Using special health plan benefits as a workforce strategy

Whether you are a health insurance advisor or a corporate benefits manager, you know how difficult it is for small to midsize businesses to afford even basic health insurance coverage and benefits for employees.  This scenario is not going away.  According to a leading organization of human resources professionals, average employer health plan costs are predicted to rise 6.5% in 2021, topping the average annual 5% increase for these costs over the past decade.

You are also probably aware that many businesses of this size struggle with maintaining a quality workforce via the provision of optimal health care benefits in their overall compensation package.  This is especially true today, in light of the COVID-19 pandemic.  As a result of the virus’s economic impact, many smaller businesses have had to cut salaries and staff across lower-level positions in order to to stay afloat, while also still trying to provide top hires – those who drive business growth – the overall compensation they seek to stay onboard.

In this increasingly costly health care environment and highly competitive workplace, how can benefits advisors and employers in the small to midsize business arena affordably provide optimal health care benefits that retain, as well as recruit and reward, key employees? 

A cost-efficient solution

There are non-traditional health plans that employers can readily use to solve this dilemma:  key employee health care cost reimbursement plans.  These fully insured, excepted benefits plans are also referred to as “select” or “executive” health care or medical cost reimbursement plans, not to be confused with health reimbursement arrangements (HRAs).

These plans offer employers an affordable, cost-effective way to boost their underlying health insurance benefits for key employees, while also differentiating their total compensation package from competitors.  As excepted benefits plans, these plans are not subject to the requirements of the Affordable Care Act, so they can be offered to select employees at the employer’s discretion, with plan participation typically of at least three employees.

Basically, these plans provide direct, typically tax-exempt reimbursement to key employees and their eligible dependents for health care expenses not covered by their employer’s primary health plan – plus all premiums are tax deductible for employers.  So, they offer employers and employees alike significant tax savings.

Broad, tax-advantaged coverage and benefits

In addition to plan deductibles, co-pays and co-insurance costs not covered by an employer’s base health plan, these special health plans cover a multitude of other health care expenses, including those rarely covered by traditional corporate health plans today; for example: 

• Dental/orthodontia, including crowns, implants and braces
• Vision care, including Lasik surgery and eyeglasses
• Hearing aids
• Chiropractic services
• Private-duty nursing and in-home health care
• Physical rehabilitation therapy
• Speech therapy
• Inpatient/outpatient psychiatric care
• Infertility diagnosis and treatment
• Substance abuse treatment and facilities
• Medical equipment and supplies

In general, if an expense is medically necessary and qualifies under Section 213(d) of the IRS Code, it is eligible for reimbursement under these plans.

Additionally, key employee health care cost reimbursement plans typically provide a generous maximum annual benefit per plan participant – up to $100,000 with some plans.  All have a per occurrence limit per plan participant in order to prevent excessive per occurrence claim amounts for the employer.  Some of these plans also provide participants other valuable insurance benefits and coverage at no additional costs, including AD&D coverage, worldwide travel coverage, and even health care concierge and travel coordination services.

In general, these plans can be added to any employer’s underlying group plan, individual policy, spousal policy or Medicare plan.  Additionally, they typically have no exclusions for pre-existing conditions, very limited eligibility requirements, and no waiting periods for enrollment.

Advantages over HRAs, HSAs And FSAs

To bend the cost curve of rising health insurance costs, businesses have been increasingly choosing high deductible health plans (HDHPs) for employee health care coverage.  The non-profit Kaiser Family Foundation (KFF) reports that 31% of workers with health insurance were enrolled in an employer-sponsored HDHP in 2020, up 18% since 2010.

These cost-shifting plans afford employers with significantly lower premium costs than HMOs, PPOs, POSs and other major group plans, but employees pay considerably higher deductibles and other upfront costs with these plans before actual insurance coverage kicks in.  According to KFF, average annual out-of-pocket employee costs for company-funded HDHPs in 2020 were $7,000 for individual coverage and $14,000 for family coverage.

Many businesses help their employees defray these high out-of-pocket costs by offering a company-funded HSA or HRA account, or by matching employee contributions to an FSA.  But the total IRS-allowed annual contributions (employer + employee) to these accounts make, at best, barely a 50% dent in the employee’s out-of-pocket health plan costs.  Plus, there are restrictions on what expenses these account funds can be used for.  While this scenario might benefit the employer’s bottom line, it offers little compensation allure for top talent seeking optimal health benefits.

Unlike HRAs, HSAs and FSAs – and, perhaps, the most important advantage of key employee health care cost reimbursement plans over these consumer health accounts – is that they provide true insurance coverage, insurance benefits and insurance value, along with the tax advantages of the former.

In the same vein, many employers provide their top-producing employees with annual cash bonuses as a reward they can use to subsidize health care expenses not covered by the company’s base medical plan.  However, such bonus compensation is highly taxable for employees according to their total salary and income bracket.

Cost of plans and how to choose

Plan costs vary by plan providers, but most feature a low fixed premium per plan participant (and his/her eligible dependents), which includes all of the aforementioned plan benefits and coverage.  The better of these plans charge this fixed cost as an annual versus monthly premium.  Variable premiums are charged only if and when an employee claim is approved – and these costs also vary by provider. 

The customer service element plays a huge role in choosing among these plans.  The best of these provide personal and immediate responses to phone calls and email requests for information, along with quick claims approval, processing and claim reimbursements made directly to the employee’s bank account.

The bottom line is that key employee health care cost reimbursement plans offer businesses a cost-effective way to recruit, retain and reward their most valuable asset: employees who drive and produce desired results – e.g., increased business profits, growth and success.  Any business struggling with rising health care costs, diminishing benefits and quality workforce issues should consider adding such a plan to its base health insurance plan.

Michael S. Fawcett is the Executive Vice President and Chief Operating Officer of Sankaty Light Benefits (SLB), a Miami-based health care and insurance services company committed to providing innovative, cost-efficient solutions to the challenges businesses face in today’s tumultuous health care environment and highly competitive workplace.