By Alex Tolbert, founder of Bernard Health
It’s rare that small business employers have the opportunity to make decisions that are immediately beneficial for both the employer and employees. Health care reform, however, is presenting many employers with exactly that opportunity in 2014.
The opportunity: employers with less than 50 employees can drop their group health plan and let employees get individual health insurance. For more than 70 percent of small employers, industry insiders estimate that this will be a win-win for both the employer and employee.
You may be asking: if this is the right option now, why did employers offer group health insurance if they weren’t required to in the first place?
A series of laws and tax incentives dating back over 70 years led to this employer-based system—70 years ago, the tax incentive was for group health insurance. In 2014, the tax incentive is now for individual health insurance.
If you’re a small business owner with less than 50 employees, you stand to save money by dropping your group plan and transitioning employees to individual plans.
Options for implementing individual-based options
A recent study by the Society of Actuaries estimates small businesses will see a 10 percent premium increase next year. Dropping your group plan no longer subjects you to premium increases, which automatically helps you control costs year after year.
Transitioning employees to individual plans will also give them more flexibility on their health care options and the opportunity to tailor policies to meet their specific needs.
There are three strategies to consider for implementing individual-based plans:
1. Drop your group plan and share materials with employees that explain the subsidies available for individual policies and how they can sign up for private plans.
Starting Oct. 1, Americans will have access to subsidies to help them pay for insurance that is purchased through brand-new so-called “subsidy exchanges,” a place where health insurance is bought and sold. The main difference between the exchanges we already have and the new ones is that subsidy exchanges will be the only place Americans can get a federal subsidy to help with the cost of the insurance premium.
Each state will have its own exchange, as 17 have elected to run their own health insurance exchange, and the other 33 are letting the federal government handle the whole thing. These exchanges, in addition to private quote engines, are designed to provide an online place where individuals can compare insurance options.
2. Drop your group plan and hire a broker or other professional to support employees in evaluating and signing up for individual options.
Historically, when people had questions about how insurance worked they would go to a broker. This is still an option. The trick, however, is that commissions for individual health insurance policies have been cut so low that it’s difficult for a broker to make a living if they focus on selling individual health insurance. Additionally, health care has gotten so complicated that it’s hard to stay current on how it all works without giving it their full attention. Many brokers are deciding it is not worth it, and are giving their attention to other types of insurance.
Luckily, there are other professionals entering the health insurance scene. Insurance companies like UnitedHealthcare have opened retail stores to help people sort through their options. One drawback to those stores is that they are not ‘independent’ and won’t be able to advise individuals on insurance company options outside of theirs. To counter this effect, my company, Bernard Health, has opened health care retail stores staffed with licensed, independent and non-commissioned health insurance advisors.
Some compare our model to H&R Block or a CPA firm—but instead of tax advice, we advise people on health care. On average, our clients save over $2,000 a year on health care expenses. Clients note that we’re not only able to make sense of the numerous options available through an online quote engine, but can also compare those to coverage that might be available to through a spouse’s plan or government program. Moving forward, we expect more health care navigators to adapt our approach and join the consumer-centric health care movement.
3. Drop your group plan and, beyond just hiring a professional to help your employees find the right individual plan, implement a Health Reimbursement Arrangement (HRA).
An HRA is an employer-funded plan system that allows businesses to reimburse employees for health expenses tax-free.
How HRAs work:
1.The employer defines the health expenses, which can include premiums, and sets a monthly allowance to which you will reimburse employees for their insurance premiums and/or medical expenses. Web-based software, such as Zane Benefits and BerniePortal, exists to help employers or their brokers manage the reimbursements.
2. Employees pay for their own medical expenses and are then responsible for submitting proof of eligible expenses.
3. Each month, the employer reimburses the employee for their medical expenses, tax-free, through payroll.
4. If the employee doesn’t spend the full amount each month, those allowances roll over from month to month. If an employee goes over his or her allowance, that employee is responsible for paying incurred expenses.
Why it’s attractive to small business owners:
1. Tax-free incentives: Employer contributions and reimbursements are exempt from employer’s payroll and Social Security taxes.
2. Control and predictability over health care costs: By setting monthly allowances, employers have more control over health care costs. HRAs also give employers more insight on where they’re spending health care dollars and more discretion on what they choose to reimburse. Also, unused funds stay with the employer when the employee leaves the company.
3. Simple set up: Reimbursements can be paid from a company bank account (versus through a broker or insurance company).
Ultimately, each company’s situation is different, and requires a strategy that is specifically unique to its needs.
Alex Tolbert is the founder of Bernard Health, a company that provides non-commissioned, expert advice on health, Medicare and COBRA insurance and medical bill consulting. To learn more about Bernard, visit www.bernardhealth.com