Want to offer health insurance to your employees but not sure where to start? Read our small business guide to health insurance.
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Options for Offering Health Insurance
This is the first in a series of articles, the purpose of which
is to simplify your post Obamacare health insurance options. After
reading this presentation you will have a solid understanding of
the primary options for offering health benefits to your
employees.
Most small business have absolutely no legal obligation to
provide health insurance, since only businesses with the equivalent
of 50 full-time employees need to offer health benefits. That being
said, you may want to offer health insurance in order to attract
and retain great employees. A Summary of Your 3 Broad Options For
Offering Health Benefits
There are three main options that you should consider as you
begin exploring your health insurance options: ! 1. Increase
employee compensation Give your employees a raise so they can
purchase their own health insurance. 2. Offer a cafeteria plan - A
special account your employees can use to pay their health
insurance premiums with pre tax income, and that you can make tax
deductible contributions to. 3. Offer small group health insurance
How health insurance has typically been offered by employers.
The right recommendation is going to depend on the size of your
company, the salary levels of your employees, and how many of them
are not already getting their insurance through some other means
(such as a spouse). What We Recommend
Because there is no one size fits all solution, we recommend
taking the following steps to decide which option is best for your
business:
To gauge interest in health insurance. Find out who is being
covered by a spouse, who is purchasing their own insurance, and who
is uninsured. Talk to your employees
Ask them whether an employee raise, a cafeteria plan, or a
small group plan would be best for your unique situation. Get
quotes for different plans, as well as a firm understanding of the
tax implications for each option. Ask them how complicated each
option will be to manage and administer. Talk to a health insurance
professional.
We recommend speaking to Jonathan Pocius of Payroll Services
LLC who was a source on this article and we found highly
knowledgeable. He can be reached at 240-215-4438 or via his website
at www.payrollservicesllc.com ! Here is a more detailed overview
the ins and outs of each option: If you are looking for a good
starting point
Offering health insurance can be extremely complicated, so one
option is to completely avoid getting involved, and just give
everyone a raise that they can use to buy their own plan. Increase
Compensation
1. Fixed costs: You are in complete control of compensation. 2.
Tax deductible: Salaries are tax deductible as business expenses 3.
Greater employee choice: Employees can shop around on the
individual exchanges for the plan that best suits their needs. 4.
Customizable incentives: You can offer different amounts to
different employees, which helps you attract and retain valuable
employees. Pros
5. Cheaper plans and subsidies: In most cases, plans purchased
through the individual marketplaces are cheaper than the equivalent
costs when paid as part of a small group plan. 6. Ease of use:
Letting your employees select and manage their own plans means one
less thing for you to worry about. Pros
1. No tax deductions for employees: Employee salaries are
taxable, so they will pay tax on any additional compensation that
you provide to help them purchase health insurance. 2. You Have To
Pay Payroll taxes: Even though you can deduct salaries as a
business expense, you will still be on the hook for the payroll
taxes on the additional salary you are paying. 3. No control over
employees use of funds: There is no way for you to compel your
employees to use their extra income to buy health insurance. You
can encourage them to buy insurance, but there is no way to
guarantee that they wont use it for a vacation instead. CONS
So they can buy their own health insurance allows your
employees to shop around for the plan that works best for them, and
saves you a huge administrative hassle. Increasing employees
compensation
To help your employees pay for health insurance is that you
give more money to the government this way. Because the extra money
is being paid out as salary the business must pay payroll taxes on
the money, and the employee pays their normal income taxes on the
additional income. The downside of increasing compensation
Cafeteria plans can be a good way for small business owners to
avoid paying additional payroll taxes, while also giving their
employees the ability to buy insurance using pre-tax income. A
Cafeteria Plan
1. Fixed costs: You are in complete control of how much you
contribute to your employees cafeteria plan 2. Tax Advantaged:
Contributions are tax deductible as business expenses and exempt
from payroll taxes. 3. Employees use pre-tax income: Employees are
not taxed on any contributions that they make to their cafeteria
plan. 4. Greater employee choice: Employees can shop around for the
plan that best suits their needs. 5. Customizable incentives: You
can offer different amounts to different employees. 6. Cheaper
plans: In most cases, individual plans are cheaper than small group
plans. Pros
1. Complexity: Setting up and administering a cafeteria plan is
complicated, and the rules and regulations can be difficult to
understand. 2. No subsidies: Employees are not eligible for
government subsidies when purchasing through a cafeteria plan.
CONS
That allows employees to set up health spending accounts that
allow employees to contribute a certain amount of their income to a
designated account before taxes are calculated. Employees can then
use this account to pay for insurance premiums and other medical
expenses. A cafeteria plan is a form of Section 125 plan
1. They are tricky to setup and administer. 2. Individuals
cannot use cafeteria plans to purchase health insurance that is
part of the affordable care exchanges, and are therefore not
eligible for government subsidies. ! There is also a lot of
confusion, even among insurance professionals, as to whether or not
Obamacare allows cafeteria plans to be used when purchasing off
exchange health insurance plans. There are two primary downsides to
using cafeteria plans as part of your business:
When people think about health insurance, they are most likely
thinking about an employer-provided group plan. Group Health
Insurance Plans
Pros Easy for employees to understand: Most people are already
familiar with the concept of employer- based health insurance, and
view it as the most important job related benefit. Offering a group
plan will almost certainly increase your appeal as an
employer.
Pros Tax benefits: The money you spend on providing health
insurance counts as a business expense, which means it is tax
deductible. Employees are also able to pay for their share of
health insurance premiums out of their pre-tax income, which
decreases their overall tax obligation.
ProsTax credits: If you purchase your group plan through one of
the Obamacare exchanges, you may qualify for a tax credit worth up
to 50% of your contribution towards your employees premium costs.
While this sounds enticing, unfortunately the requirements to
receive the tax credit generally make providing group health
insurance too expensive for the average small business, even with
the tax credit.
Share the premium payment: Offering a group plan doesnt
necessarily mean that you need to pay the whole cost of the
premium. Employers typically pay 50-80% of the premium cost, but
small business can generally make smaller contributions and defer
the rest to the employee. Depending on your particular
circumstances you may end up paying anywhere from 0% to 100% of the
premium cost. Pros
CONS Cost: Providing group health insurance can be expensive.
In 2012, the average cost to all employers was $4,226 per employee.
In addition to this, employees paid an additional $1,118 on average
(See this report for state averages).
CONS Changing prices: Health insurance premiums often change
from year to year depending on the costs of medical procedures,
physician pay, prescription drugs, and administration. The complex
calculations underlying health insurance premium makes it difficult
to fully anticipate changes and budget accordingly.
CONS Minimum requirements: In order to qualify for most group
plans, you have to give all your full-time employees the option of
enrolling, and at least 70% need to actually opt in. The exact
requirements will vary depending on the insurance company and plan,
but group plans generally give you less flexibility than simply
increasing compensation, which you can do on a case-by-case
basis.
CONS Administrative hassle: In order to qualify for most group
plans, you have to give all your full-time employees the option of
enrolling, and at least 70% need to actually opt in. The exact
requirements will vary depending on the insurance company and plan,
but group plans generally give you less flexibility than simply
increasing compensation, which you can do on a case-by-case
basis.
we also recommend That you only shop for a small group plan
with an experienced health insurance professional. Using a broker
wont cost you more than shopping on your own, and they will be able
to explain to you the benefits and options of various plans.
When you talk to an advisor Ask about traditional small group
plans, the Obamacare SHOP plans, and getting group coverage through
a Professional Employer Organization (PEO). They will be able to
give you exact quotes, and help you understand the costs and tax
implications of each option.
That you seek professional advice in order to find the best
solution for your business. Trying to navigate the post Obamacare
health insurance marketplace on your own is simply not worth the
time, hassle, or risk. we strongly recommend
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