The Importance of Group Medical Insurance For Small Business
Why should a start-up or small business consider purchasing group medical coverage for their employees when they could just as easily purchase individual plans for them? There are advantages not only to the employee but to the employer for having formal small business health insurance. Here are some:
- FLEXIBILITY: First of all, the plan selection is usually better and the benefits more generous, with the availability of some benefits on higher deductible plans that would not be available with individual plans. The only HMO’s offered to individuals these days are from Kaiser. Both HMO’s and PPO’s can be offered through group plans.
- CONTINUITY: Group plans offer the employer the opportunity to control the plan selection process, thereby making available plans that offer more uniformity of coverage.
- CHOICE OF DOCTORS: With the advent of the Affordable Care Act (ACA, aka Obamacare), the PPO medical provider networks for individual plans are only a fraction in size compared to those available to small business health insurance plans. This can make them much less attractive to individuals.
- ACCOUNTING: While it is true that individual plan premiums are not much different than group health premiums, do employers really want to write out individual reimbursement checks to every employee, or just add the insurance cost (which is taxed) to their existing paychecks? Group health plans offer one billing statement, which makes life easier for the bookkeeping department.
- TAXES: Reimbursing employees for their health insurance premiums produces additional taxable income to them, on which the employer will now pay additional payroll tax, higher worker’s compensation insurance premiums, higher state disability insurance premiums, and higher unemployment insurance premiums, as those are all based on total payroll. An employer would actually have to reimburse the employee more than the actual premium so that the employee’s net check was equal to the actual cost of their health insurance plan. And that would create additional tax and insurance costs. Employees, by the way, would get no tax deductions for purchasing their own health insurance plans when they pay their own premiums and neither does the employer.
- COMPETITIVENESS: Having small business health insurance is often seen as an attractive recruiting tool. Employees still place a high value on benefits, as that can make up for less than competitive salaries. Benefit packages are often the deciding factor on whether or not a prospective employee decides on one job vs another. The best part about group benefits is that while they are tax-deductible to the employer, they are tax free to the employees!
- FREEDOM: The ACA was created primarily to solve the problems individuals had for a long time in this country obtaining health insurance. In order to make it work, one of the necessary components was to confine the Open Enrollment period to three months per year. With employer group plans, even though there is an annual one-month Open Enrollment period prior to the plan anniversary, employers can change insurance carriers any month of the year if they find one that is more attractive, and add new employees whenever they become eligible.
- OPTIONAL AND VOLUNTARY BENEFITS: Employers may offer additional benefits like dental, vision, life insurance, and group disability coverage. They may also offer these benefits on a voluntary basis to employees, giving them access to coverage that is usually better than what they can purchase on an individual basis. Additionally, dental and life insurance can also be purchased on pre-tax basis if done under a Section 125 Premium Only Plan.
- COST CONTROL: With small business health insurance, employers decide on an affordable contribution structure, and therefore establish a manageable budget for benefits. Any required employee contributions can be deducted on a pre-tax basis from each employee’s salary, thereby reducing both the employee’s and employer’s taxes.
Collins Insurance serves the Redwood City, San Carlos, San Francisco Peninsula and San Francisco Bay Area regions. Call us to schedule a no cost consultation to address your small business health insurance needs.