Deductible Funding - That high deductible you offer your staff comes with another responsibility.
You get a big renewal and your broker suggests a plan with a deductible or a higher deductible to mitigate the renewal increase. The broker will suggest various ways to help the employee pay for the deductible, but will only push so hard because they are afraid to challenge too much which could hurt their relationship with you, their client. Who gets hurt, the employee. Why? Because of bad information coupled with poor insurance consulting.
There are two very important reasons and many ways to help employees manage the deductibles for the plans you offer them. I believe employers have a responsibility to help their employees with this. There are numerous tax advantaged ways to pay for a deductible and those generally provide some financial benefits to companies as well.
Without you setting up some sort of spending, savings, or insurance program for your employees to manage their deductible; an employee is left to pay out of their pockets. While paying out of my personal accounts is simple and easy, it is the most expensive option for both them and your company. This is because the employee gets no tax advantage from these payments and you will not get any tax benefit either. It’s also important to keep in mind that most people don’t have enough saved to pay for a $1,000 unplanned expense. So, higher deductibles can impact the financial wellness of your employees.
Now with only 15% of health plans having a deductible of less than $1,000, I think it’s important for an employer to provide some help in this area. Of covered workers, 85% have an individual deductible over $1,500 and that has doubled since 2008. This increased cost sharing for health care services coupled with increases in both total health insurance premiums and your employees share of those premiums has laid the burden on your employees to pay more and more of their healthcare expenses. Increasing deductibles, consumer directed or otherwise, is not the complete solution to your company’s nor our nation’s healthcare problem. Providing a tailored solution to your company’s needs is what I do. Regarding our national healthcare problem, that’s a topic for another blog(s) and may be out of my area. I focus on helping my clients navigate within the system to increase engagement and control costs.
I think having your employees pay out of standard checking or credit accounts is the worst option but a burden that is placed on many of them. This generally means using a credit card and that likely makes this even more expensive as most people carry a balance on their credit cards. The average American has over $6,000 in credit card debit and the average credit card interest rate is over 16%. Another reason it’s the most expensive method is because almost everyone reading this can’t write medical expenses off on their taxes. You can only deduct your medical expenses when they are in excess of 7.5% of your adjusted gross income. In today’s tight labor market with 3.7% unemployment, you should think it’s a bad option as well. Your staff can find gainful employment easily and the recruiter they are talking to will convince them that they are getting better benefits and higher compensation. Employees will leave you for a $6,000/year raise even if they don’t understand the total compensation you or the new employer is providing them.
So what’s the financial benefit to the company? In short, money that is paid by you or deducted by your employee through payroll to fund medical expenses through an employer sponsored plan will reduce your company’s tax liability. So, if the employee sets aside money in a spending or savings account then you aren’t matching the FICA on that set-a-side. Simply calculate the cost of setting up and maintaining the plan(s) and if the employees are appropriately educated to foster participation, the company may very well satisfy what I believe is their responsibly while gaining a tax advantage.
To be clear, deductibles and deductible funding strategies are not cost containment strategies. These are tools for addressing ways to spend money but not ways to lower healthcare costs. I’ll discuss cost containment elsewhere.
I’ll detail the many ways to support your employee’s deductible funding needs in upcoming posts. Hey, if you agree, disagree or have any valuable contribution please post a comment.
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Bryan (@nsurancing) is an experienced consultant. He has a successful history of working in insurance, retail and government contracting.