Structuring Group Health Insurance Benefits - Compass Insurance Advisors
  • The Complete Guide to Employee Benefits

    Introduction

    In this guide, you’ll learn key strategies for structuring your employee health benefits, important cost containment strategies your company can implement to reduce your claims and renewal rates, the most desired employee benefits, and the average annual cost for offering top benefits.

    Offering quality benefits to your employees can be the difference between hiring top talent and struggling to find employees to fill your payroll. 78% of workers base their acceptance or rejection of a job offer in part on the benefits package. 

    Benefits are a key driver in recruitment, job satisfaction, and long term employee retention. If your offerings fail to meet employee expectations, you risk losing top talent to organizations with more competitive benefit options.

    Offering robust benefits does not have to be a strain on your company’s bottom line. With Using our strategic planning technology, it’s more cost effective than ever to put together a competitive mix of medical, ancillary and voluntary products that your workforce wants and needs.

    A typical benefits broker earns 4-6% of your company’s premiums in commissions. Is your broker earning that commission? What does your current broker provide to keep costs down, and benefits competitive? What value-added offerings is your current broker extending? What claims, and cost savings programs did he/she put in place? Rate increases are driven by demographics, medical inflation, but mostly from claims. Is your broker offering solutions to keep your claims low?

    If your broker is not working with you throughout the year to add value to your company, reduce claims, and serve your employees, then contact one of our advisors and we can create a plan to help your company offer the most competitive benefits.

    The most effective way for you to structure your benefits will largely depend on the size of your company. Below are the most common benefit strategies for companies under and over 50 employees.

    Structuring Health Benefits

    Under 50

    Individual vs. Group structure

    When a business has 50 or more full time equivalents (50 full time employees or 100 part time employees, or some mix) they are required to offer health insurance to their employees. Many companies start to offer benefits well before they hit the 50 FTE mark. In this case, you have options to maximize your offerings while minimizing any financial strain. 

    It is important for a small employer to understand the pros and cons of offering a full group benefit package or offering a stipend while allowing your employees to shop for individual insurance. With either option, you can also offer robust voluntary or ancillary benefits to provide extensive value with little investment from the employer. 

    Small Group Insurance

    Requirements

    The requirements for offering small group insurance can include creating a census and doing carrier underwriting. This may involve taking a survey from your employees directly. You will need to have a 50% eligible employee participation rate and your company will be required to contribute 50% of the employee’s cost. 

    PROS 

    The pros of this structure is that you will be able to offer a pre-tax employee premium and that your employees are familiar with this structure. Many of the carriers will offer some kind of wellness program incentives that you can pass on to your employees.

    CONS 

    The cons of the group health insurance option are that it is difficult to control costs, adding a spouse and dependents can be costly, and your employees will be disqualified from the individual premium tax credit.

    With this structure it is more difficult to control costs. You will be required to contribute 50% of the employees cost, and it is difficult to contain the rising costs of healthcare. We have strategies you can use to contain costs, but to a degree, rising healthcare costs can be out of your control. With our employee groups who have taken advantage of our cost containment solutions, we have seen an average of 8% renewal rates.

    The next downside is that many employers will contribute 50% of the employee cost, but it can be very expensive to contribute to a spouse and/or dependent’s insurance. Our advisors are well equipped to handle this situation and have solutions you can take advantage of. Please reach out to our advisors if you are interested in innovative solutions for this particular problem.

    Finally, It is important to understand that offering group insurance will disqualify your employees from qualifying for a tax credit through the individual market. The cost breakdown and consequences of being disqualified from the tax credit is outlined below in the individual route section.

    Whether it makes sense for your employees to take advantage of the tax credit or if offering a group option will be more beneficial, will largely depend on your employee demographic. If you want a personalized analysis for your specific employees, reach out to one of our agents and we can perform an analysis on which route makes the most sense for your company.

    Individual

    With the individual route, employees and families are presented options from the individual market and the employer provides a monthly stipend. On the individual market, most options will provide minimum essential coverage meaning they will cover pre-existing conditions, maternity, and mental health. Most plans will not require your employees to go through any underwriting as all pre existing conditions will be covered. With this route, employees may qualify for an advanced premium tax credit to help cover their monthly premium.

    PROS

    The pros of this route include employee customization, the advanced tax credit, increased cost containment, and fixed renewal costs. 

    Each plan can be customized to the employee’s needs. If some employees prefer a different network than another, your employees are able to choose different carriers for their individual health plans. Instead of being limited to a few plans chosen by the employer, your employees will have access to hundreds of options on the individual market. Our advisors will sit down with your employees individually to help them make sense of the individual market. You will still be able to provide them first-class support without having to offer a group health insurance plan.

    By offering the individual route, your employees may be eligible for a premium tax credit. This will save your company and your employees a significant amount of money and your employees may qualify for robust health insurance. An example of the tax credit a family of 4 earning $85,000 a year is given below. Both the company’s and the employee’s savings are outlined. An income chart is also given to show the upper income limits on the tax credit. If a majority of your employees are above these upper limits, a group plan may be more beneficial, but this can largely depend on the health of your employees. Reach out to one of our advisors today for a complete analysis on your employee demographic.

    The individual route also allows you to pre-determine and control the company contribution. As opposed to being required to pay a certain percentage of the health insurance premiums with little control over the renewal rates, your company is in complete control of the amount of the stipend that you provide. You can offer the same stipend amount for as long as you see fit without increasing your contribution year after year. You can also offer increased voluntary and ancillary benefits on top of their individual health insurance to create a robust benefit program. 

    The final pro of this structure is that all plans are portable. If the employer and employee ever decide to part ways, the employee can take the plan with them at the same cost. In this case, only the stipend would terminate. The employer also doesn’t have to administer COBRA. 

    CONS

    The cons of this route are that employees are not as familiar with this structure, the premiums will be deducted directly from the employee’s bank account instead of through payroll, and the enrollment meetings will be longer. Instead of a yearly lunch seminar, your benefits advisor will sit down with each of your employees individually. Depending on the size of the company, you may need to plan on having your agent in your office for multiple days in order to meet with all of your employees.

    Cost Breakdown

    Here is an example of a typical group structure and an individual structure. These numbers are based on a family of 4, earning $85,000/year. The total contributions are based on a company of 30, with the average minimum 50% of the employee’s cost in contributions. If your company is covering more than the 50% of the employee or family cost, then your potential savings could be significantly higher.

    Individual Structure Group Structure
    Total Monthly Premium: $1500/month $1350/month
    Advanced Premium Tax Credit $1250 $0
    Employer Stipend/Contribution $100 $250
    Total Monthly Employer Contribution (30 employees) $3,000 $7,500
    Total Employee Cost: $150/month $1200/month
    Deductible $2,000 $5,000
    Co-Insurance 20% 20%
    Max Out of Pocket $5,000 $7,500

    As you can see through this diagram, by offering an individual structure, this company would save $4,500/month or $54,000/year! $54,000 is a significant amount for a small business. 

    In addition to the company’s savings, the employee will save $1,050/month or $12,600/year. These savings mean your employees get to keep more of their paychecks in their pockets, significantly increasing their quality of life. It’s like giving your employee a significant raise while saving money yourself. In this case, both the employee and employer would save a significant amount of money and qualify for better benefits. 

    The potential savings will be different depending on the salary and typical family size of your group. Reach out to your local Compass Insurance Advisor and we can help you analyze the potential cost savings for your particular situation.

    Over 50

    After your company has over 50 full time equivalents (50 full time, 100 part time, or some mix) then your company is required to offer health insurance benefits. You have options for offering health insurance to your employees. Our advisors can sit down with your company to discuss which route will work best for your individual situation. For a large company your options are typically fully insured, partially self-funded, or self insured.

    Fully Insured

    A fully insured plan is what you think of with a typical health insurance plan. With a fully insured plan, the employer contracts with a provider to assume financial responsibility for the enrollees’ medical claims and for all insured administrative costs. A monthly payment is paid to the provider and they take care of administering the plan. This can be the most costly route, but your company will not assume the risk of associated with medical claims. If your plan incurs more claims than the collected premiums, then your premiums still remain level through the end of your contracted year. This also means your company does not directly benefit in the years that claims are low.

    Self Funded

    With a self-funded plan, the employer assumes the financial risk and rewards of essentially becoming the insurer. The company contracts with a company to facilitate the plan, but the employees premiums are pooled each month and claims are paid from that pool. This set up works best for larger companies. It is difficult to pool your employees premiums if one pregnancy or accident could potentially drain all of the funds. The company will need enough employees to support the potential claims of the group. The employer would purchase a stop-loss insurance policy for the case of catastrophic claims. Employers can grow their cash flow in an interest-bearing account. 

    In this set up, any premiums that are not used by the end of the year are often returned to the employer, but you are assuming more risk as a few critically ill patients could be a significant blow to your company. The amount the company pays into the pool can vary greatly. If there are a lot of claims, the company will have to cover the cost. 

    This allows for significant cost savings if the group of employees is healthy. The employer is at risk for large claims, so the employer will often incentivize healthy habits and implement a wellness program.

    Level Funded/Partially-Self Funded

    Level funding or partially self-funded is a type of self-funding that offers all the benefits of traditional self-funding with the added benefit of stable monthly costs. Groups can reap the financial rewards of being self-insured while keeping stable monthly premiums. A third-party administrator is hired to administer and facilitate claims payment and pharmacy administration. Individual and aggregate stop-loss coverage is still shopped out and purchased. 

    Level Funding is ideal for companies who have cultivated a culture of wellness and engagement. This type of contract provides detailed claims reports and offers the ability to collect unused premiums at the end of the contract. 

    Approximately, 70% of all employer groups with 50+ employees in the US use a partially self-funded health plan to cut down on costs while reducing their risk.

    Conclusion

    There are many ways that you could structure your employee’s benefits. If you would like an in-depth analysis of your company’s benefits, please reach out to a local Compass Insurance Advisor. Our brokers can analyze your needs and create a custom, strategic game plan to implement your employee health program.

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