We all know the importance of looking after our health. Health insurance and other health benefits are crucial to enable employees to take care of themselves and their families.
But for employers, who deal with limited budgets and conflicting priorities, it isn’t always easy to decide which employee benefits to invest in. There are many different types of employee health plans that offer a variety of coverage and benefits to employees. In this article, we’ll give you a full tour of employee health benefits: the types of health benefits out there, health insurance vs. supplemental health benefits, and a short guide on how to effectively manage employee health benefits plans.
What are employee health benefits?
Employee benefits are programs that organizations offer their employees to help support their health, finances, and all-around well-being. Employee health benefits are any programs that specifically help support employees’ physical and mental health. While health insurance is the most common employee health benefit, this category also includes benefits that holistically support employees’ whole-body health.
Employers provide employee health benefits plans for many reasons, but one major motivating factor is legal/compliance. Under the Affordable Care Act (ACA), organizations with more than 50 full-time employees must offer adequate employee health insurance or they’ll be required to pay a fine to the IRS. What exactly does health insurance entail?
We’ll review the following health insurance plans below:
- Health maintenance organization (HMO) plans
- Preferred provider organization (PPO) plans
- Point-of-service (POS) plans
- Exclusive provider organization (EPO) plans
- Other plan options
Health insurance helps individuals cover a certain percentage of their healthcare expenses in exchange for monthly insurance premium payments. Individuals with health insurance usually still have to pay a portion of each medical expense such as drugs, surgeries, or doctor visits. This amount may be a co-pay (a flat fee) or it may be co-insurance (a percentage of care costs) that contributes to an individual’s deductible, which is an annual cap on individual healthcare spending. Not everyone has a plan with a deductible, but if they do, the individual is responsible for paying up to a certain amount each year, after which a much larger portion of their healthcare expenses will be covered by insurance.
Plans may be classed as low-deductible or high-deductible plans. As you might expect, higher deductible plans, in which the individual is responsible for more of their out-of-pocket healthcare costs, tend to have lower premiums than low-deductible or co-pay plans. Some employers offer plans that allow employees to select the type of health insurance they’d prefer based on their budget and expected healthcare-related expenses.
Individuals with health insurance plans that include a deductible often have access to certain specialized savings accounts that allow them to save money pre-tax for healthcare expenses. A Healthcare Spending Account (HSA) or Flexible Spending Account (FSA) allows individuals to save money for deductible expenses and other out-of-pocket healthcare costs.
Around half of Americans receive their healthcare through their employer. Those who don’t work full-time (or those whose employers don’t offer healthcare coverage) may choose to purchase their own plan on the healthcare marketplace at Healthcare.gov. Alternately, some Americans who qualify may have access to government-run Medicaid, and elderly people and retirees can get healthcare through Medicare. Eligibility rules and program options vary depending state, because states have made different decisions on expanding or reducing the ACA in their state.
Employers don’t always offer health insurance benefits to employees and their dependents, but when they do, they may offer a number of different types of health insurance plans. Here are a few of the most common healthcare plan types employers provide.
Health maintenance organization (HMO) plans
One of the more restrictive types of group healthcare plans is a health maintenance organization, or HMO, plan. This type of health insurance plan provides coverage exclusively for providers that are within network. Employees and their families don’t have as much flexibility to choose their own healthcare provider, and they may also be limited geographically based on where the HMO provides coverage.
HMOs tend to cover a portion of out-of-network services but only for emergencies. They also manage care through a person’s primary care physician (PCP) who is usually required to see patients before they can visit a specialist. Since the coverage is limited in which doctors you are permitted to see, health insurance premiums for HMOs are usually more affordable.
Preferred provider organization (PPO) plans
A preferred provider organization (PPO) plan also establishes a set of in-network healthcare providers, clinics, and hospitals that individuals can use to access services with insurance coverage. But unlike an HMO, a PPO plan generally provides users with a larger number of in-network providers and more flexibility. With a PPO plan, you may pay less for out-of-network services than you would with an HMO.
While an HMO limits an individual’s access to specialist care by requiring a referral through a primary care physician, PPOs usually allow you to go straight to a specialist without a referral. Because they aren’t as restrictive as HMOs, PPO plans can be more expensive, with higher premiums to account for the greater flexibility they provide.
Point-of-service (POS) plans
A point-of-service (POS) plan is a kind of hybrid between an HMO plan and a PPO plan. Like the other two, a POS plan establishes a network of doctors who you can see with good coverage of expenses from your insurance plan. It won’t cover as much of your upfront expenses with out-of-network providers, but unlike an HMO, it will cover some of those costs. This arrangement gives you more flexibility to choose your preferred provider.
A POS plan may require you to obtain a referral from your primary care physician in order to receive specialist care.
Exclusive provider organization (EPO) plans
Exclusive provider organization plans (EPOs) are quite similar to HMOs. They limit coverage to in-network providers but provide a little bit of the flexibility of a PPO plan, without the same costs. You can access an EPO plan with the same insurance provider as a PPO plan, but at a reduced cost thanks to the more limited coverage.
Other plan options
Any of the types of healthcare plans mentioned above may be a high-deductible plan, which means employees pay lower premiums but a higher percentage of the costs of their medical care.
When employers aren’t required to or choose not to provide health insurance for employees, there are still other options they can use to contribute to employees’ healthcare costs. A healthcare stipend gives employees cash to be used for purchasing health insurance and covering costs. It may not cover all of a person’s healthcare costs, and because it’s a cash gift, employees must pay income taxes on the stipend. Also an option is a health reimbursement arrangement (HRA) that works somewhat like a typical group employer health insurance plan. Employees get reimbursed for some of their health insurance costs.
Supplemental health benefits
- Dental insurance. While oral health is certainly an important aspect of a person’s whole-body health, it is often overlooked. But we all need strong tooth and gum health to continue eating normally as we age, and studies have also linked poor oral health with heart disease and certain cancers.
- Paid sick leave. Sick leave is so much more than just paid time off. Paid sick days allow employees to take the time they need to recover when they experience an illness or injury. Without paid sick leave, employees may work while ill out of financial necessity. Not only is this inhumane, it also prolongs illness and puts the rest of your employees at risk.
- Parental leave. Parental leave, or paid time off after an employee or their partner has a child, is a vital health benefit. Without paid parental leave provided by their employer, employees are only entitled to twelve weeks of unpaid leave according to the Family and Medical Leave Act (FMLA). Parental leave allows new parents the time and financial freedom to bond with their new child, physically recover from childbirth, and adjust to new routines. Experts agree that it is very important for the mental and physical health of both new parents and children. It’s worth noting some organizations extend parental leave benefits to parents who have recently adopted children as well.
- Mental health coverage. Awareness is increasing about the rise of anxiety, depression, and other mental health issues. Employees need access to therapy and psychiatry benefits just like they need access to internal medicine and preventative care. More and more employers are including mental health benefits in the health insurance they provide. Some also offer benefits that support employees’ mental health in other ways, such as meditation apps or exercise classes.
- Short-term disability insurance. Short-term disability insurance gives employees financial support when they need to take a leave of absence from work due to serious illness or injury. Many employers provide this benefit and cover the cost of the insurance premium as well. Short-term disability policies usually don’t replace 100% of your salary, but employees do receive enough to cover necessary bills while they’re out of work.
Who is required to provide employee health benefits?
Employers with more than 50 full-time employees are required to provide health insurance for qualified employees. The health insurance these employers provide must be affordable and minimum value coverage as defined by the IRS. If you have a mix of full-time and part-time employees, you’ll need to calculate your business’ full-time equivalent (FTE) number to see if you’re required to provide health insurance.
Small employers (those with fewer than 50 full-time employees) don’t have to provide health insurance, but they may still elect to do so. They also often take advantage of less traditional health benefits arrangements such as healthcare stipends or healthcare reimbursement arrangements (HRAs).
Which employee health benefits should I provide?
When choosing which benefits to offer your employees, start with federal and state requirements. Once you determine what benefits you’re required to provide based on your location and the location of your employees, you can decide which types of coverage or other benefits you’d like to offer. If you aren’t sure, we recommend consulting with your employees to get an idea of which benefits they are most interested in. Your human resources department should know which existing benefits have the highest participation rate— another way to decide which benefits are the most effective.
What do employees look for in their health benefits?
The answer to this question will depend on your employees’ preferences and needs. If you employ many people who have children, for example, it may be more important that your health insurance policy offers coverage for dependents. When looking for health insurance coverage, employees prefer maximal flexibility at an affordable cost. If you can, find a health insurance provider that allows employees to choose whether they prefer a high-deductible plan, or a higher-premium plan with more comprehensive coverage.
How much do employee health benefits cost?
The exact cost of employee health benefits depends on your organization’s size and the insurance you choose to offer. According to the Bureau of Labor Statistics, employers spend 30% of their employee compensation costs on employee benefits. The largest portion of this cost is spent on employee health insurance.
Is it worth it to provide employee health benefits?
Yes, it is worth it to provide employee health benefits! Health benefits are legally required for large companies, and even for smaller employers, health benefits are an investment in the long-term health and reliability of your workforce. They may be expensive, but there are plenty of lower-cost options that can still help your employees access health insurance. There are also plenty of other lifestyle benefits that can boost your employees’ well-being.
Are employee benefits taxable?
If you provide your employees with a healthcare stipend, that money is considered taxable income, and employees should plan to report it on their income taxes. Employees are allowed to save up to a certain amount of money pre-tax for healthcare expenses in an HSA or FSA account each year.
Employers are required to pay for a portion of their employees’ payroll taxes, some of which goes toward funding Medicare and Medicaid. But outside of that expense, most employee health benefits are considered a business expense and are therefore tax deductible. As always, we aren’t accountants or attorneys, so check with a local professional to get specific guidance for your business.
Managing your employee health benefits doesn’t have to be complicated. Gusto gives employees easy access to their benefits information all in one place, reducing workload for benefits managers and allowing them to focus their time on the issues that truly require their attention. If you’re interested in learning more about how Gusto can save your business time and money in benefits administration, contact us today for a free demo.