When it comes to offering health benefits to your employees, you have many choices. While some options are immediately recognizable, such as group health insurance, others can be more difficult to understand.
You may have seen the term “ancillary benefits” when searching for health insurance coverage. But what are ancillary benefits, and why should you offer them to your employees?
In this article, we'll define ancillary benefits and explain how you and your employees can benefit from them.
What are ancillary benefits?
Ancillary benefits are secondary health benefits provided alongside group health insurance to cover things like prescriptions and medical bills incurred during hospital stays. These benefits can be funded with pre-tax dollars and can also be used for preventative care.
Traditional group health insurance often doesn't cover all of an individual’s health expenses, such as the entire cost of a hospital bill. Ancillary benefits help cover these expenses, helping employees avoid any negative financial consequences of a medical emergency.
Dental, vision, and life insurance coverage are also considered ancillary insurance since you offer them in addition to health insurance.
These secondary benefits can be paired with a group health insurance policy to enhance your employee's medical coverage.
Employers generally offer ancillary insurance as either a voluntary benefit or employer-contributory benefit. With an employer-contributory system, you pay 50 to 100% of your employees' ancillary benefits, while you pay 0 to 49% under a voluntary system.
Contributing less to an ancillary benefit is certainly an option, but many employers find contributing to ancillary benefits encourages more employees to use the benefit.
Why offer ancillary coverage to your employees?
It's beneficial to offer an ancillary policy to your employees if you want to attract and retain top talent. Your organization will be more competitive in the labor market when you provide these additional benefits.
Your organization also benefits from increased employee productivity, as ancillary benefits give your employees access to services they may not otherwise have, such as dental care or vision care.
Other potential benefits of ancillary plans include:
- Providing peace of mind to employees
- Reducing the cost of your group health insurance policy if you switch to a high deductible health plan (HDHP)
- Offering preventative care can reduce the number of sick days employees take
- Supporting your employees' financial wellness
How to offer ancillary benefits
If your organization is looking to offer ancillary benefits to supplement a group health insurance plan, you have several options to choose from.
Some of the most popular ancillary benefits are:
- Life insurance
- Critical illness insurance
- Vision insurance
- Dental insurance
- Disability insurance
- Pet insurance
- Health savings account (HSA)
- Flexible spending account (FSA)
- An integrated health reimbursement arrangement (HRA)
- Employee stipends
We'll look at a few of these types of coverage in more detail below.
Life insurance is a popular ancillary benefit. A group life insurance policy helps your employees provide for their families in the event of their sudden or accidental death. For life insurance claims, your employee's beneficiary would be paid directly to maintain their quality of life. Life insurance also helps pay for funeral expenses. If your life insurance policy allows accelerated benefits riders, your employees can even use their funds while living if diagnosed with a terminal illness.
Critical illness insurance
Separate from life insurance, critical illness insurance is another common type of ancillary benefit you can offer your employees. The policies vary, but most of them provide additional coverage for medical emergencies like heart attack, stroke, cancer, paralysis, kidney failure, and coronary bypass surgery. In these situations, your employee would receive a lump sum payment to help cover their medical bills or replace lost wages while they recover from their illness.
Many people see their pets as members of their family. For that reason, employers are starting to offer pet insurance as an employee benefit to offset the cost of high vet bills. Pet insurance plans have no provider networks, so your employees can typically use any vet, animal clinic, specialist, or emergency clinic they choose.
Health reimbursement arrangement (HRA)
An HRA is a health benefit that allows you to reimburse your employees for qualifying medical expenses. HRAs are tax-free for both the employer and the employee, making them a great health benefit option.
While HRAs are sometimes used in place of traditional group health insurance plans, they can also be paired with group plans as ancillary benefits.
A group coverage HRA (GCHRA), also known as an integrated HRA, is specifically designed to be offered alongside a group health plan. With a GCHRA, you can set a custom monthly allowance for reimbursement toward out-of-pocket medical expenses that your insurance plan doesn't cover.
The most common reimbursements approved under a GCHRA are out-of-pocket expenses like chiropractic care, copays, coinsurance, and deductibles. All submitted expenses must be substantiated with an invoice or receipt, although some reimbursements require a doctor's note or prescription information to comply with federal regulations.
Setting up and managing a GCHRA only takes a few minutes every month, making it an easy ancillary benefit to offer to your employees who are covered by your group health policy.
Another way to add ancillary benefits to your existing group health insurance plan is to offer employee stipends. Employee stipends, sometimes called fringe benefits or lifestyle benefits, are a fixed sum of money provided to your employees to help them pay for things like health, wellness, professional development, transportation, and remote work expenses.
They can be offered through expense reimbursements, much like an HRA. However, most employee stipends are taxable for both the employer and the employee.
Employee stipends are highly flexible because they can be offered to any of your employees regardless of whether or not they have health insurance, no matter where they live, and no matter their employment status.
You can offer your employees a health stipend to supplement your group health insurance plan. This allows your employees to use their monthly allowance on medical services not covered by insurance, such as out-of-pocket expenses or office visits.
To take your benefits package one step further, you can also offer wellness benefits. With a wellness stipend, you reimburse your employees for their wellness expenses like gym memberships, fitness classes, mental health apps, and meditation programs. Allowing your employees to improve their overall well-being helps them stay healthy and more productive at work.
Employee stipends are a simple and effective way to supplement your current employee benefits.
Supplemental benefits help to fill the gaps left by major medical insurance coverage. Offering ancillary health insurance can help your organization attract new talent and retain employees by boosting your existing employee benefits package. Ancillary benefits can include dental insurance, vision plans, life insurance, and personalized benefits such as HRAs or employee stipends.
If you want to add flexible ancillary benefits to your benefits package, PeopleKeep can help! Our HRA and employee stipend administration software makes setting up your ancillary benefits easy.
This article was originally published on April 13, 2022. It was last updated on May 11, 2023.