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Small Employer? Here’s another SECRET

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.

 

Small Employer? Want to know a SECRET?

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.

 

Health Care Consumers vs. Users

David P. Lind BenchmarkEver thought about what it means to be a health care consumer versus a health care user?

Health care consumers have skin in the game, money on the table. They work to protect their health and actively look for the best health care value—researching options and making educated choices.

Health care users pay their monthly premium, go to an in-network provider and that’s that. Oh, they pay copays, but  they don’t have an incentive or the information to seek out the best value. Sadly, most of us fit under this category much too often.

Employers’ efforts to manage health care costs are becoming more focused on getting employees to become health care consumers rather than users.

National studies, such as Kaiser/HRET, and local research, such as the Iowa Employer Benefits Study©, show that more employers are embracing two interrelated concepts when offering health insurance coverage to employees:

  • Consumer-Driven Health Plans (CDHPs)
  • Wellness initiatives

In Iowa, only 4.5 percent of employers were offering components of CDHPs in 2005, but this number increased to over 20 percent by 2011. Also, more employers show interest in implementing wellness initiatives, in some cases providing financial incentives for employees to participate.

Consumer-driven health initiatives:

  • Emphasize making healthy lifestyle choices—eating right, exercising, not smoking, monitoring health numbers, etc.
  • Encourage employees (and their dependents) to seek out the most cost-effective care when seeking health care services. (Unfortunately, consumers are not privy to the actual costs. This is a big problem. See Clueless on Costs.(Blog)

More and more employers are working on plan designs that offer incentives to facilitate behaviors that improve employee health and lower health care costs.

VBID

Nationally, large employers are embracing a philosophy called Value-Based Insurance Design (VBID), providing incentives to employees to utilize evidence-based medical services. Deductibles, copays and out-of-pocket costs can be less to employees (and dependents) if they adhere to particular drugs regimens and treatments recognized as the most medically effective, and more if they choose tests and procedures deemed “overused.” There are pros and cons to everything, and VBID is no exception.

Until we can find the elusive ‘silver bullet’ to reign in health care costs, employers will need to assess new opportunities to help employees become more effective consumers of health care. These are some of the tactics currently being utilized. Their actual impact on employee behavior and health care costs remains to be seen.