One of our small business customers had experienced several years of financial hardship and since they had cut back on employee medical insurance contributions, saw employee enrollment in the company program fall to just below 50%. They came to us indicating they wanted to cancel the group medical plan and simply bump all employee’s paycheck’s by $350 per month, letting them decide whether and how to obtain their own insurance coverage.
We explained to them that although we understood their financial situation, the $350 “stipend” was not a good idea. We explained that the stipend would be taxable to the employee and that many employees may be tempted to pocket the extra cash and not obtain any medical coverage. This would defeat the purpose of offering the stipend in lieu of a group health plan.
Instead, we recommended that the employer establish a Health Reimbursement Arrangement (HRA) and then deposit $350 in each employee’s account on a monthly basis. For small businesses (those with less than 50 employees), the HRA offers the flexibility of a stipend without the tax consequences. Additionally, the HRA only reimburses an employee for qualified health insurance and medical expenses, which accomplishes the employer’s objective of providing money for employees to use for their health and well being.
We also indicated to the employer that if they went with this arrangement, we would set up individual appointments with each employee to review their insurance needs and provide guidance and information on individual coverage, if needed.
The employer liked our ideas and implemented the program as we presented it. The employees loved the idea and nearly 80% of the population utilized the contributions toward the purchase individual medical insurance plans, which our staff provided to them.
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