NONTRADITIONAL, EXCEPTED-BENEFITS HEALTH PLANS
How they can benefit your clients and your business
By Michael S. Fawcett
Insurance agents and brokers know how difficult it is for their smaller business clients to afford even the most basic health insurance coverage for their employees. Unfortunately, this scenario is not going away—especially with the aftermath of the COVID-19 pandemic. According to a leading organization of human resources professionals, average employer health plan costs will rise up to 6.5% in 2021,topping the average annual 5% increase for these costs over the past decade.
Driving this upward spiral are several factors, including the costs of COVID testing, vaccinations, and treatment—and primarily, the rebounding use of in-person medical services that were delayed due to concerns about the pandemic in 2020. As a result, a third of small business owners providing employee health insurance are unsure if they can continue to do so in 2021, a Harvard Business School survey reports.
At the same time, small and mid-sized businesses also struggle with recruiting and retaining a high-quality workforce via the provision of optimal healthcare benefits. A plethora of industry research shows that top hires—those employees who drive and sustain a company’s growth and success—make employment decisions based not only on salary, but also on healthcare benefits. These key employees literally “shop” health benefits provided by prospective employers, and they seek coverage beyond what a typical employer’s primary health plan offers.
So, in this ever-costly healthcare environment and highly competitive workplace, how can your smaller business clients affordably provide key employees with the added level of health insurance coverage they want to sign on and stay on?
An affordable, cost-effective solution
An often-overlooked solution to this dilemma is nontraditional, excepted-benefits health plans, known as key employee healthcare cost reimbursement plans. Such a fully insured, tax-advantaged plan is also referred to as a “select” or “executive” medical cost reimbursement plan and should not be confused with Health Reimbursement Arrangements (HRAs).
Such a plan offers an affordable way to boost underlying health insurance benefits for key employees, while also providing employers a cost-efficient recruitment and retention tool that differentiates their total compensation package from competitors. As an excepted-benefits plan, it is not subject to the requirements of the Affordable Care Act. So, it can be offered to select (versus all) employees at the employer’s discretion, with plan participation typically of at least three employees.
Basically, such a plan provides direct, typically tax-exempt reimbursement to key employees and their eligible dependents for healthcare expenses not covered by their employer’s primary health plan—plus all premiums are tax deductible for employers. So, it offers employers and key employees alike significant tax advantages. Payments to employees under such a plan are excludable from the employee’s gross income.
Additionally, such a plan has no exclusions for pre-existing conditions, very limited eligibility requirements, and no waiting periods for enrollment.
Broad coverage and add-on benefits
In addition to deductibles, co-pays, and co-insurance costs not covered by an employer’s base health plan, excepted-benefits plans cover a multitude of other healthcare expenses, including those rarely covered by most corporate health plans today, for example:
- Dental/orthodontia, including crowns, implants and braces
- Vision care, including Lasik surgery and eyewear
- Hearing aids
- Chiropractic services
- Private-duty nursing and in-home healthcare
- Physical rehabilitation therapy
- Speech therapy
- Inpatient/outpatient psychiatric care
- Infertility diagnosis and treatment
- Substance abuse treatment and facilities
- Medical equipment and supplies
Generally, if an expense is medically necessary and qualifies under Section 213(d) of the IRS Code, it is eligible for reimbursement in such a plan. Additionally, key employee healthcare cost reimbursement plans 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 (usually 10%) to prevent excessive per-occurrence claim amounts for the employer.
Additionally, such a plan provides participants with other valuable insurance benefits and coverage at no added costs, including: accidental death and dismemberment (AD&D) coverage; worldwide 24/7 travel coverage; and even healthcare concierge and travel coordination services.
Advantages over HSAs and HRAs
To help employees with rising insurance premiums and/or out-of-pocket (OOP) expenses, many employers are offering their employees either a company-funded Health Savings Account (HSA) in conjunction with a High Deductible Health Plan (HDHP), or an employer-sponsored HRA account. While such consumer health accounts are tax-advantaged for employers and employees, there are significant drawbacks for both. First, they must be offered to all employees at the same employer-funding level. Second, they are restricted in contribution amounts (by employers and employees with HSAs, and by employers with HRAs). At best, these funding amounts make only a 51% dent in OOP costs for individuals. Plus, there are restrictions on what health expenses these account funds can be used for. Thus, they offer very little compensation allure for top talent seeking optimal health benefits.
Such a plan offers an affordable way to boost underlying health insurance benefits for key employees, while also providing employers a cost-efficient recruitment and retention tool that differentiates their total compensation package from competitors.
Unlike HSAs and HRAs, key employee healthcare cost reimbursement plans provide true insurance coverage, true insurance benefits and true insurance value far beyond an employer’s base plan—along with the tax advantages of the former. They can be offered to select employee classes versus all employees, saving employers considerable expense. They also offer a maximum annual benefit of $100,000 per plan participant (and eligible dependents), versus a top individual funding limit of $5,300 among consumer health accounts. What’s more, plan participants can use their plan reimbursements however they choose.
Cost of plans and how to choose among them
Plan costs vary by provider. All charge a fixed annual or monthly premium per plan participant (approximately $500 yearly with some plans), which also covers the participant’s eligible spouse, domestic partner, and dependents. Variable premiums are charged only if and when an employee claim is approved.
The customer service element plays a huge role in choosing among these plans. Look for plan providers that 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.
Benefits for brokers
Having a key employee healthcare cost reimbursement plan in your products portfolio can boost your business value with your clients. After all, you are a problem solver for their insurance needs and budget. A unique plan like this could be just the answer to what your clients are looking for—especially those with recruitment and retention issues.
Second, having an excepted-benefits plan in your toolbox can boost your competitive edge, as your competitors may not offer a comparable product. Most important, excepted-benefits plans can boost your business sales with existing as well as prospective clients. Any business struggling with rising healthcare costs, diminishing benefits and quality workforce issues can benefit from one.
Michael S. Fawcett is the executive vice president and chief operating officer of Sankaty Light Benefits (SLB). SLB is a Miami-based healthcare and insurance services company committed to providing innovative, cost-efficient solutions to the challenges businesses face in today’s tumultuous healthcare environment and highly competitive workplace—such as its recently introduced ExecSelect™ Plan. For more information, visit www.sankatylight.com.