If you want to operate with less taxes, to save time, and to have control over health insurance with flexibility for their employees you should read on.
I recently caught up with a friend, who we will call Susan, over the weekend regarding her new job working for a startup. She was ecstatically excited about her new job, and she was even more ecstatic because of the fact that her employer was going to offer her health insurance benefits. I was happy for her and asked what types of plans her employer offered, to which she responded with;
“Well, he isn’t going to offer me a plan to select, but he is going to give me a payroll increase so I can go to the individual market and purchase insurance myself!” After hearing this, I had just realized her employer had made a huge mistake that will not only cost him money, but perhaps his new employee, Susan, as well.
Why was this payroll increase a poor decision for the employer? He is Missing out on Tax incentives
Group health insurance is set up to help employers afford high quality medical insurance plans through tax incentives, which helps the employers see the value in purchasing and sponsoring health insurance, rather than just seeing an inflated cost. Susan’s employer had a good thought to offer insurance benefits (for multiple reasons, here is one regarding key employee retention) but the way that he wanted to go about doing it was costly and less effective.
What tax incentives do employers have to offer group sponsored health plans?
Tax deductions for amounts paid for health care – if Susan’s employer would have offered her group insurance rather than individual insurance, he could have had tax deductions for those costs he incurred. He could not right off his payroll increases to Susan because, although it was going towards her health insurance, it isn’t allowed. Right offs will work for health insurance if the health insurance plan is employer sponsored and the plan is a group health plan.
Reduced payroll taxes are another tax incentive that the employer missed out on. If he would have had a group health insurance plan, he could have had reduced payroll taxes. Everyone likes fewer taxes, especially as an employer that is trying to start up a new business in this economy.
You can see from this that the employer had quickly lost a considerable amount of money from missing out on tax incentives, but what about control?
Group Health Plans give the Employer the Control, and the Employee the Flexibility
If Susan’s employer told her that he would pay 100% for any plan she chose, why wouldn’t she purchase the best plan? If she found one she liked and brought it up to Mr. Employer and he told her it was too expensive, then she would probably ask, “How much will you afford?” to which the employer may now give her a fixed amount, perhaps $500. Another situation is if the startup employer, or small business employer, gave this payroll increase to only a few employees (say, five) and said he would pay for 100% of the costs. Now, these employees choose a more reasonable plan, but they had different overall costs, ranging from $250 to $500. Now some employees feel like they missed out during this enrollment and could demand compensation or bring up discrimination. To save a headache, group health insurance plans are made to ensure the employer is in full control, is able to purchase a plan he or she finds fit, and then gives the flexibility to allow the employees to buy up (spend more) to get a better plan that suits them better.
Group Health Insurance is less expensive per person
Generally, group health insurance has better rates, therefore covering for Susan and the other employees would be less expensive. Common, Mr. Employer, you know what to do now!
Small Business and Startup Owners – The Summary
Small business and Startup owners are busy people; more than 90% of employers work in small businesses, and more than half of American’s nonfarm GDP is produced from these business, not even mentioning the immense amount of employees working in small businesses and how important they are to our economy. The point is, sometimes small business employers need a break or two, and these helpful health insurance hints can help them save money.
*If you wanted to know why Susan was worse off with the employer’s choice, it is for a few reasons. To be exceptionally brief, she wouldn’t have the ability to use tax deductions either to pay for her medical insurance, and also, she would have to wait to enroll this November to get her coverage by January. That is a six month wait for health insurance, which is scary. Also, she would be penalized by the government for not having health insurance for $95 or 1% income, whichever is greater, and she would perhaps miss out on better offerings that are in group health plans, like bigger networks. Ouch, Susan. **If you are a Small Business or Startup owner and have any questions regarding what I went over or anything health insurance related, you can head to the contact page (towards the top of the page) and send me an email. I will be glad to help!
Additional Disclaimer – Although I am an Insurance broker and a professional in the field, the Health Care laws are ever-changing, especially in the age of the Affordable Health Care Act, and the laws, information, opinions, or understandings that I have written about may be obsolete by the time you come across them and I take no legal responsibility for what actions you may or may not take because of it. To keep yourself safe, please seek updated professional advice, because changes are happening and I would like to keep everyone safe from any misleading or dead information. Please check out the “Terms and Conditions” page for more information and/or bookmark my blog for upcoming changes and updates to the ACA. Thank you for reading, and have a great day!