The number one problem for small and medium-sized employers today is the exponential increase of group health insurance costs. As a result, businesses are seeking alternatives to group health insurance. The prevailing alternative is premium reimbursement, where the business reimburses employees for individual health insurance.
In this new Zane Benefits Whiteboard Session, J.D. Cleary walks through the advantages of individual health insurance and how to set up a premium reimbursement plan.
For reference, here's a snapshot of this week's whiteboard:
Want to learn more? Download this Step-by-Step Guide to Premium Reimbursement.
Whiteboard Video Transcript
Welcome to today's Zane Benefits whiteboard session where today's topic is premium reimbursement. My name is J.D. Cleary. I've had the opportunity over the last three years to work with insurance professionals, CPA's, payroll companies, and especially businesses working on their number one problem in their business today - and that's the exponential rise in health insurance costs for their employees.
The whole model is unsustainable. So, businesses are seeking an alternative to group health insurance and the alternative that most businesses are going with is premium reimbursement.
We here at Zane Benefits offer a product called ZaneHealth, a simple software tool that allows businesses to manage a premium reimbursement plan in less than five minutes per month. The reason ZaneHealth works so well, and the reason it was built, is that individual health insurance is in fact a better product than group health insurance.
The first reason why is choice. Individuals get to select their own individual health insurance policy for their family. Every family and individual has very different needs. So if an employer doesn't offer group health insurance and instead lets employees pick their own, every employee can pick the deductible and network of doctors they want for their health insurance.
Second is portability. If employees purchase an individual health insurance plan, they're not tying that to their employer or any type of employment. If they leave that company in the future they can take their health insurance with them. They not forced into an event where they've got to worry about health insurance because it was offered through their employer.
Third is guaranteed-issue. As of January 1, 2014 an individual health insurance application has become a tax application. If you ever filled out a medically underwritten individual health application prior to January 1, 2014 you know what I'm talking about. Now, the application to buy an individual health insurance plan is about five pages long and is really easy.
Fourth, is cost. Health reform has placed a massive cost advantage onto individual health insurance policies. Individual health insurance policies cost less in almost every single state in the United States now.
But on top of that, there's premium tax credits available only on the individual health insurance market, and only if in individual's employer does not offer group health insurance. So if an individual (based on their household size and family income) qualify for insurance premium tax credits, they only get it if the employer doesn't offer group health insurance and they only get it towards the purchase of individual health insurance.
So, premium reimbursement - what is it? It's all really pretty simple.
First, the employer decides on a monthly healthcare allowance. Employees buy their health insurance and the employer reimburses them for it -- typically through payroll or maybe by cutting a separate check.
To move forward with the premium reimbursement arrangement, the first thing that a business has to decide to do is to cancel their group health insurance plan -- if they offer one to begin with. That is as easy as can be. If you have a group health insurance plan right now you can cancel it, and you can choose to move forward with a premium reimbursement plan.
When you cancel your plan you're doing your employees a favor because you're triggering a special enrollment period. This allows your employees to go buy individual health insurance, and its granting them (if they qualify) the ability to get premium tax credits on the individual health insurance market... That they weren't able to get when you're offering them a group health plan. So, employees then have sixty days when you do cancel your group health plan to go purchase a major medical individual policy for the families.
The second step (and this is from the employer's perspective) is to set up a premium reimbursement plan. Now don't just go do this on your own. There are all kinds of federal compliance and regulatory items to be aware of. So make sure you set up a formal legal plan that allows you (the business) to reimburse employees for their individual health insurance policies for themselves and their family.
You can do that on a taxable basis, or you can do that on a tax-free basis. But most people prefer tax-free dollars. And, this happens with a formal premium reimbursement plan (in a formal legal environment).
Step 3 is to educate employees. Tell them exactly what you've done, what you've chosen to offer as a benefit, and how great benefit this is. The first thing is to help them understand where they can go to purchase individual health insurance. There are lots of online sites that are very helpful to purchase individual plans, or you can recommend an insurance agent or agency to help facilitate that purchase.
But the employees are going to take advantage of this premium reimbursement plan by buying their own policy, submitting proof that they've purchased their plan so they can substantiate the fact that they've actually purchased insurance. And then you can reimburse them either through a payroll or by cutting a separate check, like we mentioned.
Communicate to employees that this is a benefit both for the business and for them (the employees or participants) because of the four items that we talked about at the beginning: choice, portability, guaranteed-issue, not much effort put into an individual health insurance application, and cost. Both the business and the employees are going to save on the cost of their health insurance.
Thank you for attending today's whiteboard session. I hope it's been helpful and I look forward to seeing on the next one.
We'll be posting new Whiteboard Sessions on a regular basis. What topic would you like to see next? Leave a comment or question below.