Start Your Own Business (61 page)

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Absorbing the entire cost of employee benefits.
Fewer companies are footing the whole benefits bill these days. The size of employee contributions varies from a few dollars per pay period to several hundred dollars monthly, but one plus of any co-payment plan is that it eliminates employees who don’t need coverage. Many employees are covered under other policies—a parent’s or spouse’s, for instance—and if you offer insurance for free, they’ll take it. But even small co-pay requirements will persuade many to skip it, saving you money.

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Covering nonemployees.
Who would do this? Lots of business owners want to buy group-rate coverage for their relatives or friends. The trouble: If there is a large claim, the insurer may want to investigate. And that investigation could result in disallowance of the claims, even cancellation of the whole policy. Whenever you want to cover somebody who might not qualify for the plan, tell the insurer or your benefits consultant the truth.

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Sloppy paperwork.
In small businesses, administering benefits is often assigned to an employee who wears 12 other hats. This employee really isn’t familiar with the technicalities and misses a lot of important details. A common goof: not enrolling new employees in plans during the open enrollment period. Most plans provide a fixed time period for open enrollment. Bringing an employee in later requires proof of insurability. Expensive litigation is sometimes the result. Make sure the employee overseeing this task stays current with the paperwork and knows that doing so is a top priority.

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Not telling employees what their benefits cost.
“Most employees don’t appreciate their benefits, but that’s because nobody ever tells them what the costs are,” says PRO’s Silverstein. Many experts suggest you annually provide employees with a benefits statement that spells out what they are getting and at what cost. A simple rundown of the employee’s individual benefits and what they cost the business is very powerful.

ABOVE AND BEYOND

 

W
hat does COBRA mean to you? No, it’s not a poisonous snake coming back to bite you in the butt. The Consolidated Omnibus Budget Reconciliation Act (COBRA) extends health insurance coverage to employees and dependents beyond the point at which such coverage traditionally ceases.

 

 

COBRA allows a former employee after he or she has quit or been terminated (except for gross misconduct) the right to continued coverage under your group health plan for up to 18 months. Employees’ spouses can obtain COBRA coverage for up to 36 months after divorce or the death of the employee, and children can receive up to 36 months of coverage when they reach the age at which they are no longer classified as dependents under the group health plan.

 

The good news: Giving COBRA benefits shouldn’t cost your company a penny. Employers are permitted by law to charge recipients 102 percent of the cost of extending the benefits (the extra 2 percent covers administrative costs).

 

The federal COBRA plan applies to all companies with more than 20 employees. However, many states have similar laws that pertain to much smaller companies, so even if your company is exempt from federal insurance laws, you may still have to extend benefits under certain circumstances. Contact the U.S. Department of Labor to determine whether your company must offer COBRA or similar benefits, and the rules for doing so.

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Giving unwanted benefits.
A work force composed largely of young, single people doesn’t need life insurance. How to know what benefits employees value? You can survey employees and have them rank benefits in terms of desirability. Typically, medical and financial benefits, such as retirement plans, appeal to the broadest crosssection of workers.

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A traditional indemnity plan, or fee for service.
Employees choose their medical care provider; the insurance company either pays the provider directly or reimburses employees for covered amounts.

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Managed care.
The two most common forms of managed care are the Health Maintenance Organization (HMO) and the Preferred Provider Organization (PPO). An HMO is essentially a prepaid health-care arrangement, where employees must use doctors employed by or under contract to the HMO and hospitals approved by the HMO. Under a PPO, the insurance company negotiates discounts with the physicians and the hospitals. Employees choose doctors from an approved list, then usually pay a set amount per office visit (typically $10 to $25); the insurance company pays the rest.

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Self-insurance.
When you absorb all or a significant portion of a risk, you are essentially self-insuring. An outside company usually handles the paperwork, you pay the claims, and sometimes employees help pay premiums. The benefits include greater control of the plan design, customized reporting procedures and cash-flow advantages. The drawback is that you are liable for claims, but you can limit liability with “stop loss” insurance—if a claim exceeds a certain dollar amount, the insurance company pays it.

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Health savings accounts.
HSAs allow workers with high-deductible health insurance to make pretax contributions to cover health-care costs. A high-deductible plan is one that has at least a $3,050 annual deductible for self-only coverage and a $6,150 deductible for family coverage in 2010. Furthermore, annual out-of-pocket costs paid under the plan must be limited to $5,950 for individuals and $11,900 for families.

Employer contributions to HSAs are tax deductible, excludable from gross income, and are not subject to employment taxes. Employees can use these tax-free withdrawals to pay for most medical expenses not covered by the high-deductible plan.