While discontinuing group health insurance can be a hard sell to employees, they may be better off if you do. The average worker's contribution to a family plan for 2014 was $4,823, according to the Kaiser Family Foundation. If, hypothetically, a moderate-wage team member is contributing $5,000 annually toward the cost of family health care obtained through your firm, that employee might be better off financially with an individual plan bought through the exchanges set up under the Affordable Care Act, said Michael Stahl, senior vice president at HealthMarkets Insurance Agency, a national insurance marketplace based in North Richland Hills, Texas.
If you shifted to the individual market, the employer contribution would disappear, he noted. Meanwhile, if workers qualified for subsidies, he said, they would pay, on average, less than $100 per month to cover their premiums. The Centers for Medicare & Medicaid Services (CMS) found that the average for 2014 plans, after subsidies were subtracted, was $82. Some employers offset that by giving the workers a pay raise, though this is counted as taxable income, he explained.
It is possible that the quality of plans provided on the exchange might also be better than what your firm can now afford to offer, as well, though that depends on whether you have been offering a so-called Cadillac plan with very rich benefits or one that is more limited with high deductibles.
"Every employer with under 50 employees should be offering money to buy individual plans vs. group plans," according to Paul Zane Pilzer, author of the book "The End of Employer-Provided Health Insurance: Why It's Good for You, Your Family, and Your Company," and founder of Zane Benefits, a firm in Murray, Utah. Zane Benefits helps small businesses reimburse employees for the cost of health care." Employers can do this by giving a raise or stipend or setting up a reimbursement plan under current federal rules, said Pilzer. The reimbursement plans operate under the premise, "Buy health insurance; show me the receipt; I'll pay you," he said.
However, employers need to be aware that under a recent guidance from the federal government, they cannot tell employees that a raise or stipend needs to be spent on health care, said Martin Haitz, vice president in the Corporate Benefits Group of Marcum Financial Services LLC. "Some employers were saying I'll give you X dollars or your health care," Haitz said. "Now they can't say, `You won't get the money if you don't use it on health care.'"
Instead of shifting to the individual markets, some firms prefer to opt for a high-deductible group plan and set up a health reimbursement arrangement (HRA) to help offset employees' medical expenses. The employer can dictate the expenses they will reimburse for in the plan document and therefore limit their out-of-pocket exposure.
The advantage of an HRA over a health savings account (HSA) is that the plan can be structured so that if an employee does not use the money in an HRA, the money will still belong to the company. An HSA is another option, but it gives employers less control over how the money in an account is spent; the funds are made available to employees whether or not they incur any medical expenses, said Haitz.