As a small business owner, you ask yourself a lot of questions in a day - “how can I boost sales?” or “what is our goal for today?” And with the cost of group health insurance rising, you may have asked yourself recently “how can I reimburse my employees for healthcare?” Here are questions and answers to help you better understand why and how you can reimburse your employees’ healthcare.
Question: Can I Reimburse Employees for Healthcare?
Answer: Yes - there are programs that allow you to reimburse your employees’ individual health insurance instead of offering a group health plan.
Question: Why Would I Want to Reimburse Employees for Their Healthcare?
Answer: As the cost of group health insurance has increased by 148% since 1999, it is unaffordable and unsustainable for you and your employees. Additionally, today, only 78% of firms with 10-24 employees offer health coverage because of cost. For this reason, reimbursing your employees’ individual health insurance premiums allows them to have a safe, reliable, and affordable means of healthcare. Plus, individual health insurance costs 20% - 60% less.
Question: What Steps Would I Take to Reimburse Employees for Healthcare?
Answer: Once you have decided to reimburse your employees’ individual health insurance premiums, follow the steps below:
Step 1: Decide How You Will Reimburse Employees
There are two main options for reimbursing employees for their individual health insurance premiums:
1. A taxable health insurance stipend, or
2. A formal reimbursement plan (pre-tax and post-tax options are available)
There are pros and cons to each approach, however most companies set up a formal reimbursement plan (option #2) because of the added tax-savings and because it is a formal health benefit.
Tip: When you set up a reimbursement plan, you can provide allowances evenly to all employees (ex: $250/month to all full-time employees), or provided by class of employee (ex: $350/month to full-time managers and $200/month to associate-level employees).
Step 2: Employees Purchase an Individual Health Insurance Plan
Each employee purchases an individual or family health insurance plan with their own money.
Your employees can work with a designated health insurance broker, shop online, or purchase a health plan through their state's Health Insurance Marketplace.
Unfamiliar with individual health insurance? See: 5 Things Small Employers Need to Know about Individual Health Insurance
Step 3: Reimburse Your Employees
Assuming you are reimbursing employees with a formal reimbursement plan, your employees will need to request reimbursement. Once the premium expense is substantiated, you, as the employer, will reimburse employees up to the amount you’ve made available to them.
Tip: It’s important to ensure compliance and to make administration easy so, most employers use a premium reimbursement software provider.
What questions do you have regarding reimbursing your employees’ healthcare? We’d love to answer your questions. Comment below.