For small business owners, the future is always uncertain. Between economic volatility, shifts in industry trends, and changes in customer preference, very few things remain constant. Unfortunately, the one thing that small business owners have been able to count on over the past several years is increases in the cost of their health plans. Like clockwork, group health plan providers raise their rates at renewal time. In fact, according to the 2014 Small Business Healthcare Survey, "a whopping 91 percent reported increases in their health plan at their most recent renewal while 96 percent reported increased health insurance costs over the past five years. The majority expect to continue seeing cost increases in the coming year.”
This frustrating dynamic has many employers adopting healthcare reimbursement plans as a means of adjusting to health insurance rate increases. Using a reimbursement plan, a company can send its employees to the individual health insurance marketplace in order to purchase their own health plans. As a benefit to those employees, the company can then reimburse health premiums at a predetermined level. These monthly disbursements, sometimes called real dollar contributions, can entirely replace the need for traditional company health plans. Companies that have adopted reimbursement plans enjoy the following benefits:
Cost Savings and Control
Healthcare costs in the United States are rising and group health plans are no exception. These rising costs represent a significant expense for small businesses offering group plans. By eating away at a company’s profits, these costs are directly affecting employer and employee income. By defining contributions to employee healthcare, reimbursement plans can drastically reduce the amount of money spent on health benefits. Perhaps even more importantly, though, these plans eliminate blindside rate increases, creating an even, predictable cost structure for small businesses. Because real dollar contributions are predetermined, the budget will never change unless the employer decides to offer a larger benefit.
Cost savings and stability aren’t the only financial benefits associated with health insurance healthcare reimbursement plans. Real dollar contribution plans also provide tax benefits to both employers and employees. Because these defined contributions are not a form of wage or salary compensation, they are not subject to income tax. This allows employers to reward their employees with valuable perks without increasing their tax exposure. Employers also benefit from the ability to pass along additional compensation without paying additional payroll tax. Depending on income and other factors, some employees may enjoy additional tax benefits in the form of federal tax credits or discounts on the individual health insurance plans they pick up on the exchange.
Employee Independence and Choice
Frustrations with company healthcare plans go beyond the obvious financial factors. Group plans are only effective because they force a large number of people to accept the same policies and benefits. When it comes to healthcare, however, all employees have their own unique needs and preferences. Under healthcare reimbursement plans, employees perform their own research and selection process, then purchase the plans that best meet their needs. This gives them a voice when it comes to premium levels, co-pay amounts, and other financial factors. It also allows them consider risk preference, care network, and plan quality before making their own policy selection. In the fast-paced world of small business, company owners can count on very few things to remain constant. Unfortunately, they have been able to count on rising healthcare costs, which result in rate increases on their group plans. These blindside increases have many small business owners canceling their group plans in favor of premium reimbursement packages. By allowing them to set a defined real dollar contribution, these reimbursement plans have the ability to replace constant uncertainty with an affordable, stable, and constant cost structure.
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