HEB32 EE Benefit Plans For Small Companies

Question 1

Medical Insurance

Reasons a small company should require EE contributions for medical

Answer 1

1. EEs are accustomed to paying some level of contribution
2. Motivates EEs who have coverage elsewhere to decline their small ERs plans
3. Changing to contributory plan at a later date can create EE ill will
4. To avoid legal problems when EEs opt out of a noncontributory plan

Question 2

Medical insurance

PPACA provisions that apply to small companies

Answer 2

1. Small ER tax credits
2. Simple cafeteria plans: Provides a safe harbor from non-discrimination testing
3. All group plans required to provide a summary of benefits and coverage explanation to EEs
4. Plans annually submit reports on whether benefits meet HHS criteria
5. All ERs must provide notices to EEs of the existence of exchanges
6. Offer minimum essential coverage or make payments to the government
7. Modified community rating in individual and small group market

Question 3

Disability income insurance

Answer 3

1. STD plans begin after 1 or 2 weeks of disability and last 13-26 weeks
2. LTD benefits typically begin at cessation of STD benefits
3. Insuring STD may be more efficient than self-insuring for a small company
   3.1 the cost is not expensive
   3.2 Keeps ER from having to deal with privacy issues and claim adjudication
   3.3 just 1 claim per year could pay for the cost of the annual claim
   4 important contract features in LTD plan design
   4.1 definition of total disability
   4.1.1 typically own occupation for the first 24 months. After 24 months, use any occupation definition
   4.1.2 small company may have own occupation definition throughout entire claim period
   4.2 contracts should cover partial disability from 1st day
   4.3 cost of living adjustment (COLA)
4. Supplemental LTD
   5.1 Benefits are taxable to EE in same proportion as the premium payment of ER makes premium contributions
   5.2 Because of low max benefit on small group plans, highly compensated receive less of their total compensation in the event of disability

Question 4

Discuss group life and ADandD for small ERs

Answer 4

1. less than 10 EEs are neither price competitive nor cost effective
2. Benefits in excess of limit require addtional underwriting, which can be cumbersome for a small company
3. Small company might be better off paying for individual term insurance
   
   3. 1 advantage of owning an individual and portable contract
4. ADandD coverage doubles life insurance benefits in the event of an accident
5. EEs pay income tax on ER provided life greater than $50,000
6. ER might offer voluntary group term in addition to the company paid base
7. Group universal life typically offered only by company of 100+ EEs

Question 5

Group dental insurance

Answer 5

1. Can be cost effective for EEs for 2 reasons
   
   1. 1 ER may be paying cost on behalf of the EE
   2. 2 After tax cost is discounted when ER implements a section 125 pretax spending account
2. Dental plans have better prices and flexibility when an ER has 10+ covered EEs
3. PPO-type coverage
   
   3. 1 EE can choose an in-network dentist or a dentist not in network
   4. 2 use of an in-network dentist lowers the out of pocket costs for the EEs

Question 6

Cafeteria plans (aka section 125, flex plans)
Tax advantages and PPACA impact of reimbursement accounts

Answer 6

1. IRS simply requires having a section 125 document in place
2. Tax savings
   
   2. 1 EE saves fed income taxes, FICA (doc sec), Medicare, FUTA (fed unemployment taxes); state income taxes
   3. 2 ER saves on matching FICA, Medicare, and FUTA
3. Health care and dependent care reimbursement accounts
   
   3. 1 ER saves matching FICA, Medicare and FUTA taxes
   4. 2 under PPACA
      
      3. 2.1 annual election for medical expenses is capped
      4. 2.2 discrimination test (less than 25% of deferrals can be highly compensated EEs)
      5. 2.3 over-the-counter items no longer eligible

Question 7

Medical Insurance
Special Considerations for small companies
(aka why group medical is challenging for small companies)

Answer 7

1. If fully insured, they are subject to state mandates plan options
2. Plans must use options available to small geographic area
3. Provide documentation so insurers can verify not just a banding together of people solely to obtain insurance