Five tips to start offering employees health benefits

If you're reading this article, chances are your organization is off the ground. You've hired some great employees and are now ready to offer a competitive health benefits package to further your recruiting and retention efforts.

While this is an exciting milestone, it also creates a lot of questions, including: Where do you start with an employee health plan? How do you know which plan is right for your employees? Will you be able to find a plan that fits your budget?

In this article, we'll explain how you can start offering health benefits to your employees.

Takeaways from this blog post:

• Investing in employee health benefits can lead to a healthier and more productive workforce, reduce absenteeism, and improve overall wellness.
• There are three main types of health benefits for employees, including traditional group health insurance, health reimbursement arrangements (HRAs), and health stipends.
• Understanding healthcare regulations, such as the employer mandate and minimum essential coverage (MEC), is crucial for organizations looking to offer health benefits.
  

Tip #1: Understand the value of offering health benefits

One question that may be on your mind when considering offering health benefits for the first time is: Is it really worth it? In short—absolutely.

According to our 2022 Employee Benefits Survey Report, 87% of employees value health benefits, like health insurance.

When you give employees access to affordable healthcare, they'll be more satisfied with their jobs, take fewer sick days, and even have a higher commitment to helping your organization achieve its goals.

According to studies done by LinkedIn¹, organizations rated highly on compensation and employee health benefits saw 56% lower attrition than poorly rated organizations.

If that wasn't enough, let's go over a few more advantages of offering an employee benefit plan.

Recruit and retain key employees

Employee health benefits are valuable in recruiting key workers and retaining talented employees. Forbes² found that 67% of employees and 68% of employers believe employer-covered healthcare is the most important benefit in 2024. It remains the most sought-after benefit year after year.

Additionally, our 2022 Employee Benefits Survey Report found that 82% of potential employees believe the benefit package an employer offers is an important factor in whether or not they accept a job offer. So if you're an employer who doesn't offer a health benefit, you'll have a hard time attracting top talent. Plus, your current employees may start looking for better opportunities elsewhere.

Tax advantages

Depending on the type of health or medical plan you offer, you can benefit from tax savings for offering it. Employees can also get tax savings by participating.

For example, health reimbursement arrangements (HRAs) are tax-free for employers. Funds disbursed through an HRA to employees are also free of income tax—provided an employee’s insurance policy meets minimum essential coverage (MEC) requirements.

Employee wellness

Finally, offering health benefits keeps employees healthy and working. Having more accessible and affordable health insurance reduces the chance your employees need to take extended periods of sick leave to manage a critical illness or other health concerns. Lower absenteeism rates allow your organization to be more productive and profitable.

Employee wellness doesn't just include physical medical conditions. By offering health benefits, you're allowing your employees more affordable access to therapy and mental health benefits they need to avoid burnout.

Tip #2: Analyze the risks and costs of offering health benefits

Now that you know why offering health benefits is so important, your next step is to consider the risks and costs of the plans available.

Like any new expense your organization takes on, investing time to research your available options is essential in finding a plan that meets your organization's needs.

Overall cost

The cost of health insurance will vary depending on the type of insurance benefits you choose.

For example, health insurance premiums for group health insurance plans typically rise annually. The uncertainty of these rate renewals can make financial planning difficult. This makes cost-controlled options, including HRAs and health stipends, more attractive.

Administrative commitment

Next, you'll need to consider how much time and effort it will take to administer the health benefit. If you can't commit resources to manage the health benefit, it likely won't succeed.

With a traditional plan, your administrator will spend time choosing the medical coverage, filling out forms, remitting premiums, and acting as an intermediary between your employees and an insurance company, broker, or both.

An HRA significantly reduces your administrative time, especially if you manage the benefit through an HRA software service like PeopleKeep. These services offload the most tedious tasks, allowing your staff to manage the benefit in just minutes per month.

Tip #3: Research your employee health benefit options

After reviewing the costs and risks, it's time to look more closely at your employee health coverage options. You might think health insurance is a luxury only larger organizations can offer, but this is far from the truth.

There are three main types of health benefits available to small employers. Let's review them in more detail below.

Traditional group health insurance

The traditional approach to employee health is a group plan. But, this type of employer coverage can be expensive.

These plans are generally uniform, offering the same coverage for employees and their family members. This means all full-time employees fall under the same umbrella of care, regardless of their unique healthcare needs. Group health insurance is also dependent on an individual's employment.

While most organizations are likely familiar with this type of employer-sponsored health coverage, it isn’t always the best option. Because of steep participation requirements and annual rate hikes, many small to midsize organizations look to more flexible alternatives.

Health reimbursement arrangements (HRAs)

You can contribute to your employee's healthcare costs with an HRA. HRAs are formal health benefits that allow employers to reimburse their eligible employees, tax-free, for qualifying medical costs listed in IRS Publication 502 and the CARES Act.

Some examples of HRA-eligible expenses include:

• Doctor visits
• Over-the-counter medicine
• Prescriptions
• Mental health counseling
• Chiropractic care

Depending on the type of HRA an employer offers, eligible expenses can also include individual health insurance premiums. Rather than paying an insurance company for a plan whose costs of care typically rise every year, employers can offer their employees an allowance that they can then use to purchase the policies, products, and services that work best for them. Because the employer defines their allowance, they can rely on fixed costs every month and year.

Employees can choose their own health insurance policies with a stand-alone HRA, giving them control over their level of coverage. This makes HRAs a great way to empower your workers while still providing quality health insurance to employees.

Learn more about the three most popular types of HRAs:

• The qualified small employer HRA (QSEHRA) is an HRA specifically for employers with fewer than 50 full-time equivalent employees (FTEs). It allows employers to reimburse employees for insurance premiums and out-of-pocket medical expenses. You must offer the benefit to all full-time W-2 employees, but you can choose to allow part-time employees to participate, too. You can reimburse employees tax-free as long as an insurance policy with minimum essential coverage (MEC) covers them. QSEHRAs also have maximum contribution limits.
• The individual coverage HRA (ICHRA) is an excellent option for businesses of all sizes that want to offer differing reimbursement amounts to different employee classes, such as seasonal employees and salaried employees. There's also no annual limit with an ICHRA, which means employers can offer monthly allowances greater than the QSEHRA contribution limit. The ICHRA is an especially attractive option for employers with 50 or more FTEs who need to meet the Affordable Care Act's (ACA) employer mandate.
• The group coverage HRA (GCHRA), also known as an integrated HRA, is a way to supplement your existing group health insurance and high deductible health plans (HDHPs). This allows you to reimburse employees for out-of-pocket expenses your group plan doesn’t fully cover.

Unlike health savings accounts (HSAs), HRA funds stay with the employer when an employee leaves the organization.

Direct payments or taxable stipends

Finally, small business owners will sometimes choose to simply give employees extra money for medical care expenses. When you bump your employees' pay, you avoid having to put the time or energy into choosing a plan and administering it.

But there's a better way. If you're looking for increased flexibility, offering a taxable health stipend can be an excellent choice. A health stipend works similarly to an HRA, where you reimburse employees for their medical expenses. However, you can also offer them to 1099 contractors and international workers because of their taxable nature.

Employers still have to be careful about compliance, as it's not a formal health benefit program. For instance, a stipend doesn't satisfy the ACA's employer mandate for organizations with 50 or more FTEs. In addition, you'll miss out on the tax savings associated with offering a formal plan like an HRA.

Health stipends are great options for organizations with employees who receive advance premium tax credits, as your employees can continue to receive their credits and use their stipend benefits without affecting their eligibility.

Tip #4: Work with a broker

Next, if you find the health insurance world challenging to navigate, we recommend working with a trusted insurance broker or health insurance concierge service.

Licensed brokers and agents who work for concierge services are professionals who are knowledgeable about health benefits options for small and midsized organizations. They can help you navigate your options when things get confusing.

Tip #5: Understand how healthcare regulations impact your organization

Finally, it's essential to understand healthcare rules and regulations and know which ones apply to your situation.

Here are two healthcare reform regulations every organization should know:

Employer mandate

For some employers, offering health insurance is mandatory. Applicable large employers (ALEs), or employers with 50 or more FTEs, must offer their employees affordable healthcare with MEC that meets minimum value.

Applicable large employers who fail to offer an affordable plan that meets minimum value or MEC to at least 95% of their full-time employees may have to pay a penalty if at least one full-time employee receives a premium tax credit. These are known as the employer shared responsibility provision (ESRP) penalties. This doesn’t apply to your organization if you have fewer than 50 FTEs.

This doesn't mean you have to provide group health insurance. An ICHRA can help you satisfy the employer mandate if your employees have individual health coverage that meets minimum value and your HRA allowance is affordable.

Minimum essential coverage (MEC)

Under the ACA, MEC is any type of health insurance coverage that meets the individual shared responsibility requirement, also known as the individual mandate.

When Congress first introduced the ACA, Americans who didn't satisfy the individual mandate faced a penalty with a fee. But, as of 2019, the IRS no longer enforces the individual mandate for most states³. This means your employees don't have to have a policy that meets MEC if they don't want to.

However, while the federal government no longer requires it, certain HRAs require employees to have MEC to participate—or at least to qualify for tax-free reimbursements.

Conclusion

Offering your employees health benefits for the first time is an exciting achievement you should be proud of. Choosing the right benefit to meet your employees' needs and budget will help you recruit and retain employees and give you peace of mind knowing you're doing the right thing for your team.

If you're interested in offering a range of benefits to employees, PeopleKeep can help! Our HRA administration software helps organizations set up and manage their health benefits in minutes each month.

Schedule a call with a personalized benefits advisor today to see how an HRA can boost your employee benefits package!

This blog article was originally published on May 13, 2014. It was last updated on March 22, 2024.

1. 1. https://blog.accessperks.com/employee-benefits-perks-statistics
   2. https://www.forbes.com/advisor/business/best-employee-benefits/
   3. https://www.tangohealth.com/complete-guide-state-healthcare-mandates/