If you own a small business, you may be finding it increasingly necessary to implement a benefit program to attract and retain employees. For small businesses, benefit plans generally consist of some of the major insurance benefits, discussed here, as well as employer-sponsored retirement plans.
Group health insurance
Health insurance is by far the most common benefit offered by employers, and the one most requested by employees. However, with the passage of the Affordable Care Act in 2010, offering a health insurance plan has taken on even more importance for small businesses. That because beginning in 2016, employers with 50 or more full-time employees will be subject to financial penalties unless they offer “minimum” and “affordable” coverage. Minimum means that the company’s share of total plan costs must equal at least 60%. Affordable means that an employee’s share of the premium must be less than 9.66% of his/her household income (in 2016). (Note that the mandate took effect for employers with 100 or more full-time employees in 2015.) Employers were required to offer coverage to 70% of their full-time employees in 2015 and are required to offer coverage to 95% of their full-time employees in 2016 and beyond.
The 2010 health-reform legislation also created a tax credit for employers who have 25 or fewer employees, offer minimum and affordable coverage, and meet other specific requirements.
Health insurance comes in many forms and with widely varying levels of benefits.
Traditional health insurance plans
Under a traditional plan (also known as a fee-for-service or indemnity plan), you, as the employer, contract with an insurer to provide health insurance benefits for you and your employees (and often for your employees’ dependents as well). A typical plan will reimburse claims as a percentage of the normal and customary charge for a given procedure in a particular region. The plan typically pays either the medical provider directly, or reimburses the employee after he or she pays for the medical service.
A covered employee generally must pay a deductible before benefits become payable by the insurer. In 2015, the average deductible for single coverage at a small employer topped $1,800, reported the Kaiser Family Foundation’s 2015 Health Benefits Survey. The higher the initial deductible, the lower the insurance premium. This is because the covered employees are taking on a larger portion of the insurance risk by paying the higher amount, and saving the insurance company the costs of processing smaller claims.
HDHPs
According to the Kaiser Family Foundation, so-called high-deductible health plans (HDHPs) have been gaining ground in recent years. HDHPs are plans that require employees to cover a greater share of their service provider costs in return for lower premiums. HDHPs are often paired with a tax-advantaged savings option, such as a health savings account or health reimbursement account, to help employees manage the higher out-of-pocket costs.
Preferred provider organizations (PPOs)
A PPO is actually a network of doctors and/or hospitals that agree to provide medical services for specified fees. The PPO may be sponsored by a particular insurance company, by one or more employers, or by some other type of organization. PPO physicians provide medical services to the policyholders, employees, or members of the sponsor(s) at discounted rates. In return, the sponsor(s) attempts to increase patient volume by creating an incentive for employees or policyholders to use the physicians and facilities within the PPO network.
According to the Kaiser Family Foundation, PPOs are currently the most popular type of health benefit offered by employers.
Point-of-service plans
A point-of-service plan combines elements of both a traditional plan and a PPO. The employee can choose whether to see an in- or out-of-network service provider; however, should he or she choose to go outside of the network, higher costs will typically apply.
Health maintenance organizations
HMOs aren’t as popular as they once were. Typically, they will offer a lower-cost option for you, the employer, as well as for your employees. Costs are reduced because the HMO typically restricts the doctors a patient can see to those within its provider network. A primary care physician coordinates care for the patient among other participating providers. However, in limited circumstances–as set out by the HMO–participants can generally go out of the provider network, and the HMO may still pick up the cost.
HMO doctors are typically paid a set fee per patient. This fee is paid whether a patient actually seeks treatment or not. Doctors in the HMO network handle all procedures and tests. Thus, the HMO is able to control the entire spectrum of tasks necessary to keep a patient well. In theory, the HMO is also able to control costs by giving doctors incentives to keep costs low. A doctor has no financial incentive to conduct unnecessary tests (the doctor will receive the preset fee and no more), so it is up to the doctor to help control patient costs.