Providing health insurance to employees can be expensive, but as you know, it is also an important part of retaining talent and keeping the best of the best at your company. There is no one-size-fits-all option, which is why businesses of all sizes must weigh the pros and cons of offering a group health policy versus private plan reimbursements.
As you evaluate your current health insurance solution, it’s extremely valuable to have a working knowledge of different types of benefits strategies. The two most common classes of employer-funded health benefits are group health insurance policies and private plan reimbursements, so we'll outline the major differences here.
A group policy is purchased by the employer and offered to any employees who are eligible within the company and to any dependents they have who are eligible for coverage. With a group health insurance policy, the employer chooses which plan to offer to eligible employees. The employer and the employee split the cost, and the employer must contribute a minimum percentage.
A private plan reimbursement, is a health benefit offered by the employer designed to reimburse employees for individual health insurance premiums. The reimbursement is an employer-funded, tax-advantaged benefit, and as such, complies with all group plan requirements.
The employees have the flexibility to choose whichever individual health insurance policy they would like, and the employers can likewise choose any amount to reimburse in the form of a monthly allowance.
Private plans, a type of individual health insurance plans, are often purchased through an insurance agent by an individual for themselves and family members. Because of the ACA, plans are more competitive, and the individual can customize coverage to be just what he or she needs. Since 2014, insurance companies are no longer able to withhold coverage from an individual because of a pre-existing condition, making it easier for all Americans to get health insurance coverage.
Under the ACA, businesses with more than 49 full-time employees are required to offer a minimum essential coverage group health policy, although many smaller businesses are looking for ways to offer insurance as well while still containing costs. While group insurance policies are the more common option for larger businesses, small businesses may turn to a private reimbursement plan in order to offer robust benefits while keeping costs low.
While both insurance types are tax deductible, individual health insurance policies are typically less expensive than group insurance policies— particularly for small businesses. When employees purchase individual plans, the employer has the option to set up a private plan reimbursement, or what is also known as a health reimbursement arrangement (HRA). Within this framework, the employer reimburses the employee for a set amount of the health insurance costs each month. This allows employees to select a plan that fits their specific needs, and allows business owners to offer reimbursements at a preset, controlled amount.
Health insurance is an important part of any small business. But selecting the right solution for your specific company can mean the difference between high turnover and a committed staff. After analyzing the specific needs of your employees and the plans available to them, you will be prepared to make the choice that ensures a happy workforce. There are pros and cons to offering group health insurance or a private plan reimbursement. Ultimately, it is important to select a health benefits solution that you feel satisfies your bottom line, but meets the needs of your employees as well.