DROP THE GROUP

Defined Contribution: Drop Group Employer Coverage and Switch to Individual Health Insurance

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Conclusion

The number one challenge small businesses face in offering health benefits is cost.

However, budgeting for health benefits does not have to be the death of your operating budget.

By adopting individual health insurance and a premium reimbursement plan, you can avoid the common pitfalls of small business health benefits.

With reimbursement software solutions such as ZaneHealth, you can finally offer affordable health benefits that employees love.

Budget Pitfall #5 – Spending Too Much Time Administering Health Benefits

You’re a business owner or an HR manager. You’re a jack-of-all trades.

So, why are you spending such a big portion of your week dealing with health benefits?

Administering health benefits is a time and budget pitfall. But it doesn’t have to be.

Don’t Leave It to Luck
You can get out of the business of purchasing and administering health insurance by switching to individual health insurance and premium reimbursement.

With this approach, you simply manage the reimbursement plan and employees choose and manage their own health insurance. With the right reimbursement software, you’ll only spend 5-10 minutes a month administering health benefits. You’ll be able to offer quality benefits, and free up more time for strategic work.

Budget Pitfall #4 – Not Having Control of Annual Costs

When you have unpredictable cost increases year after year, budgeting for health benefits is hard - if not impossible.

And when you can’t budget for health benefits reliably, you also can’t confidently tell employees you’ll be able to offer benefits in the long run.

Not having control of your annual health benefits costs is a big budget pitfall.

Don’t Leave It to Luck
Take control of your health benefits budget by switching to individual health insurance and a premium reimbursement plan. With this model of health benefits your company can:

Set any contribution amount toward employees’ healthcare (there is no minimum contribution).
Change your budget on your terms only.
Reliably budget for health benefits in the short-term and in the long-term.

Budget Pitfall #6 – Offering the Same Benefits to All Employees

As a small business, you want to offer quality benefits to recruit and retain the top talent in your industry. But, that doesn’t mean you have to spend the same amount on each employee.

In fact, not customizing your employee health benefits by class of employee is a major budget pitfall.

Don’t Leave It to Luck
Customizing employee benefits may seem out of reach for a small business. But it’s not.

Use a premium reimbursement plan to offer a different contribution to different types of employees. You can customize the benefits based on bona-fide job criteria such as job role,
weekly hours worked, location, etc. You can also vary contributions by family status.

Example - A startup technology company in California struggles to hire and keep senior programmers in a very tight labor market. Instead of offering the same health plan to all employees, the company created separate classes for senior programmers and junior programmers, giving senior programmers $350 more per month in their premium reimbursement allowance. This large increase helps the company reduce attrition among their senior programmers and recruit needed staff. Plus, it creates a visible incentive for junior programmers to stay and grow with the company.

Budget Pitfall #2 – Assuming Group Health Insurance is the Only Way

Whether you’ve offered health benefits in the past, or want to offer benefits for the first time, you may feel like traditional group health insurance is the only way to offer quality health benefits.

However, assuming group health insurance is the only way to offer health benefits is a major budget pitfall.

Why? Group health insurance is expensive.
According to research by the Kaiser Family Foundation, the cost to cover a single employee has increased 174% since 1999 – up to $6,025/year in 2014. As a result, only 54% of small businesses (with fewer than 200 employees) still offer traditional group health insurance.

Don’t Leave It to Luck
You no longer have to feel trapped by traditional group health insurance. New, more affordable alternatives are rapidly being adopted such as:

The SHOP Marketplace and Small Business Healthcare Tax Credits
Co-Ops or PEOs
Individual Health Insurance (with or without a premium reimbursement contribution)

What’s the most budget friendly option?
Individual health insurance with a premium reimbursement contribution. Why? Because individual health insurance cost 20 to 60 percent less and your business has complete control over cost.

Budget Pitfall #3 –Allowing Large Medical Claims to Drive Up the Cost

If you’re a larger company, did you know health insurance companies can increase the cost of your group health insurance plan premium based on last year’s medical claims?

That means when an employee has an expensive medical procedure, hospital stay, or chronic illness you will likely see higher premium increases the following year.

Don’t Leave It to Luck
Don’t leave your health benefits budget at the hands of unpredictable medical claims.

Take control by switching employees to individual health insurance. With individual health insurance, the cost of health insurance cannot change due to medical claims and it is portable, safe health insurance. Plus, your business can continue to contribute with a premium reimbursement contribution.

Budget Pitfall #9 – Ignoring Compliance Requirements

Did you know there are various federal rules and regulations your small business needs to follow when you offer health benefits?

This is true whether you offer a group health insurance plan or a premium reimbursement plan. And, the compliance requirements have only increased with the Affordable Care Act (ACA).

By ignoring compliance requirements (or simply being unaware of them), you are setting your business up for expensive penalties - a major budget pitfall.

Don’t Leave It to Luck
To avoid costly fines for being out of compliance, brush up on your compliance requirements under ERISA, COBRA, HIPAA, and the ACA.

If you offer group health insurance, work with your broker to make sure you are in compliance.

If you offer a premium reimbursement plan, work with a reimbursement software provider (such as ZaneHealth) to ensure the plan is set up and administered in a compliant way.

Budget Pitfall #10 – Not Offering Health Benefits

Lastly, if you think you can avoid these common health benefits budget pitfalls by simply not offering health benefits, think again.

Offering health benefits can actually help you save money overall.

How? The cost of employee turnover is expensive - as much as 2x an employees’ annual salary for an executive level employee. Health benefits help you attract and retain your key employees.

Don’t Leave It to Luck
Take control of your employee turnover costs by offering attractive, affordable health benefits tailored to retain your most expensive-to-replace staff.

Over time, you’ll see that health benefits just may pay for themselves.

Budget Pitfall #1 – Not Shopping Around at Renewal Time

It’s your annual renewal time and you just received notice that your group health insurance policy is increasing 20 percent next year for the same coverage.

Do you have to accept that blow to your health benefits budget?

No. You have options.

Don’t Leave It to Luck
Your health benefits budget does not have to be at the mercy of annual renewal increases!

The fix is easy:

Shop around for more affordable plans,
Work with your broker to negotiate your premium rate, or
Transition employees to individual health insurance and set up a premium reimbursement plan to contribute. This is the most effective and permanent fix, because you’ll never be surprised with an annual increase again.

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Budget Pitfall # 7: Disqualifying Employees from Tax Subsidies

Under Obamacare, significant federal discounts (called the premium tax subsidies) are available to employees - but only for individual health insurance, and only if your small business does not offer group health insurance.

In fact, by just offering group health insurance to employees and their families, you are disqualifying them from receiving $2,000 to $12,000 per year toward their health insurance.

This is a major health benefits budget pitfall. Especially for your employees.

How so? Here’s an example.

Example - One of your employees (“Joe”) lives in Dallas, Texas, earns $60,000 /year, and has a family of five. Your company offers a group plan and pays the full $500 /month for Joe. However, Joe pays out-of-pocket to cover his additional four family members at a monthly cost of $1,200 /month. That’s $14,400 /year Joe pays to have the entire family of five covered by your company’s group plan.

Alternatively, on the Texas Health Insurance Marketplace (www.HealthCare.gov), Joe could purchase individual coverage for all five family members for $899/ month - before any subsidies are applied. That’s $10,788 /year ($899 × 12) for the same coverage offered by your company, and a savings to Joe of over $3,600/year ($14,400 - $10,788).

But here’s the kicker. With the tax subsidies, Joe saves even more. (Continued)

Download the Guide to Premium Reimbursement Plans

Don’t Leave It to Luck
Don’t disqualify employees from their share of the trillion dollar subsidy. Save employees, and your business, significant money by switching to individual health insurance.

But don’t worry. You can still offer great health benefits.

Instead of contributing to a group plan, contribute to a premium reimbursement plan.

Employees purchase individual health insurance, have access to the tax subsidies, and can be reimbursed for the non-subsidized portion of their premium. By not offering group health insurance, you allow Joe and his family to access the premium tax subsidies. Based on income and family size, Joe is eligible for a federal subsidy of $580/month, reducing Joe’s monthly premium to $319/ month for all five family members. With the tax subsidy, Joe pays only $3,828/year ($319 x 12) to cover
his family of five.

By not offering group health insurance and allowing Joe to access the tax subsidies, you
save Joe $10,572/year ($14,400 - $3,828).

Now, that’s a raise worth celebrating.

10 Budget Pitfalls of Small Business Health Benefits

(and How To Fix Them)

Budget Pitfall #8 – Providing Taxable Raises to Help with Insurance Costs

Many small businesses don’t offer formal health benefits, but they want to help with employees’ insurance costs. So, the business gives employees a taxable raise or bonus with the hope they’ll use it toward healthcare.

What’s the budget pitfall here? You could be reimbursing employees tax-free for their individual health insurance.

By providing taxable raises, you’re throwing money down the drain.

Don’t Leave It to Luck
To save money on helping employees with their individual health insurance premiums, set up a formal, tax-advantaged reimbursement plan. This is allowed under federal rules and regulations, so long as you use a proper plan such as a Healthcare Reimbursement Plan (HRP).

Plus, as an added bonus, you’re offering formal health benefits that will help you recruit and retain your best staff.

Introduction

As a small business, health benefits are an important part of your overall recruiting and retention strategy. And yet, budgeting for health benefits can feel like you’re walking a tight-rope. That’s because with the wrong approach, health benefits can be unstable, expensive, and restrictive.

However, you don’t have to leave your health benefits budget to luck. You can take control by avoiding common budgeting mistakes.

In this eBook, we’ll cover ten common budget pitfalls of small business health benefits and how you can fix them to create more affordable health benefits.

Budget Pitfall #1 – Not Shopping Around at Renewal Time
Budget Pitfall #2 – Assuming Group Health Insurance is the Only Way
Budget Pitfall #3 - Allowing Large Medical Claims to Drive Up the Cost
Budget Pitfall #4 - Not Having Control of Annual Costs
Budget Pitfall #5 - Spending Too Much Time Administering Benefits
Budget Pitfall #6 - Offering the Same Benefits to All Employees
Budget Pitfall #7 - Disqualifying Employees From Tax Subsidies
Budget Pitfall #8 - Providing Taxable Raises to Help with Insurance Costs
Budget Pitfall #9 - Ignoring Compliance Requirements
Budget Pitfall #10 - Not Offering Health Benefits
Conclusion