Don’t drop group health insurance for employees and simply give them a monthly stipend to help with the cost of coverage!
There is considerable speculation among small employers (up to 50 lives) dropping company health plans and providing employees with a monthly stipend to use on the open market or through State or Federal Exchanges. At first blush, it seems reasonable because it saves the employer the headache of seeking and providing a group health insurance program.
Unfortunately, this can be costly for the both the employer and employees! Costly in terms of money, health benefits, access to providers and employee relations.
Financially costly to the employer because the monthly stipend is considered part of payroll and subject to FDIC and all other state and federal payroll taxes. Financially costly to the employee because s is considered taxable income and subject to FDIC and state and Federal Income Tax.
On the other hand, an employer can deduct any premium contribution made on behalf of the employee for a qualified group health insurance plan while the employee is not taxed for the employer’s contributions.
Another important consideration when increasing employee wages with a monthly insurance stipend, is the fact that the increased income may disqualify or reduce any Advanced Premium Tax Credits (APTC) for qualifying employees, resulting in a higher premium, and less access to care.
Group Health Plans provide broader and better benefits and provider networks!
That’s right! Group Health Plans generally provide greater benefits and greater availability to providers (doctors and hospitals in particular) than plans offered thought the exchange or individual coverage.
You can limit your cost with a monthly cap while offering employees a choice of plans to suit their particular needs.
For example, you may offer options in a higher tier, such as the Gold or Platinum. The standardized versions of these plans have a zero deductible and provide lower co-pays. Your employees will be pleased with these plans! Most importantly you will reduce employer and employee taxes because employer paid premiums are 100% tax deductible.
The obvious reasons to provide a group health plan still remain: lower hiring costs, increase loyalty, decrease turnover, increase productivity by keeping employees healthy, reduce absenteeism, enhance your office atmosphere and improve moral.