Although the employer mandate of the Affordable Care Act has been delayed until 2015, now’s the time to consider your company’s strategy regarding health insurance benefits for employees.
“Regardless of the mandate, you have an opportunity now to change what you’re doing in terms of employee benefits,” says Joseph R. Popp, J.D., LLM, tax manager at Rea & Associates.
Smart Business spoke with Popp about what he refers to as the SHOP, drop, roll or self-insure approaches employers can take regarding benefits.
What companies are good candidates for the Small Business Health Options Program (SHOP)?
In Ohio, SHOP is only available to companies with fewer than 50 employees; in a few years, it will be extended to 100 and under. SHOP is the business portal to the health insurance exchange. Businesses can contribute as much as they want toward premiums, including a zero contribution. Employees can then use pretax deductions to pay for premiums. Under SHOP, individuals cannot get federal subsides to help pay for premiums.
SHOP is exchange insurance, so it differs from traditional plans insurance companies offer. For example, Anthem traditional plans include the Cleveland Clinic as a network hospital, but it is not a network hospital with Anthem exchange coverage.
This option is best for companies with employee groups that would not generally get premium subsides and may save money compared to a traditional insurance product.
When does it make sense to drop health insurance benefits?
Drop, which means you’re not offering any health benefits to employees, can be a good option when you have an employee group that is largely entitled to subsidies.
For example, one company provided $400 a month for family coverage, with the employee paying an additional $1,250. Most employees were single-breadwinner type families and would be entitled to premium subsides on the exchange. If the company dropped insurance, the family would go from paying $1,250 to about $700 a month on the exchange for an equivalent level of coverage, even without premium subsides that could take it down further to about $250 a month.
Dropping was the most attractive option for the company because it would save $400 a month per family employee, and most employees would save money on premiums. In addition, the company can use the money it paid toward benefits to provide wage increases for those individuals who would be paying more for insurance.
Even though companies with 50 employees or more that drop insurance will have to pay a $166 a month penalty per employee starting in 2015, the penalty and some wage increases for people harmed by going to the exchange may be less. Both the business and individuals could have a large net financial benefit, and the employer could save more since it won’t have to use resources to address benefits questions.
What is the ‘roll’ option?
That refers to rolling with your current insurance. Many companies are waiting to see how the exchanges work and are taking the roll approach to wait another year.
To manage increasing premiums, companies are raising deductibles, co-pays and/or the share employees pay. Others are instituting wellness programs. Premiums might increase, but discounts are offered if employees participate in the wellness program, which is usually tied to some activity that might promote health. Employees can lessen or eliminate the increase if they participate.
When does self-insurance make sense?
If you have a relatively healthy employee group, it may be a good option. Unlike the exchange products, stop-loss policies are still medically underwritten (and the relative health of the group matters). You may pay the first $25,000 in claims per employee and purchase stop-loss coverage from an insurance company to pay claims above that amount. Savings can be substantial, but the drawback is that as you get deeper into the insurance industry — you’re taking on risk and functioning like an insurance company.
Companies should sit down with an insurance adviser and review all four options, because one may offer great cost savings or better benefits for employees. ●
Joseph R. Popp, J.D., LLM, is a tax Manager at Rea & Associates. Reach him at (614) 923-6577 or [email protected].
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