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Unsustainable!

January 18, 2012 By

David P. Lind BenchmarkWhat if Iowa families had to spend more than half their yearly income just to pay for health insurance—making it difficult to afford housing, food and clothing? Sound ridiculous? Think again.

Already in 2011, the average Iowa family health insurance premium gobbled up roughly 27% of estimated yearly household income of $49,985*. If current trends continue, that will grow to 58% in 10 years. Unsustainable?  You bet—for employers and employees.

Look at the numbers:

  • Health insurance rates in Iowa increased an average of 10.2% annually during the last five years, according to our Iowa Employer Benefits Study©. 
  • In 2011 the average annual family health insurance premium provided by Iowa employers was $13,295.
  • The average premium for family coverage in Iowa would increase 165% to over $35k a year by 2021 if current trends continue.

We all know that rising health premiums suppress employer profitability and ultimately employee take home pay (this is why unsustainable health trends are important to both employers and their employees).

Clearly, Iowa employers and their employees (and society in general) must find new and innovative ways to seek affordable health care without compromising the quality of care they expect to receive.

Does your organization have a sustainable strategy to avoid the projected increases?

This is a topic we’ll be talking about a lot here on the blog, as we explore possible solutions. 

* The 2009 Iowa Median Household income was $48,044, and was trended up by 2% annually to 2011.

 

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Small Employer? Here’s another SECRET

January 11, 2012 By

David P. Lind BenchmarkAre you hiding your head in the sand? Iowa’s small employers are walking away from some serious pocket change—for both the employer and the employee. What gives?

They aren’t taking advantage of a well-known section of the Internal Revenue Code (Section 125) that provides tax advantages for premium conversion plans (PCP) and flexible spending accounts (FSA). Hard to say why. Look at the tax advantages.

PCP advantages*:

  • allows employees to use pretax dollars when paying their share of premiums for welfare benefit plans (i.e. health and dental insurance)
  • reduces employees’ out-of-pocket costs for premiums
  • reduces employees’ federal income taxes and Social Security contributions (FICA) and possibly state and local income taxes
  • saves employers the 7.65% they would otherwise contribute to Social Security taxes

FSA advantages*:

  • allows employees to use pretax dollars when paying for certain qualified medical expenses
  • reduces employees’ out-of-pocket costs for eligible medical expenses
  • reduce employees’ federal income taxes and Social Security contributions (FICA) and possibly state and local income taxes
  • saves employers the 7.65% they would otherwise contribute to Social Security taxes

PCPs and FSAs are easy to communicate and cost little to administer. Simply:

  • have a plan document in place
  • notify employees of the option
  • make payroll deductions on a pretax basis rather than an after-tax basis.  Consider hiring an outside flex administrator for FSAs due to protected health information laws.

Seems like a no-brainer. PCPs and FSAs save money for employers and ease the financial burden employees’ face as a result of higher premiums, deductibles, copayments, etc. They cost little to set up and administer. Yet every year without exception in our Iowa Employer Benefits Study©, we find that the smallest employers (those with 2 to 19 employees) don’t take advantage of these tax savings. 

Don’t leave money on the table. If you aren’t utilizing the benefits found within Section 125, it’s not too late to start taking advantage NOW!

*This is not intended as tax advice.  Visit with your Tax Advisor for more information.

 

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Small Employer? Want to know a SECRET?

January 4, 2012 By

David P. Lind BenchmarkYou can save money—up to 35%—on your portion of an employee’s health insurance premium. Here’s the scoop on a new Small Business Health Care Tax Credit you may not know about:

  • Must have 24 or fewer full-time equivalent employees
  • Must offer health insurance
  • Must pay at least half of an employee’s single (not family) health insurance premium
  • Employees’ average annual wage must be less than $50,000

Do you meet all of these criteria? Then you’re eligible to claim a tax credit of up to 35% of your contribution toward health insurance premiums.

This tax credit is designed to encourage smaller businesses to offer health insurance. It’s part of the complex and controversial Patient Protection and Affordable Care Act (PPACA) passed in March of 2010, also known as the Health Reform Act. As of November, 2011, the IRS reported only 5% of taxpayers were claiming this credit.

How come most small employers aren’t taking advantage of this tax credit? Great question! Based on our 2011 Iowa Employer Benefits Study©, it’s because many aren’t  aware of it.

  • 57% of Iowa employers with 2 to 10 employees were unaware
  • 43% of Iowa employers with 11 to 25 employees were unaware

Also, the calculation is complex, with multiple steps. But don’t let that stop you. The best place to start learning more is here. To help small employers, the IRS created different tools for-profit and tax-exempt organizations. Be sure and talk to your tax advisor about this program, too. The sooner you take action, the sooner you can reap the savings.

 

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