What Benefits Matter and Why
You can see “Help Wanted” signs everywhere, literally. Here’s the quick guide for employees at small businesses and for small business owners.
Employees At Small Employers
Short-Term Disability. This is the single most important benefit. If you cannot work, you can’t pay the rent, you can’t pay your mortgage. You need money to go to the doctor. The best thing here is the price is low, it’s the biggest bang for the buck, and it is useful at the most likely time. If you attempt to buy this yourself, it will be more expensive, and there will be medical questions. Very clear: if it is offered, take it.
Life Insurance. Many employers pay for $X amount of benefit. This is obvious, you keep it. What is not well-known is that many insurance companies will allow you to take this with you (called “portability”), this needs to be known by you. Again, the price here is lower than in the individual market, so employers should offer this, if they need to attract/retain employees.
Health Insurance. Far, far trickier. This should not be handled alone. There are many combinations here. The employer may pay part and not all of your premium. You may be able to get the ACA subsidy (a tax credit), even if your employer offers health insurance, if you get an exception, which is possible, but everyday people will have no practical way of figuring it out by themselves. The difference in money can be in the thousands of dollars a year here.
Special note: there is an idea of “association plans,” where a set of small employers is offered a package of payroll services and employee benefits as a set of services provided by a single entity. This is to be VERY carefully examined, and the reason is that the health insurance policy will very likely be a large group health insurance plan, which has an entirely different pricing structure from the small group health insurance market. How overpriced? It can result in an excess of well over $20,000 to the employer (and that is an understatement), a year.
Voluntary Life Insurance. If your employer pays for $X of life insurance, then it is possible that there is voluntary life insurance available, where you are responsible for the premium. In this instance, it should be looked at very carefully. First, the underwriting (medical questions) is far easier than if you applied on an individual basis (more on that in other posts, later). Second, the price / benefit ratio will also be better than the individual market. Therefore, you should look at it, if it is available.
Long-Term Disability. This is rarely offered by employers. The price is high, so a “small employer” can be a professional firm. That said, it coordinates with Social Security Disability Insurance, so there is a use for it, especially if your income is high.
If You Are A Small Business Employer
Non-discrimination rules. It is very important to note that while you can offer benefits if you choose, you need to apply the same employment rules uniformly among eligible employees. Violations of those rules would be a very serious matter.
Short-Term Disability. This is trickier than it may seem. The simple reason is that young females are relatively expensive, because pregnancy is deemed to be a “disability.” However, employees would find this very valuable, for the reasons stated earlier.
Long-Term Disability. The plus here is that underwriting is far easier when offered on a group basis, but if highly-compensated employees attempted to purchase this on an individual basis, the underwriting is far more difficult, and the premium can be far more expensive.
Employer-paid Life Insurance and Voluntary Life Insurance. The outstanding fact here is that Employer-paid life insurance is very, very inexpensive. Importantly, insurance companies will offer voluntary life insurance, where the employee is fully responsible for the premium. Voluntary life insurance is usually subject to a minimum number of enrollees. But, the underwriting on voluntary life is notably less strict than life insurance purchased on an individual basis. When coupled with the premiums, which are on par with aggressively-priced life insurance that would be purchased in the individual market, it can be valuable to the employee, especially when that employee (or the employee’s family members) may have difficulty in passing medical underwriting.
Health Insurance. Large-employer techniques to self-fund have arrived in the small business health insurance market. This can lower premiums and result in premium rebates, resulting in far lower health insurance premiums. The downside to this is that carriers are allowed to ask medical underwriting questions. For traditional small group health insurance, the results vary wildly depending on location, where the quality of plans, networks and the premiums will vary wildly. The employer is not obligated to pay, and can set its own contribution rules, which includes a fixed-dollar amount. This may be valuable to the employer, who can set their own plans regarding cost control, while simultaneously offering health insurance to employees.
It is very notable that under the ARPA (American Rescue Plan Act), the health insurance subsidy (APTC) can still be used, IF and only if the premium that the employee must pay exceeds a federal hardship level. Further, an employer may choose to not offer health insurance, but assist employees by not offering group health insurance, but offer other benefit configurations which allow employees to access the APTC, resulting in much lower premiums.
Lastly, Medicare-eligible employees should be able to access the individual Medicare market at much lower premiums, with superior benefits. The exception: the highly-paid employee, who would be subject to the IRMAA, which could sharply increase both Medicare Part B and Part D premiums.
Conclusions
The tight labor market and the complex financial contracts mentioned here have combined to create a dizzying number of configurations, premiums, and benefits. Disclosure: GH2 Benefits is an insurance broker and advisor to small business, with a variety of clients representing different industries, nationwide.