Small Employer
Employee Benefits
Small employers - those
who employ two to 20 employees - often feel that they are unable to
offer their employees a benefits package that they can afford and
which has real value to their employees and their families.
Options are available that allow you to improve the situation of
your employees without collapsing you bank account.
Health Insurance Plans
Properly structured, a
group health benefits plan may offer tax benefits to both you, as
the employer, and to your employees, as participants. For the
small employer, there are four options:
1.
Traditional Health Benefit Plans,
based on a deductible and a co pay, with a stop loss limiting the
cash impact of claims on the participating employee. This approach
offers the least tax benefits to the employer and its employees, but
it has the advantage of being a very familiar approach to this
benefit. It is also subject to the greatest level of cost
change to the employer from renewal to renewal.
2. Health Savings Accounts (HSAs). An HSA requires that the participant (either as an individual or as a family) establish a custodial account (HSA) that is owned by the participant. It also requires the participant to be covered under a high deductible health plan, which is provided on a group basis by the employer. Since the participant legally owns the HSA, the funds contributed to it belong to the participant, whether or not they were contributed by the employer, the employee, or both. A more complete discussion of this approach may be found by clicking Health Savings Accounts.
3.
Flexible Savings Accounts (FSAs)
are accounts established as part of a Section 125 Cafeteria Plan
that allows employees to defer a portion of their income to pay for
medical expenses on a tax free basis FSAs are a popular
benefit because there are tax benefits and they work with a
traditional health plan. The employer owns the account and is
responsible for its administration, fiscal and claims management.
Money left over at the end of a year or fiscal period, or when an
employee terminates his or her employment, reverts back to the
employer and not the employee.
4.
Health Reimbursement (HRAs),
an employer provided account that allows employees to direct a
portion of their health care spending. The employer
contributes funds to the employees HRA account and the employee can
spend the funds on eligible healthcare expenses. While the
money in the employee's account may accumulate from year to year,
when the employee separates from service, the unspent funds in the
account revert to the employer. The employer is responsible
for compliance, claims management, and administration of the plan.
Determining which plan
meets the needs of your employees as well as satisfying your goals
is the task of insurance, legal, and tax professionals working with
you. I will be happy to help with the insurance and insurance
related aspects of these plans; however, I am neither a tax
professional nor a lawyer. I will be pleased to work with you
and your tax or legal professionals in designing and implementing a
suitable plan.
Group Life Insurance Plans
Usually, the
underwriter of your group health plan will also have available group
life insurance programs that can provide estate protection to your
employees and their dependents. These plans offer many options
to meet the estate planning needs of you participating employees.
Some aspects of these plans may also be used to assist you in
retaining key employees when a competitor is trying to hire them
away from you. You need to review these options carefully with
your employees and with your agent as you plan this aspect of your
Employee Benefit Program.
Other Group Benefit Plans
Depending on your needs, exposures, and goals, other group benefit plans may be available to assist you and your employees. These plans can reflect issues such as foreign travel, retirement planning, and long term care programs.
What about Benefits for terminated Employees?
If an employer has 20 or more employees, it is obligated to offer terminated employees the option of extending the benefits they receive from the employer's group health benefits plan for up to 18 months after the employee's termination date. Employees will have up to 30 days after their termination date to elect COBRA continuation of health benefits. If these benefits are elected, the premium charged the terminated employee is the same as the current total monthly premium (the sum of employee's contribution and the employer's portion), plus an allowable administrative charge.
Employers with fewer than 20 employees are not subject to the protection afforded by the Federal COBRA requirements. Not all states have requirements relating to the continuation of benefits for terminated employees and their dependents. If a state mandates some form of Continuation of Benefits programs (COB), it may reflect same premium characteristics that make COBRA coverage so expensive.
Any continuation of benefits program (whether mandatory, like COBRA and State COB Plans, or Voluntary Conversion Plans) will be more costly to the ex-employee than his or her out of pocket cost while actively a part of the employer's group. Coverage other than that obtained through COBRA or State COBs may have conditions relating to waiting periods for preexisting conditions. The impact of these provisions must be carefully reviewed with a broker or agent in order to minimize any resulting adverse effects
There are at least three options available to bridge the period between plans - short term major medical policies, regular individual major medical insurance plans, or the use of plan conversion privileges. The options need to be explored by the terminated person with their broker or with the broker who works with the employer in managing and place the group health plan. It is important to note that the initiative for such discussions reside with the terminated employee, not the employer.
Revised 10/11/2007