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Benefits are a critical piece of an employee compensation package, and health care benefits are the crown jewel. Health care benefits, along with time-off benefits, are the most popular of benefits to employees. Every employer must at least consider whether to offer these types of benefits and in some cases employers must offer health care in order to remain competitive with other businesses for the most talented employees. Another reason why many employers choose to offer health care benefits is so that they themselves can take advantage of less expensive health insurance than they could get on their own as well as tax breaks for the contributions made by the business.
Unless you are an employer in Hawaii or Massachusetts, you are not required by law to offer your employees health insurance benefits. Hawaii is the first state to require employers to provide health insurance to employees. The law, the Prepaid Health Care Act, was passed in 1974 and requires employers to provide health insurance to all full-time employees, either through an indemnity plan or an HMO. As of October 1, 2007, Massachusetts employers with more than ten employees are required to offer pre-tax health plans to employees.
The enactment of the Patient Protection and Affordable Care Act and related legislation in 2010 will require employers with 50 or more full-time employees to offer health coverage or be subject to an assessment. This mandate is in effect beginning in 2014. Conversely, beginning in 2010, small businesses with fewer than 25 employees may be eligible for a tax credit for purchasing health insurance for their employees.
If you do make the decision to offer health insurance benefits, be aware that you call into play a whole series of laws that will tell you what coverage you have to offer and how you have to offer it. Therefore, the first decision to make is whether to offer health insurance at all.
Pros and Cons of Offering Health Care Benefits
There are a number of advantages to offering health benefits to your workers. Here are a few of the major ones:
- Attract and retain the most qualified employees. Whether health insurance is absolutelynecessary to attract and retain the most qualified employees will depend upon factors such as whether your competitors or other similarly sized employers in your area are offering health insurance.
- Gain tax advantages. You can offer employees something that increases their compensation package and yet allows you an income tax deduction for the contribution, so that your out-of-pocket cost is less than the value of the benefit to the employee. Self-employed individuals can deduct 100 percent of their health insurance premium costs as a business expense in 2003 and thereafter. You can always deduct 100 percent of premiums for your employees. If the business is incorporated, all costs for your own insurance as well as your employees’ is deductible.
- Offer employees group purchasing power. Even if you decide not to contribute anything toward your employees’ health insurance, you can offer them the opportunity to obtain group rates through your business.
- Ensure the wellness of your workers. Insurance plans offer preventative care that can keep employees healthy and working. If employees don’t get preventative care and yearly physicals (which they might not do if they don’t have insurance), you could end up having more employees out for long periods of time with serious illnesses.
There is a downside to offering health benefits, too. Some of the cons of offering health benefits are:
- The costs. Health care costs have risen enormously in recent years. As a result, not only are the costs draining valuable resources from many small employers, the uncertainty makes financial planning extremely difficult.
- The sometimes tense business of cost-sharing with employees. There is a way for a small employer to control costs and return certainty to the process: push any additional costs on to employees. While that may solve the financial problems, it creates many others. Even if you don’t want to push all the costs on to employees, pushing some of the costs on to them is inevitable.
- The administrative hassles. Even though the insurance company from whom you purchase the health insurance will usually act as plan administrator, you will have to choose the insurer and then spend part of your time filling out forms, remitting premiums, and acting as intermediary between employee and insurer, among many other tasks.
- The potential liability. The potential for liability for selecting a health care provider that commits malpractice on an employee does exist. While this risk is small and should not be the driving reason behind a decision not to offer health insurance, you should be aware that several employers have been sued by their employees for what they contend was their employer’s carelessness in selecting a provider.