The Step-by-Step Guide to PREMIUM REIMBURSEMENT How to Save 20% to 60% by Reimbursing Employees for Individual Health Insurance
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The Step-by-Step Guide to
PREMIUM REIMBURSEMENT How to Save 20% to 60% by Reimbursing Employees for Individual Health Insurance
STEP-BY-STEP GUIDE TO PREMIUM REIMBURSEMENT
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What is Zane Benefits?
Zane Benefits is the leader in individual health insurance reimbursement for small businesses. Since
2006, Zane Benefits has been on a mission to bring the benefits of individual health insurance to
business owners and their employees.
Zane Benefits' software helps businesses reimburse employees for individual health insurance plans
for annual savings of 20 to 60 percent compared with traditional employer-provided health
insurance. Today, over 20,000 customers use Zane Benefits' software, services, and support to
reimburse individual health insurance plans purchased independent of employment.
Zane Benefits' software has been featured on the front-page of The Wall Street Journal, USA Today,
and The New York Times. Zane Benefits was founded in 2006 and is based in Salt Lake City, Utah.
Zane Benefits' Partner Program is an opportunity for insurance professionals to provide clients with
custom Zane Benefits solutions. >> Request a Partner Evaluation.
DISCLAIMER The information provided herein by Zane Benefits is general in nature and should not be relied on for commercial decisions without conducting independent review and analysis and discussing alternatives with legal, accounting, and insurance advisors. Furthermore, health insurance regulations differ in each state; information provided does not apply to any specific U.S. state except where noted. See a licensed agent for detailed information on your state. www.zanebenefits.com
STEP-BY-STEP GUIDE TO PREMIUM REIMBURSEMENT
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The Step-by-Step Guide to
PREMIUM REIMBURSEMENT How to Save 20% to 60% by Reimbursing Employees for Individual Health Insurance
Introduction
In the past, group health insurance was “the
way” to provide quality health benefits to
employees. Today, group health insurance is a
source of frustration because of declining
benefits and increased costs.
Small and medium sized businesses are
canceling group plans because they have
become too expensive. Others are canceling
group plans because employees can now
purchase better and less expensive coverage
on the individual health insurance market.
In fact, it’s estimated that by 2025 less than
20% of employees will receive group health
insurance coverage through work (source).
But this doesn’t mean businesses are canceling
health benefits altogether. Businesses need the
same quality of benefits, but with controllable
costs.
The solution: Cancel group health insurance
and reimburse employees for individual health
insurance premiums.
TH
E P
RO
BL
EM
Small businesses want to offer health benefits...
But traditional group health insurance is
unaffordable.
TH
E S
OL
UT
ION
Cancel group health insurance, and...
Save 20% to 60% by reimbursing employees
for individual health insurance.
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About this Step-by-Step Guide
This guide outlines three simple steps to set up a Premium Reimbursement Program.
Step 1: Cancel Your Group Health Insurance Plan / pg. 5
Step 2: Set Up a Formal Premium Reimbursement Program / pg. 7
Step 3: Educate Employees / pg. 10
Appendix: The Cost of Group vs. Individual Health Insurance / pg. 14
Conclusion & Resources / pg. 17
Why Individual Health Insurance?
On average, individual health insurance
premiums cost up to 60% less than group
health insurance premiums. (See Appendix for a
national analysis.)
Additionally, individual health insurance has
new advantages including:
Choice
Portability
Guaranteed-Issue
Health Insurance Tax Credits
What is Premium Reimbursement?
The concept is simple. With a Premium
Reimbursement Program, the business offers
employees a monthly healthcare allowance to
use on individual health insurance – instead of
contributing to a group health insurance plan.
Employees purchase their own health plan, and
are reimbursed up to the amount available in
their balance.
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Step 1:
Cancel Group
Health Insurance
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Step 1: Cancel Group Health Insurance
If you offer a group health insurance plan, the first step is to cancel the policy. If you don’t offer a group
health insurance plan, skip to Step 2 on page 7.
To cancel your policy, call a customer representative with the insurance company to confirm the exact
steps required to cancel your policy. Your health insurance agent or broker will be able to assist you,
however your business needs to call your insurance company directly.
You Can Cancel Any Time
Most group health insurance plans are "unilateral contracts". This means you can cancel
a policy at any point during the year. While most carriers “request” 30 days notice, this is
not always required.
Employees Will Be Eligible for a “Special Enrollment Period”
When you cancel your group policy, all those covered will be eligible for a special
enrollment period for individual health insurance. This means they’re eligible to
purchase individual health insurance outside of the annual open enrollment period (ex:
November 15, 2014 to February 15, 2015).
Employees Will be Eligible for Health Insurance Discounts
When you cancel your group policy, you are giving eligible employees, and their families,
access to the premium tax credits (federal discounts on individual health insurance).
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Step 2:
Set Up a Premium Reimbursement Program
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With Premium Reimbursement, the business only reimburses employees for eligible premium expenses, up
to the amount of their healthcare allowance.
Without annual renewal increases or minimum contribution amounts, the business is free to set and
control all costs!
Step 2: Set Up a Premium Reimbursement Program
To set up a Premium Reimbursement Program:
Define Your Budget. Decide how much you will contribute to employees’ health insurance
expenses. You can provide the same contribution (“allowance”) to all employees, or offer a
different allowance amount by class of employee and/or family status.
Set up a Formal Premium Reimbursement Program. Work with a Premium Reimbursement
Software Provider to set up a formal plan. You’ll have two options:
1. Taxable Health Care Allowance - With this approach, you’ll
reimburse employees for their substantiated personal
health insurance costs on a post-tax basis.
2. Tax-free Healthcare Reimbursement Plan (HRP) - With this
approach, you’ll use a Section 105 Medical Reimbursement
Plan to reimburse employees for their substantiated
individual health insurance costs on a pre-tax basis. This type of plan is sometimes called a
Healthcare Reimbursement Plan (HRP), and this type of plan must be designed to comply
with the Affordable Care Act's Market Reforms.
Reimburse Employees on Payroll. Employees purchase individual health insurance policies
with their own money and submit a reimbursement request. The business reimburses
employees on payroll.
On the Next Page:
5 Tips for Setting Up a Premium
Reimbursement Program
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Five Tips For Setting up a Premium Reimbursement Program
1. Set up a formal Premium Reimbursement Plan. Some businesses consider
giving employees taxable raises or bonuses with the hope that employees
will use it on health insurance. However, this usually causes more
headaches than it's worth. See: 4 Pitfalls of Increasing Wages for Health
Insurance.
2. Use Reimbursement Software to set up a compliant plan, to make
administration easy, and to provide tools to educate employees.
3. Work with a health insurance broker or agent to help employees select
plans.
4. Understand the compliance requirements with the IRS, ERISA, HIPAA,
ACA, and other applicable rules. This includes not getting involved with the
selection or purchase of employees' individual health insurance policies. To
make sure your plan is compliant, and to make compliance easy, use a
Reimbursement Software Provider.
5. Take time to educate employees about the reimbursement program and
about the advantages of individual health insurance (more on this in Step 3).
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Step 3:
Educate Employees
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Step 3: Educate Employees
The last step is to educate employees about how individual health insurance and premium
reimbursement works, and how it benefits employees and their families.
Educate Employees About…
How the premium reimbursement program works
Why the business has decided to offer health benefits in this way (remember, it is better for
them too!)
The benefits of individual health insurance such as plan choice, flexibility, and cost-savings
How to purchase individual health insurance for themselves and their family
How to request reimbursement for their premium expenses
Five Reasons Employees Value Premium Reimbursement Programs
Let’s look at these five employee benefits in detail…
#1: Access to the Best Health
Care
#2: Coverage for
All Employees
#3: Access to
Health Insurance Tax
Credits
#5: Predictable
Costs for Employees
#4: Easy to
Understand
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#1: Access to the Best Health Care
Because employees choose which individual health insurance
policy to purchase with their allowance, they can pick the
health coverage that best meets their needs.
All employees are different, and employees say they no longer
want a one-size fits all health insurance plan. Rather, they
want health plan options to customize their benefits.
With their healthcare allowances, employees select:
Any type of plan, from any insurance carrier
The network of providers and doctors they want to see
The coverage level they want (the deductibles, co-pays, co-insurance, etc.)
Tip: Because some employees may not be comfortable selecting an individual health insurance policy
on their own, designate an insurance professional to help each employee select the right plan. This
also shows employees you care about them and want to improve their health benefits.
How does individual health insurance work? See this guide:
The Ultimate Guide to Individual Health Insurance
#2: Coverage for All Employees
All employees (regardless of health conditions) are now able to
purchase an individual health insurance policy that is equal or better
for them than existing group health insurance options.
“61% of employees report
that being able to customize
benefits would increase their
loyalty.”
~ MetLife 2013 Study of Employee Benefit Trends
benefittrends.metlife.com
As of 2014, All
Individual Health
Insurance Plans
are Guaranteed-
Issue
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#3: Access to Health Insurance Tax Credits
Employees can use their health insurance allowance to purchase
policies from the new Health Insurance Marketplaces. This gives
employees access to federal health insurance tax credits to lower
the cost of their premium. Eligibility for the tax credits is based on
income and household size. Households with income up to 400%
above the federal poverty line (FPL) are eligible (up to $46,680 for
an individual in 2014, or $95,400 for a family of four in 2014).
#4: Predictable Costs for Employees
Employees have a clear budget to spend on health insurance. Individual plans are, on average, 20-60%
less expensive than the same group coverage and rates cannot change each year because of a medical
condition. See the Appendix (page 14) for a closer look at the cost of group vs. individual health insurance.
#5: Easy to Understand & Use
Lastly, employees value health benefits that are
easy to understand, and easy to use. Similar to the
transition from pensions to 401(k) retirement
plans, premium reimbursement requires employees
to take more control of their health benefits.
Premium Reimbursement Software provides
employees easy 24/7 access through an online
portal where they can see benefit information and
submit reimbursement requests (“claims”).
Employees are only
eligible for tax
credits if your
business does not
offer group health
insurance.
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Appendix:
The Cost of Health Insurance
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Appendix: The Cost of Group vs. Individual Health Insurance
One of the primary reasons so many businesses are canceling group health insurance in favor of
individual health insurance and Premium Reimbursement Programs is that individual health insurance
costs less.
The following U.S. maps show a state-by-state cost-comparison of average individual health insurance
premiums (offered through the federally-run Individual Health Insurance Marketplace in 2014),
compared to average group health insurance premiums (2012).
In all states using the federally-run Marketplace (healthcare.gov), individual health insurance policies
are less expensive than group health insurance even before one takes into account the health insurance
tax credits. As the maps below show, this holds true across Bronze (lower-coverage), Silver (mid-
coverage), and Gold (higher-coverage) individual health plans.
Bronze Level Plans
In a majority of states,
Bronze level individual
health premiums cost
40%-60% less than group
health premiums.
About the Data Individual Marketplace Rates: Data was derived from CMS data available for the states using the Federal Health Insurance
Marketplace. Rates were based on a 40-year old, non-smoker. Sources: “QHP Landscape Individual Market Medical” and “QHP Landscape SHOP Market Medical” datasets (https://data.healthcare.gov/).
Group Health Insurance Rates: Data was derived from the Kaiser Family Foundation. Rates are state averages from 2012, single coverage. Source: Average Single Premium per Enrolled Employee For Employer-Based Health Insurance (http://kff.org/other/state-indicator/single-coverage).
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Silver Level Plans
In a majority of the states,
Silver level individual
health premiums cost 20%-
40% less than group health
premiums.
Gold Level Plans
In a majority of the states,
Gold level individual health
premiums cost 20%-40%
less than group health
premiums.
In no states do Gold level
individual health premiums
cost more than group
health premiums.
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Conclusion & Resources
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Conclusion
To summarize, here are the three simple steps to save 20%-60% by reimbursing employees for
individual health insurance:
Step 1: Cancel your group health insurance plan (if you have one)
Step 2: Set up a Premium Reimbursement Program (work with your broker and/or a
Premium Reimbursement Software Provider)
Step 3: Educate employees (and start seeing the savings!)
Offer Affordable Health Benefits
The new, more affordable way to offer an employee health benefit is by reimbursing employees’
individual health insurance premium expenses. Employees pick the plan that best fits their needs,
including the doctor, keep the plan for as long as they want, and save money.
By reimbursing individual health insurance, your business is able to offer excellent health benefits at a
controllable cost.
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Additional Health Benefits Resources
Subscribe to our Blog! Daily Updates on Health
Benefits, Health Reform, HR, and Premium Reimbursement.
www.zanebenefits.com/blog
View our Library of Free Resources at: www.zanebenefits.com/resources
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What is Zane Benefits?
Zane Benefits is the leader in individual health insurance reimbursement for small businesses. Since
2006, Zane Benefits has been on a mission to bring the benefits of individual health insurance to
business owners and their employees.
Zane Benefits' software helps businesses reimburse employees for individual health insurance plans
for annual savings of 20 to 60 percent compared with traditional employer-provided health
insurance. Today, over 20,000 customers use Zane Benefits' software, services, and support to
reimburse individual health insurance plans purchased independent of employment.
Zane Benefits' software has been featured on the front-page of The Wall Street Journal, USA Today,
and The New York Times. Zane Benefits was founded in 2006 and is based in Salt Lake City, Utah.
Zane Benefits' Partner Program is an opportunity for insurance professionals to provide clients with
custom Zane Benefits solutions. >> Request a Partner Evaluation.
Like Us on Facebook
Follow us on Twitter
Join our Defined Contribution Group
Watch our videos on YouTube
DISCLAIMER The information provided herein by Zane Benefits is general in nature and should not be relied on for commercial decisions without conducting independent review and analysis and discussing alternatives with legal, accounting, and insurance advisors. Furthermore, health insurance regulations differ in each state; information provided does not apply to any specific U.S. state except where noted. See a licensed agent for detailed information on your state. www.zanebenefits.com [April 6, 2015]
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