How to offer Health Benefits to Employees

How to offer Health Benefits to Employees

If you’re considering offering health benefits to employees, you might be overwhelmed with where to start. Providing your employees with health benefits can seem like a big undertaking; however, this blog will walk you through how to start offering health benefits to your employees and consider the pros and cons of offering health benefits to your employees.

 

Offering Health Benefits to Employees

The Value of Health Benefits

It’s important to first understand the value of health benefits and all the ways they might influence your business operations. Offering health benefits to employees is a valuable investment for any business.

According to a Glassdoor survey, employee benefits were one of the top factors that job seekers looked for in a job ad, right behind salary. 

This highlights the importance of offering health benefits in attracting and retaining top talent. Not only do benefits make a company more attractive to potential employees, they also improve employee satisfaction and loyalty.

As recruiting costs rise, offering health benefits may be especially beneficial for smaller companies. By offering benefits, it gives them a competitive advantage when competing with larger corporations for talent. 

Health insurance benefits have also been shown to improve productivity of employees by reducing absenteeism and increase overall well-being. This, according to the CDC  which says a workplace health program, including an employee health insurance coverage for appropriate preventive screenings, helps create healthier employees which may result in an increase of productivity on the job. In addition, health benefits can create an overall wellness culture in your company by ensuring that preventative services are being offered to employees. 

 

Employer Requirements and Regulations

Depending on the size of your business, there may be certain regulations or requirements that you must abide by when offering health insurance to your staff. If you’re an employer with 50 or more full-time employees, you must offer affordable medical coverage to their full-time employees and their dependents. Dependents include children up to age 26. The legislation doesn’t require employers to offer coverage to spouses. 

You may have noticed the word “affordable” in the previous paragraph. Employers have a lot of questions around what that means. Coverage is defined as affordable if the employee’s coverage doesn’t exceed a certain percentage of an employee’s household income. The percentage adjusts annually for inflation.

For 2023, the IRS set the percentage at 9.12%. It’s important to note that affordability is based on the cost of the self-coverage available to the employee. This doesn’t take into consideration the added premiums of dependents. This is what’s called the family glitch.

For example, if the employer pays the for employees health care coverage but doesn’t contribute to premium of the added family members, the plan is still considered affordable even if the added family members cost exceed the percentage. 

What about health insurance for part time employees?

You also may be wondering about part time employees. Employers have no legal obligation to offer health benefits to part-time employees. However, if an employer chooses to offer health benefits to part-time employees, they have to offer to all part-time employees.

The federal government requires fairness when offering health benefits to prevent discrimination. To differentiate employees, employers must used job-based criteria like employment status (full-time vs. part-time) or geographical locations (different states) to determine what benefits to offer where.  

This applies to small business owners or those with less than 50 full-time employees.  Small businesses are not legally obligated to offer health insurance but if they do they must adhere to the same standards of determining benefits by job-based criteria. 

Calculating the Cost of Employer-Sponsored Health Benefits

Offering health benefits to your staff can come with some significant expenses and the dollars can add up quickly. However, to recruit and retain employees, employer-sponsored health benefits may just be the cost of doing business for employers – even if not required to by the ACA (Affordable Care Act). 

When calculating the costs of employer-sponsored health benefits, you’ll want to consider several areas of cost. The costs associated with offering employee benefits extend beyond the premium costs. There are costs and work hours associated with setting-up benefits, maintaining, and administering them.

It’s also important to remember that depending on the plan you choose for your employees, those costs may increase year over year. According McKinsey & Company, employers could face health cost increases of 9 to 10% through 2026 because of inflationary pressure passed through from providers. That’s about a 4% increased compared the previous 5 years. The average costs associated with benefits have averaged a 5-7% hike year over year. 

The costs of health benefits will depend on a couple variables: the size of your business and the type of plan you choose and what is covered. Let’s take a look at some data that helps you understand the cost per employee. The U.S. Bureau of Labor Statistics estimates the total employer compensation costs for civilian workers average at $41.86 per hour working in September 2022.

Wages and salaries account for 69% of the hourly wage leaving the remaining 31% at $12.98. It’s important to note that remaining costs include health benefits in addition to other benefits.

However, health insurance is typically the most expensive cost when it comes to benefits. The Kaiser Family Foundation says the average cost of employee health insurance premiums for family coverage was $22,221 and self-only was $7,739 annually in 2021. 

Knowing Your Options

As we mentioned, a large factor in determining the cost of health insurance depends on the type of plan you offer employees. When speaking about employee-sponsored health insurance, most people think of traditional group health insurance plans. Think PPOs (Preferred Provider Organizations), HDHPs (High Deductible Health Plans) with an HSA (Health Savings Account). These insurance plans often come with participation requirements and are subject to rate hikes year over year. 

Are there alternatives to traditional group health plans?

There are alternatives to traditional group health plans.  Health reimbursement arrangements (HRAs) are health benefits that allows employers to reimburse their employees, tax-free for qualifying health expenses and/or insurance premiums. Here is a rundown of the different types of HRAs: 

QSEHRA: Pronounced Q-Sarah. It stands for Qualified Small Employer Health Reimbursement Arrangement. This HRA type is for small businesses and nonprofits with less than 50 full-time employees. It allows employers to reimburse their employees for qualified healthcare expenses outlined by the IRS and/or individual health insurance premiums.

ICHRA: Pronounced ICK-Rah. It stands for Individual Coverage Health Reimbursement Arrangement. This HRA type allows employers of all sizes to reimburse their employees for their individual health insurance premiums and other qualified medical expenses.

These two are the most common types of HRAs. Click here to learn more about other options. 

Before choosing a plan, it’s important to speak with your employees to understand their needs and how to best serve them. 

Summary

If you choose to offer health benefits to your employees, there are a lot of advantages and disadvantages. It’s important to know your options to be beneficial to both the employer and employees.