Group health insurance costs rising? We deliver employer-friendly options.
November 1, 2024
With the increases in group health plan costs across the country, employers continue to turn to employer- and employee-friendly options to provide alternatives, fill the rising deductible gaps, and even offer benefits that are tax-free.
By utilizing Premium-Only Plans (POP), Flexible Spending Accounts (FSA), Health Reimbursement Arrangements (HRA), and Health Savings Accounts (HSA), employers can offer tax-free benefits to employees while saving significant dollars on their group medical, dental, vision, and prescription benefits.
Premium-Only Plans
Nationally, over 92 percent of employers offering group medical plan require employees to contribute to the cost of that coverage. In the simplest form of a cafeteria-style plan, the Tax Code allows for those employee contributions to be made on a pre-tax basis. This saves both the employee and the employer tax dollars, since those contributions aren’t taxed for Social Security, Medicare, and federal unemployment taxes (FUTA). In many states those pre-tax employee contributions are also not taxed for SUTA.
If employees are contributing to the cost of the employer-provided group coverages, this is close to a no-brainer.
Flexible Spending Accounts
Typically, an FSA allows employees to contribute pre-tax dollars toward the costs of items and services they would purchase anyway, and then be reimbursed for the costs of those services again with pre-tax dollars. Another win-win for employees and employers with tax savings.
There are three types of FSAs: Health Care, Limited Purpose Health Care, and Dependent Care.
A Health Care FSA allows employees to contribute and be reimbursed with pre-tax dollars towards medical, dental, vision, and prescription services (including over-the-counter drugs). The service must be eligible under the Tax Code and be unreimbursed from any source, including the group plans or even a spouse’s group plans.
For those employers offering a High Deductible Health Plan (HDHP), they too can offer a Limited Purpose Health Care FSA, providing tax-free reimbursements for excepted benefits such as dental and vision only. These types of accounts can be standalone or offered alongside a “regular” Health Care FSA. For example, an employer offering both a non-HDHP and an HDHP plan could offer both types.
Dependent Care FSAs enable employees to pay for day care for a child under the age of 13, or even an adult, if the cared-for individual is a tax-dependent and the care is provided in order to enable the employee and the employee’s spouse (if married) to work.
And reimbursements are easy for employees. Claims are submitted via a website, phone/tablet app, snail mail, or even fax.
Health Reimbursement Arrangements
Health Reimbursement Arrangements (HRAs) are employer-funded accounts that can be designed to provide tax-free reimbursements to employees for a wide (or narrow) range of unreimbursed eligible costs. Some employers who utilize a higher deductible group health plan will often fund an HRA for unreimbursed deductible costs above a certain amount. For example, a group health plan with a $3,000 individual deductible might also offer an HRA that reimburses deductible expenses above $1,000 (that is, between $1,000 and $3,000). The advantage of an HRA over an HSA is that the unused dollars at the end of the year can be reclaimed by the employer, whereas in an HSA all employer contributions belong to the employee on day one.
Other HRA designs might allow for additional reimbursements for a portion of unreimbursed copays, coinsurance, or other eligible medical/dental/vision items.
Health Savings Accounts
Health Savings Accounts (HSAs) allow employers and/or employees to contribute tax-free dollars that can be used to reimburse the employee for eligible medical costs, also tax-free upon distribution. HSAs can only be offered to:
- Employees and dependents enrolled only in a High Deductible Health Plan (HDHP) and no other non-HDHP plan; and
- Under the age of 65, when they are enrolled in Medicare (even if still working).
Combinations
It is not unusual to have employers offer combinations of these plans. For example, an employer requiring employee contributions to its group health plan might offer a POP plus an FSA. Similarly, that same employer might offer a POP, FSA, and HRA, or if the group health plan was an HDHP, a POP, limited purpose FSA, and HSA. The appropriate plan design and options are typically tailored to each employer’s individual and team needs.
Conclusion
Today, employers are often stretched by the rising costs of group health coverage for their employees. Using some or a combination of these tools, employers can reduce their overall costs and save payroll tax dollars in the process. Annual maximum plan contribution and rollover maximum limits are projected to increase for 2025. With open enrollment around the corner for many employers, these projected limits can help you think about your benefit plan and consider if you want to make any changes for the upcoming plan year. Please see the chart below for details. You’ll want to speak with your licensed insurance agent about these solutions before your next renewal. Visit www.sbam.org/kushner to review the options available to you as an SBAM member. To learn more about Kushner & Company, click here to visit their website.
|