Small businesses face important decisions about employee benefits, and as deadlines for Affordable Care Act (ACA) requirements draw near, timing is of the essence.
You should consider the following three questions to make more informed decisions for your workforce.
1. Should you offer employer provided coverage or not?
It’s commonly agreed upon by both employers and employees that health benefits play a significant role in employee satisfaction. In fact, according to the 2013 Aflac WorkForces Report, 78 percent of employees say their benefits package is important to their job satisfaction, and 65 percent say it is important to employer loyalty.
Deciding whether or not you’ll offer coverage to your workforce is a choice that affects more than just your bottom line; it also affects employee morale and retention.
View employer-sponsored benefits options as a cost-effective way to boost employee compensation. If you are an employer with fewer than 50 full-time equivalent employees, you will not be penalized for not offering a health plan. But you should, nonetheless, keep in mind the qualitative and quantitative values of benefits:
- Qualitative Value: Health benefit options are a way to demonstrate that you care about your employees and to keep morale high.
- Quantitative Value: Considering the recruiting, training and general cost of resources to replace an employee, it could be in small businesses’ best interest to provide health insurance, particularly considering the fact that 65 percent of employees said their benefits options impact their loyalty to their employer.
2. How much can your small business afford to spend?
Before you move ahead in making benefit options available to your employees, you will need to assess what you can actually afford to invest.
If you provide your workforce with employer-sponsored benefit options, you may already have this cost budgeted for the coming years. However, do not forget to consider projected increases in health care costs and your potential eligibility to take advantage of the Small Business Health Options Program (SHOP) Marketplace in 2014.
Is it your first time offering employer-sponsored benefits options? Don’t worry. You can discuss options with your benefits consultant or broker to get an expert opinion to help you weigh the costs. Remember that a broker or agent is a resource and will be there to answer questions for you in the implementation process and beyond.
Here’s an example assessment: In 2013, health care costs are expected (PDF) to increase per employee by 5.3 percent (0.6 percent lower than in 2012). You can use cost estimates to determine approximately how much it will cost per employee, as well as potential penalties starting in 2015 for not providing employee health coverage. You can also estimate your eligibility for small business tax credits to help defray the costs associated with health care coverage.
3. Which strategy should you choose as a small business owner?
You’ve decided to make benefit options available to your employees. Now the question is, what approach will you take? You’ve got options. Let’s go through them:
Adjust Your Current Health Plan
Work with your broker or benefits consultant to understand how your current benefit options work within new ACA standards (PDF). Remember that your employees may be eligible for tax subsidies through the Health Insurance Marketplace. This could be the case if their required contribution to employer-sponsored health insurance exceeds 9.5 percent of their annual gross income or if the plan pays less than 60 percent of covered health expenses.
The Health Insurance Marketplace
Also known as an exchange, the health insurance marketplace is expected to offer small businesses and individuals competitive benefits options. Small businesses participating in the marketplace may also be eligible for a tax credit of up to 50 percent of their premium payments if they have 25 or fewer full-time employees whose average wages do not exceed $50,000 per year.
This is when a company is responsible for covering the claims in a health care plan. Employers can save costs related to premium taxes and state insurance regulations because these plans are not included in some ACA requirements.
These plans typically shift additional costs to employees, especially when an employer’s workforce has significant health care needs. Companies might want to consider adding stop-loss coverage to accommodate for annual and lifetime dollar limit restrictions.
Defined Contribution Model
This model enables employers to give their employees a fixed amount of money and a list of health insurance options. It helps employers keep costs predictable while also enabling employees to create plans that meet their needs. Defined contribution models require employees to be well-informed about health care.
While the above is intended to provide general information about an evolving topic, it does not constitute legal, tax or accounting advice regarding any specific situation. I strongly encourage you to discuss your HCR situation with your advisor to determine the actions you need to take, or to visit HealthCare.gov for additional information.
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