. In today’s world of modern individual health plans, these reimbursements are saving companies money while also providing an amazing benefit to employees.

What do you think? What questions do you have? Leave a comment or question below.

Originally published on October 27, 2015. Last updated August 14, 2019.


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