October 12, 2022
This paid coin is sponsored by Avera Health.
In today’s competitive job market, health insurance is no longer just a “nice to have” benefit. It is a “must have” for employers in order to attract qualified and competent employees.
Still, offering health insurance as a benefit is an investment, especially for smaller employers who now have to offer higher wages to also compete.
“Employers have options, and all of those options can be confusing. It’s important to look at all angles, get hard numbers, and understand the tax implications,” said Jordan Anderson, vice president of sales for Avera Health Plans.
For small employers with less than 50 employees, the many options fall into two general categories:
- small employer group health insurance.
- Provide an allowance or reimbursement to your employees to obtain their own individual or family coverage on HealthCare.gov.
Small employer health insurance
You may think that “group” coverage involves dozens of employees when in reality, in South Dakota, two employees – even the owner plus one employee – can constitute a group. For small group plans, employers typically cover at least 50% of their employees’ premium.
Small group insurance plans that comply with the Affordable Care Act cover 10 essential health benefits with no annual or lifetime coverage caps. Premium differences are based on the amount of annual deductible, coinsurance and co-payments – essentially the out-of-pocket expenses employees will incur. A plan that has a preferred or close network may lower the premium.
Employees pay their share of the premium with pre-tax dollars. Employers can rest assured that their participating employees have good coverage and will not experience financial hardship if they or family members have a major medical event.
Small businesses can deduct the cost of premiums from their business taxes and may be eligible for special small business health insurance tax credits. Businesses can set up a small group plan all year round.
“The employer’s share of bonuses can be viewed as one aspect of your expenses to have a qualified employee in addition to salaries, payroll taxes, retirement and other benefits,” Anderson said. “If that translates to an employee who feels supported and loyal to your company, it’s worth the investment.”
Individual insurance allowance or reimbursement
Employees who do not have access to employer-sponsored health insurance coverage can go to HealthCare.gov and purchase individual or family coverage.
Employers may offer a stipend to help cover premium costs. It is simply extra money in an employee’s salary, hopefully to cover health insurance premiums; however, employees can spend it as they see fit. Employers cannot require employees to spend on health insurance or provide proof that they have a health insurance policy.
An allowance is taxable income for the employee, and employers must also pay payroll taxes on the allowance.
Employers may also consider setting up a Qualified Small Employer Health Reimbursement Agreement, or QSEHRA. This IRS-approved benefit allows small employers to provide their employees with a tax-free reimbursement of their health insurance premium and other eligible healthcare expenses.
There is more administration and oversight for the employer. For example, employees pay their health insurance premium out of pocket and then present proof of payment to be reimbursed.
A favorable aspect of the stipend option is that employees can go to the federal market at HealthCare.gov and choose the plan that suits their needs. Since the allowance is not directly tied to the payment of health insurance premiums, employees may be eligible for a premium tax subsidy that could significantly reduce the premium for a market plan.
Unless employees have a qualifying life event like getting married, changing jobs, or having a baby, they can only get coverage during annual open enrollment, which this year is November 1 through November 15. January 2023.
Talk to the Experts
In addition to an insurance agent, it’s important to speak to your company’s legal and tax advisors.
“Health insurance is a valuable investment for employees and employers,” Anderson said. “A knowledgeable agent can sit down with you, help you weigh all the costs and benefits, and give you the information you need to make the best decision.”
Learn more about AveraHealthPlans.com.