A recent New York Times article reported on the lack of employees enrolling in employer-sponsored healthcare, especially among small-midsize businesses that pay lower hourly wages (e.g. retail and hospitality). One of the biggest reasons for the dearth of employee enrollment in these industries is that the government definition of “affordable” coverage (9.5% or less of annual income) can mean something very different for a minimum-wage employee.
On top of shared premium fees (employers are only required to cover 60% of plan costs), high deductibles and increasing healthcare costs make coverage a no-go for many hourly-workers who are already struggling to pay living expenses such as rent and food bills. According to ADP (cited in the article), employees making between $15-20,000/year only buy offered group insurance 37% of the time; those making $45,000+ buy offered coverage 82% of the time.
And in addition to the employee-health factor, smaller organizations also face difficulties when staff members opt out of group coverage. The fewer employees on the plan, the more insurers may resist renewing plans in the future because only the sickest or most at-risk employees sign up – resulting in higher costs for the insurance carrier.
Fortunately there is a much better way to ensure true affordability for both the employee and the employer. For many of these small-midsize organizations, the traditional path towards employer-sponsored healthcare has always been fully-funded coverage through an insurance carrier. But these days, the ACA has provided a wealth of opportunities for innovative new business ventures to enter the market offering creative solutions to the pressing problems around affordability.
Partially self-funded coverage is one such option that many organizations are exploring in this new healthcare market. Partial self-insurance allows employers to cover the low premiums of high deductible health plans (HDHP) while also helping employees manage out-of-pocket costs through a reserve account. The employer is given greater control over healthcare spending – frequently resulting in a decrease in costs – and can also determine the amount of out-of-pocket costs the employee needs to contribute (if any). In the end, employers and employees pay less each month, often for improved benefits.
The information and materials herein are provided for general information purposes only and are not intended to constitute legal or other advice or opinions on any specific matters and are not intended to replace the advice of a qualified attorney, plan provider or other professional advisor. This information has been taken from sources believed to be reliable, but there is no guarantee as to its accuracy. In accordance with IRS Circular 230, this communication is not intended or written to be used, and cannot be used as or considered a ‘covered opinion’ or other written tax advice and should not be relied upon for any purpose other than its intended purpose