Strategies
Table of Contents
Level-Funded Premium Plan
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Get the familiar structure and predictable costs of a fully insured commercial plan, with all the advantages of self-funding. To the employer and employees, a level funded plan is going to look and act the same as the fully insured plans you have been used to, with all the same options such as HSA plans, copay plans, etc. What makes a level-funded plan different is that part of your premium every month goes into a claims fund. Establishing and administering the claims fund is all taken care of by the carrier. You will never see or have to do anything with it. As the insurance company pays claims out over the course of the year, they are first paid out of this claims fund. If there is money left over in the claims fund at the end of the year, the employer will be reimbursed anywhere from 50-94%, depending on the carrier. The first question that always comes up is, "what if our claims exceed what is in the claims fund? Are we on the hook for the overage?" The answer is NO. The overage is covered by the insurance policy that you buy. You will never pay out more than your monthly premium. By administering it this way, you are essentially doing what large corporations do, but on a much smaller scale. With a self-funded plan, their premiums fluctuate month to month depending on claims. Your premium remains level, which is why it's called level-funded.
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You might be asking why you would want to go with this type of a plan. The answer is very simple. MONEY. The insurance carriers are allowed to medically underwrite level-funded plans, which means they can be more selective with who they bring on. When you have a lower risk group of people, you have lower premiums. We have some groups who saw savings of 50% when they switched over to level-funded. The other attractive part is that medical underwriting is very easy. All we need is the name, date of birth, and zip code for each person on the plan and we can get final rates.
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While everything might be sounding great so far, there are a couple of very trivial bumps in the road that are worth pointing out.
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1. Medical Underwriting. If you have a lot of health issues in your group, they can come back and raise the rate or decline to offer coverage. That being said, they are really looking for the big stuff. We had some groups get no increase or very small increases that had a lot going on, so we tend to be very optimistic.
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2. 1095B form. This is the IRS form that the employees get from the carrier at the end of the year proving they had coverage. In the past this was used to avoid paying the penalty for not having insurance. There is no penalty anymore, but the forms are still required to be sent out. On level-funded plans, Humana is the only carrier who takes care of this for the employer. With all other carriers, this is the responsibility of the employer. Click here to learn more about the 1095B form.
3. PCORI fee (Patient Centered Outcome Research Institute). Just like the 1095B form, The PCORI fee is paid by the carrier on fully insured plans, but is the responsibility of the employer on level-funded plans. The PCORI fee is $3.00 annually per eligible employee for the year of 2023, and is due by July 31st of the following year. So if you have 50 people on the plan for 2022, you will owe $150 annually. Click here to learn more about the PCORI fee.
Some carriers are working on finding a way to take care of the 1095B forms, but nothing has been made official yet. The PCORI fee will expire eventually, but no date has been announced yet. Most people will inform their accountants that they are on this type of a plan and that they are responsible for the 1095B and PCORI fee, and they will take care of it for them. Since this deals with the the IRS and filing forms with them, legally we can't help with that part. We can try and point you in the right direction though.
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All in all, we have seen a lot of groups switch over to level-funded with great success. Roughly 85% of the groups that we have put through underwriting for level-funded have made the switch, which makes us very optimistic when it comes to health conditions and underwriting. Some have seen savings up to 50%, and since the 1095B and PCORI fee's are the only extra administration, it's been an easy decision for most groups. If you want to see if level-funded might be a good fit for your group, contact us and we'd be happy to talk through it with you. Learn more...
Health Savings Account (HSA)
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Health Savings Accounts (HSA) are a type of health insurance plan that many small business owners as well as individuals are using to combat the increasing cost of their health insurance premiums. In simple terms, it's a way for you to pay your medical expenses tax free, rather than with after tax dollars. For the detailed version, read on.
By having a qualified high deductible health plan, you are allowed to go to a bank and open up a health savings account. You can put up to $3650 into an HSA if you are a single, and $7300 if you are a family per year. If you are over 55, you are allowed to put an additional $1000 in as a "catch up" contribution. These amounts are for 2022 and change year to year, so check back for 2023 limits and beyond. The money that goes into these accounts are always and forever the property of the policy/account holder. If an employee leaves, money goes with them. If you move from an HSA to a non HSA plan, the money is still yours to use for medical expenses, but you can't put anymore money in.
All contributions to an HSA are tax deductible. If an individual or employee puts money in on their own, they get to deduct that on their taxes at the end of the year. If an employer makes the contributions, it's a cost of doing business for the company. The idea is that the money that goes into these accounts is going to be used for qualified medical expenses, thus paying for your medical expenses tax free rather than with after tax dollars.
The first question that always comes up is, "What is a qualified medical expense?" First, a qualified medical expense is anything that is covered by your health insurance plan. In addition to this, you can use your HSA money to pay for any dental expenses, eye glasses, contact lenses, orthodontia, and certain over the counter medications. What you can't use it for is to pay premiums, gym memberships, bottled water, etc. For more information on what is and isn't considered a qualified expense, and what is and isn't a QHDHP, refer to the IRS guidelines by clicking here.
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With all the advantages and upsides to an HSA, the first inclination for most people is to put as much money as they can in the account. Because of this, we always like to caution people to not overextend themselves. If you pull money out of the account prior to the age of 65 for NON qualified medical expenses, you will get hit with income tax plus a 20% penalty. After the age of 65, it's just income tax and that's it. Which leads us to the next point.
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You can always and forever, for the rest of your life, use HSA money to pay for medical expenses tax free, but let's take this one step further. The money going into the HSA is tax free, it grows interest free, and after the age of 65 can be used for non qualified medical expenses and be taxed at income tax only. What does that sound like to you? That's right, it operates almost the same as a traditional IRA.
There are a number of ways you can use the HSA to your benefit, but let's focus on the two extremes.
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The first is what I like to call the investors approach. Some people will max out their HSA every year and pay for their medical expenses out of their pocket, letting that money sit in there and grow interest free. That way they are getting the max tax deduction every year, and essentially using the HSA like an extra IRA. Some banks will even let you invest your HSA money in mutual funds, allowing you to maximize your growth potential.
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The second is what I like to call the pay as you go approach. The bank that we have our HSA's at has a $5 minimum. Some people will put in the minimum amount to get the account started, and then lets say they have a doctors visit 3 months later that costs $100. They will deposit $100 in the account, and then write a check out of that account to pay the doctor. That way they are never having to front any money, but are still funneling it through the HSA to get the tax deduction.
To recap, here are the advantages of an HSA:
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All contributions to an HSA are Federal tax-deductible.
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It's NOT a "use it or lose it" account. Any accumulations of money in the HSA account rollover from year to year.
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Any money in an HSA is immediately and forever the property of the individual.
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Money in an HSA earns interest tax free. Some banks even allow you to invest your HSA money into mutual funds.
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Money taken out of an HSA for qualified costs are not subject to income tax.
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HSA’s provide incentive for employees and individuals to help control costs. After all, “they are spending their own money.”
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Money in the HSA can be used for items that are usually not covered by the health insurance plan. IE: Dental and Vision benefits.
Thank you for your interest in HSA’s. We hope you have found this educational. Please give us a call as we would be happy to provide you with a no obligation quote and answer any further questions that you may have. Learn more...
Health Reimbursement Arrangement (HRA)
Health Reimbursement Arrangements can be used in conjunction with any employer sponsored health insurance plan offered by the major carriers. Let's use an example to illustrate how this would work. Let's say right now you offer your employees a $1500 deductible, 80% coinsurance, copay plan with a $5000 max out of pocket. You value your employees and want to continue to offer them a high benefit, but you also value your money and are looking for different ideas and ways to save.
Unless you know your group has a significant amount of claims, what an HRA can do is give you the best of both worlds. You can buy a higher deductible, let's say a $2500 deductible, and still give your employees the $1500 deductible they have been used to. They are still responsible for the first $1500 in deductible, and then if they are unfortunate enough to have claims that exceed $1500, you reimburse them the remaining $1000. You have a lower premium because of the higher deductible, and then as employees have claims, you reimburse them. It's a health reimbursement arrangement!
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You can make these as complex or as simple as you would like. Most companies will reimburse a portion of the deductible and that's it, but if you want to get creative you can. The more complex you are, the more time it's going to take you to manage it, or the more it will cost you to have someone else manage it. Which leads me to my next point regarding management.
You have to have what's called a section 105 plan in place to operate this type of plan. If you want to keep expenses low and manage the HRA yourself, you are more than welcome to buy just the section 105 paperwork and take care of the reimbursements on your own. We have a third party administrator who will do this for $350 annually. If you want to let someone else handle everything, it will cost between $1000-2000 annually depending on how complex you want to get. If they handle it, they will give the employees a fax cover sheet to attach to their explanation of benefits, the employees will fax it off to the third party, and they will track deductibles. Every Monday they will send you a report showing how much will be deducted from your account for claim reimbursements, and then they will reimburse the employees directly. That way all you have to do is make sure there is enough in the account. There are even some carriers that have what's called a direct claims feed. For these carriers, they will send all the claims information directly to the third party, and then the third party will cut the check directly to the doctor. That way the employees have no additional responsibilities.
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Again, an HRA can be attached to any plan out there. Statistics say that 85% of people have less than $1500 in medical expenses a year. The more people you have in your company, the easier it is to predict what's going to happen. The less people you have, the better you have to know your group to decide if this may be the right fit for you. A good agent will help you crunch the numbers to make the best choice for you and your company. If you want to learn more about health reimbursement arrangement's, don't hesitate to reach out to us. Learn More...
Voluntary Plans
Voluntary plans are a fantastic way to make a benefits package stronger without incurring any extra cost to the employer. You can offer most ancillary lines of coverage such as dental, vision, life, and disability for the employees to purchase through the company, and allow the employee to choose what suits them best. The employer then deducts the total cost of the elections from that employees payroll on a pre-tax basis.
This benefits both the employee and the employer. The employee gets a benefit they desire, while having it deducted pre-tax which gives them more take home pay. The employer pays less in payroll expenses since there is less taxable income. Not to mention it makes you as the employer look good for offering the products. It's a win win! Learn more...
Section 125 Plan (Pre-Tax Premiums)
Section 125 plans are also known as Pre-Tax Premium plans, as well as Premium Only Plans (POP Plans). This is simply the paperwork that allows you to deduct the employees portion of their health insurance premium from their payroll pre-tax. This also extends to health savings account deductions if you are making deposits on the employees behalf. This is beneficial to both the employer as well as the employee. By making deductions pre-tax, there is less taxable income. That means more take home pay for the employee, and less payroll expenses for you, the employer. Below is a document from one of our Section 125 providers that gives a little more detailed explanation, or you can contact us to learn more. Learn more...