Fully Insured Vs. Self-Funded
If you choose a fully insured Affordable Care Act (ACA) compliant plan, it must provide coverage for 10 “Essential Health Benefits” (EHBs):
- Ambulatory patient services (outpatient care you can get without being admitted to a hospital)
- Emergency services
- Hospitalization (including surgery and overnight stays)
- Pregnancy, maternity, and newborn services
- Mental health and substance use disorder services (including behavioral health treatment, counseling, and psychotherapy)
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care (Adult Dental and Vision coverage are not EHBs)
Where you get coverage or what type of plan you and your employees select isn’t a factor. All ACA-compliant plans must include these benefits.
With a fully insured health plan, the risks fall primarily on the insurer, since it’s responsible for the payment of all claims.
Typically, in a group health plan, the employer and participating employees share the annual premium cost. Some businesses may pay more toward their employee premiums, but usually, employers pay at least half of the cost. The 2021 benchmark study by the Kaiser Family Foundation (KFF) found, “On average, covered workers contribute 17% of the premium for single coverage and 28% of the premium for family coverage.”
An insurer or other organization may be responsible for the administration of a health plan that is self-funded. The risks are on the employer in the event of a catastrophic claim. This can sometimes work well for larger employers but may not be the best choice for smaller businesses. Of course, an employer can choose to partially self-fund employees’ health coverage, while limiting the risk with stop-loss insurance.
A third option is a Level-Funded Health Plan, which can be a more affordable alternative. The Society for Human Resource Management (SHRM) published an article on level funding in 2021; it may be helpful if you’re unsure of whether self-funding is something you want to consider for your business.
Depending on the source for your group’s health coverage, employees may have access to different kinds of plans, including:
- HMO (Health Maintenance Organization) plans: An HMO is a health plan where the insured selects a Primary Care Physician (PCP) to help manage a patient’s care in the HMO’s network of doctors, hospitals, and specialists. Patients are required to get approval from the PCP to visit a specialist. Treatment is generally not available outside of the HMO network, except in emergency cases. Premiums for an HMO are typically lower than for other plans.
- PPO (Preferred Provider Organization) plans: A PPO offers its members more flexibility, although at a higher premium. A patient is, generally, able to go directly to an in-network doctor, specialist, or hospital without a referral, and care within the network is offered at pre-negotiated, discount rates. PPO members also have the freedom to go to providers outside of the PPO network, although with higher out-of-pocket costs.
- EPO (Exclusive Provider Organization) plans: An EPO is often described as a sort of a hybrid plan that offers both HMO and PPO benefits. Like an HMO, you need to get your health care through a doctor, specialist, or hospital that is part of the EPO network. Like with a PPO, you are likely able to go to a specialist (without a referral) as long as the provider is in-network. EPO premiums are greater than HMO premiums; however, they typically are less than PPO premiums.
A High Deductible Health Plan (HDHP), which can be an HMO, EPO, or PPO, may offer a lower monthly premium; however, the insured has to pay more health care costs upfront before the plan begins to pay its share. An HDHP can often be combined with a Health Savings Account (HSA), which gives insured persons the ability to pay for qualified medical expenses with funds free of federal taxes.
The limits established by the Internal Revenue Service (IRS) for 2022 define an HDHP as one with a deductible of at least $1,400 for an individual or $2,800 for a family. Total annual out-of-pocket costs (deductibles, copayments, and coinsurance) cannot exceed $7,050 for an individual or $14,100 for a family. These limits do not apply to out-of-network services.
Employees Value Benefits
According to multiple surveys, including MetLife’s 19th Annual U.S. Employee Benefits Trends Study 2021, workers value employee benefits. MetLife found 85% of employees see health insurance as a “must have” benefit – and another 10% view it as “nice to have.” Just four percent view health insurance as not needed. Employees in other surveys have expressed similar views in the past several years. And, of course, the COVID-19 pandemic has prompted some employers to reevaluate benefits as part of their talent attraction and retention strategy.
Depending on the programs you’re considering for your employees, you might want to look beyond health insurance benefits. Many insurers and exchanges, like the CaliforniaChoice multi-carrier, employee-choice exchange, offer value-added benefits that could tip the scale in their favor. For example, in addition to increased cost control, CaliforniaChoice gives you the opportunity to add optional benefits for Dental, Vision, Chiropractic, and Life. You and your employees also get no-extra-cost benefits through the Business Solutions Suite and the Member Value Suite.
Shop and Compare with Help from a Broker
If you want to know more about the employee benefits available to you, your business, and your employees, a great place to start is to talk with your broker. If you do not currently have an employee benefits broker, we can help you find one who can provide a custom quote for your business. Contrary to what you might think, broker services are available at no cost to you.
In case you missed it, the California legislature’s sixth attempt to pass single-payer legislature died on January 31, 2022. As proposed, Assembly Bill 1400 (AB 1400) would have eliminated health care in California as it is known today.
AB 1400 aims to establish a single-payer, government-run system known as “CalCare.” It would affect health care services for all residents in the state. Had it moved forward, the State Assembly, State Senate, and governor would need to give final approval.
The funding to support AB 1400 also require approval by the legislature, governor, as well as voters. The proposed funding would come through a state constitutional amendment.
Under AB 1400, the following programs in California would be eliminated:
- All existing individual and group health insurance, including employer-sponsored coverage
- Medicare Advantage
- Medi-Cal (the state’s Medicaid health care program)
- CHIP (the federal government’s Children’s Health Insurance Program)
- TRICARE (health care for uniformed service members, retirees, and dependents)
- Long Term Care plans
- Covered California (Individual and Small Business plans + Premium Tax Credits)
Covered services under AB 1400 and CalCare generally include:
- All traditional medical services
- Dietary and nutritional therapies
- Dental care
- Chiropractic care
- Vision services
- Prescription drugs
- Necessary transportation for health care or long-term care
- Rehabilitative services
- Mental health treatment
- Skilling nursing substance use treatment
- Additional services authorized by the CalCare Board of Directors (nine unelected, government-appointed individuals)
Costs for Single-Payer
Estimates for Single-Payer in California exceed $400 billion annually. That’s nearly 50% more than the 2022-2023 state budget of $285+ billion. The proposed funding source is new taxes on businesses, employees, and individuals. Additional funding would come from the federal government, including funds currently reserved for these existing programs in California: Medicare, Medicaid (Medi-Cal), CHIP, and subsidies for Individual plans purchased through Covered California.
The Assembly Constitutional Amendment 11 (ACA 11), if approved by voters as a companion measure to AB 1400, imposes new excise taxes, payroll taxes, and State Personal Income CalCare tax as follows:
- Gross Receipts Tax: Annual excise tax of 2.3% of gross income above $2 million for all qualified businesses in California (gross income, not profit)
- Payroll Taxes – Employer Share: Employers with 50 or more employees pay 1.25% of payroll tax on wages and other compensation of employees
- Payroll Taxes – Employee Share: Employees earning more than $49,900 in wages or compensation pay 1% payroll tax
- Income Tax: 1.45%+, on a sliding scale for higher-income earners, as an added personal income tax
Roles for Insurers, Employers
Generally, insurance companies and employers would have no role in delivering health insurance. The Single-Payer legislation shifts responsibility to a new state bureaucracy. Coverage for dental, vision, and chiropractic or acupuncture would also be part of CalCare.
That means no plan choices made by the employer or individuals. Coverage would be the same for all Californians. The role of brokers also goes away with a Single-Payer program.
Role of Physicians, Care Networks
If AB 1400 became law, all physicians in the state would work exclusively through CalCare. The state would also fund hospitals. For example, Kaiser Permanente health care facilities and staff would instead work for the state.
Obstacles to Single-Payer Health Care
Even if AB 1400 was passed by the State Assembly, it required approval by the State Senate. Then the governor would need to sign for it to become law. The funding source also required approval through the proposed Assembly Constitutional Amendment 11. Thisneeds a two-thirds approval in the legislature as well as voter approval.
Leading up to the Assembly’s failure to pass the legislature by its January 31, 2022, deadline, getting Governor Gavin Newsom’s final approval was not a certainty.
Governor Newsom has an alternative plan to provide more Californians with access to care. He has proposed expanding Medi-Cal in California to more low-income adults regardless of citizen status. This would close the six percent “uninsured gap” and push the state toward 100% universal coverage. (Ninety-four percent of residents have access to health care through existing California programs and options.) The Newsom alternative proposal would cost taxpayers $2.2 billion annually. That compares to an anticipated $400 billion cost for CalCare.
Without funding through ACA 11, the Single Payer program set forth in AB 1400 could not have moved forward.
The Biden Administration generally does not favor Single Payer. Instead, it wants to build upon the existing successes of the Affordable Care Act (ACA). Approval and support by the White House would be an ongoing struggle. That is especially true as it relates to future presidential administrations. The ACA 11 proposal assumes the federal government would provide waivers to California, allowing the state to use existing federal funds for Medicare, Medicaid, and other programs for the new California initiative.
Another potential obstacle to AB 1400 (or future, similar legislation) is federal pre-emption. More than 4.6 million Californians are covered through self-funded or union plans managed by ERISA. The federal Employee Retirement Income Security Act sets minimum standards for voluntary health plans in private industry. The latest Single Payer legislation did not define how Californians covered by those plans would be regulated.
Also not addressed in AB 1400 were Proposition 98 and the Gann Limit (Proposition 4). Passed by California voters in 1988, Prop 98 establishes a guaranteed minimum level of funding for public schools and community colleges. Prop 4 limits growth of expenditures for publicly funded programs.
Universal Health Care vs. Medicare for All vs. Single Payer
There is often confusion when it comes to describing alternate, government approaches to health care. It goes by many names. Among them is “Universal Health Care,” which means everyone has access to, and is covered by, health insurance, regardless of how it is attained. That includes employer-sponsored or individual private health insurance, Medicare, Medi-Cal, CHIP, TRICARE, etc.
Universal Health Care can be achieved through actions like AB 1400. Or, it could be expanded at the federal level through the existing Medicare program for seniors and disabled Americans. Medicare, funded largely by payroll taxes, allows eligible persons to obtain low-cost or premium-free health coverage, while offering relatively inexpensive copays, deductibles, and coinsurance.
Other coverage in the Medicare program, such as doctor visits, outpatient care, prescription drugs, etc., can be purchased separately for relatively inexpensive premium payments. The current Medicare program is successful. However, it often has solvency issues. “Medicare for All” is a proposal to extend this program to all Americans – instead of only seniors and the disabled.
A “Single Payer” health care system is when only one system exists for all individuals and families to access, receive, and pay for health care. All other systems would cease to exist. This type of program can be enacted federally, across all 50 states, or it can be implemented by individual states. About a dozen U.S. states, including California, Colorado, and Vermont have attempted to create single-payer laws. All have largely stalled due to the costs.
While AB 1400 is now history, California legislators have tried six times to implement Single Payer or similar legislation. So, a similar effort could occur during a future legislative term. Whether those future efforts succeed, many questions remain:
- Could the state legislature really pass such a measure, if it couldn’t gain approval in 2021 when Democrats already have a super-majority in the state Assembly and Senate?
- Is it too ambitious to propose a system that eliminates all private and supplemental health insurance in California? Would it be better to make changes in stages?
- Do Californians really want a state-run agency in charge of their personal health?
- How would a move to Single Payer be funded?
- Would Californians favor a system where everyone’s coverage is the same? (In other countries with a government-run health program, critics say the wait for care is often too long.)
- What would the job losses be? A move to Single Payer would mean job cuts in many fields. It would affect brokers, insurance companies, hospitals, and many others.
- What jobs would a Single Payer system create? (Would they be enough to offset anticipated job losses?)
- If there were a move to “Medicare for All” at the federal level, would it overhaul the existing health care system? Or, would it continue to incorporate a role for employers, brokers, insurance companies, and doctors?
Talk With a Broker About Your Options Today
Health care is changing . . . and no one knows for sure what’s ahead. Right now, providing employees with health insurance and other employee benefits is a proven winner – and employer differentiator – for workers. The 2021 MetLife Annual Benefit Trends Study found 85% of employees put health insurance at the top of their “must-have” list. Another 10% say it is “nice-to-have.” If being able to attract and retain your most valued workers is important, employee benefits are important, too. To learn more about the potential benefits costs to your business, talk with a broker. If you don’t have a broker, you can search for one on the MyCalChoice website.
No doubt you’ve read – or experienced first-hand – the “Great Resignation” with millions of workers leaving their jobs in 2021 and 2022. It’s a phenomenon affecting private employers as well as state and local governments. (CNBC reported last month that around four million workers quit their jobs between July and November 2021.) However, in a competitive talent marketplace, employee benefits can make the difference.
Consider the following 11 reasons why you should offer employee benefits.
1. Employee retention
The right employee benefits package can help you keep your current employees. MetLife’s 19th Annual U.S. Employee Benefits Trends Study 2021 found nearly all employees put health insurance at the top of their benefits list. Ninety-five percent consider it a “must have” and another 10% say it’s a “nice to have” benefit.
2. Attract the most qualified employees
In today’s environment, employee benefits can help set you apart from other employers. You can tip the scale in your favor for recruits weighing multiple job offers. According to Fractl, when employees are choosing between a high-paying job and a lower-paying job with better benefits, a majority (88%) will give “some consideration” (34%) or “heavy consideration” (54%) to the firm offering better benefits.
3. Benefits boost employee satisfaction
The Society for Human Resource Management (SHRM) says benefits are big contributors to employees’ job satisfaction, year after year. The only compensation package items considered more important by a majority of employees are pay and paid time off.
4. The pandemic has increased the value and need to have health coverage
The COVID-19 pandemic has prompted many persons to reconsider what they view as important. Health insurance continues to rank high for employees and their families. Multiple employee surveys put health insurance among the most sought-after employee benefits.
5. Save money on your business taxes
Employers can generally deduct 100% of the cost of premiums paid for health insurance for employees and/or dependents. This applies to both federal and state income taxes.
6. Avoid paying Affordable Care Act (ACA) penalty for qualified employers
If you have 50 or more full-time employees, including full-time equivalents, you are subject to ACA’s Applicable Large Employer (ALE) guidelines. That means you are required to offer health insurance to qualified employees. If you do not offer coverage, you are subject to ACA penalties. (If you are not sure if your business is an ALE, visit the IRS website to learn more.) By offering coverage to at least 95% of full-time employees and their dependents, you can avoid ALE penalties. The 2022 “pay or play” penalty is $2,750 for each full-time employee minus the first 30. For example, an employer with 100 employees would be assessed $192,500 (100 – 30 = 70 x $2,750 = $192,000).
If coverage is not “affordable” by ACA standards, or your plan does not cover at least 60% of the total allowed cost of benefits under the plan, a penalty may also apply. Affordability comes into play if the premium is more than 9.61% of the employee’s annual household income for single-only coverage in 2022. Link to a 2021 article published by SHRM for details.
7. Get the small business health tax credit for qualified employers
Depending on your source for health insurance benefits for your business, you may qualify for the federal government’s Small Business Health Care Tax Credit. This could be worth up to 50% of the costs you pay for employees’ premiums (or 35% if your business is a non-profit).
To claim the Small Business Health Care Tax Credit as a California employer, you must enroll in a Small Business Health Options Program (SHOP) plan offered through Covered California, and:
- You must have fewer than 25 full-time equivalent (FTE) employees.
- Your average employee salary is about $56,000 per year or less.
- You pay at least 50% of your full-time employees’ premium costs.
- You offer SHOP coverage to all full-time employees. (To qualify for the tax credit, you do not have to offer coverage to dependents or employees working fewer than 30 hours per week.)
8. Protect the overall wellness of your employees with additional wellness programs
In addition to delivering outstanding health insurance to your employees, when you offer CaliforniaChoice, employees can take advantage of added wellness benefits. These are available through the ChooseHealthyTM program, with discounts of up to 57% on Garmin, Vitamix, and Fitbit products, fitness memberships for $25 a month plus additional benefits like Dental, Vision, Hearing Services, and more in the CaliforniaChoice Member Value Suite.
9. Build a healthy company culture
Offering a comprehensive benefits program shows your employees you value their well-being and their health. Moreover, healthier employees are more productive, which contributes positively to your company’s bottom line.
10. Help employees reduce their costs of health insurance
Comprehensive group health premiums are typically lower than individual health insurance premiums. That’s true even when employees are sharing the cost with their employers. Your decision to offer CaliforniaChoice (or another benefits program) means a lower insurance cost to your employees.
11. Tax break for employees
Employee benefits are not taxable to your employees. Because employees pay only a portion of their health insurance premiums (often at lower rates – as mentioned above), they save on their premiums, are able to pay their share with pre-tax dollars (with a Premium Only Plan), and have more funds left in their paychecks.
Talk With a Broker to Learn More
To find out more about the employee benefits available to your business and your employees, talk with a broker. If you don’t have a broker, we can help you find one who can provide you with a custom quote at no cost.
At CaliforniaChoice, we’re committed to educating small businesses on the options they have for employee benefits. Our free monthly webinar series tackles key focus areas and frequently asked questions so you can make an informed decision for your employees.
You’ll learn how you can:
- control your monthly costs
- expand options for employees
- streamline your benefits administration
The webinar series also take a look at why more small businesses in Califoria are choosing CaliforniaChoice. With our unique program you have:
- Budget Control: You determine your health care budget. Employees then use that amount toward the health plans they like best.
- Simplified Administration: Receive a single, consolidated monthly bill for everyone’s coverage.
- Coverage Diversity: Enjoy a wide selection of HMOs, PPOs, EPOs, and HSA-qualified coverage. Choose coverage offered by Anthem Blue Cross, Cigna + Oscar, Health Net, Kaiser Permanente, Sharp Health Plan, Sutter Health Plus, UnitedHealthcare, or Western Health Advantage.
- Extensive Provider Network: Access 80,000+ doctors and nearly 400 hospitals.
- Locked-in Rates: Your benefit rates are locked-in for 12 months. There are no increases for one year.
- Optional Benefits: Dental, Vision, Chiropractic, and Life benefits can be easily added.
- Free Discounts: Take advantage of discounts on Dental, Vision, and Hearing services, Rx, fitness center memberships, entertainment, and more.
- Free Services: Get HR Support, a Flexible Spending Account, COBRA administration, and a Premium Only Plan (initial case set at no charge).
Sign up for our upcoming webinar to learn more. It’s happening Wednesday, February 16, at 10 a.m.
If you would like to learn more about CaliforniaChoice by talking with a broker, we can help you find one.
Born and raised in California, CaliforniaChoice celebrates the fact that each of your employees is different – with their own unique needs. We embrace those differences because we, too, are different. Our program gives your employees the freedom to choose the health plan they want.
With a California Different Approach, We Make Health Care Simple
With CaliforniaChoice, you have the freedom to offer it all while staying focused on what’s important to you – your business. We’ve partnered with eight top health plans with a variety of HMO, PPO, EPO, and other benefits options to choose from – all at different price points so you can control costs.
Together with our health plan partners, we offer the greatest access to doctors, specialists, and hospitals in the state, in one program:
- Eight health plans: Anthem Blue Cross, Cigna + Oscar, Health Net, Kaiser Permanente, Sharp Health Plan, Sutter Health Plus, UnitedHealthcare, and Western Health Advantage
- 100+ HMO, PPO, EPO, and HSA-qualified options
- Full and limited networks
- Greater employer cost control with Defined Contribution
- Single source administration plus value-added extras
For example, one of your employees might choose a PPO because of a particular doctor in the network, while another employee looking for a low copay may select an HMO. A third employee might prefer a health plan serving only their community. Whatever your employees need, it’s their choice.
Smart Decision Technology
We also have tools to simplify the enrollment process, provide more information about each plan option, and support doctor selection. Our Smart Decision Technology helps your employees make informed decisions when they enroll.
Additional Benefits and Services
Dental, Vision, Chiropractic, and Life are also available to all businesses. Some benefits are optional while others are included at no additional costs as part of the CaliforniaChoice Member Value Suite.
The products and services in our Business Solutions Suite are also available to employers at no cost. They include:
- HR support with 24-hour access to an online database of downloadable forms, job descriptions, and Q&As for common HR issues
- Flexible Spending Accounts (FSAs) which allow employees to save on taxes by setting aside money on a pre-tax basis to pay for health care
- COBRA and Cal-COBRA related services based on group size
- Premium Only Plans (POP) to give employees the ability to increase take-home pay by using pre-tax dollars to pay their Medical and Dental premiums
Talk with your employee benefits broker to learn more. If you don’t have a broker, we’ll help you find one.
If you are considering Group Health Insurance for your employees, and you don’t offer insurance right now, you may not be aware that Health Insurance premiums for your employees are deductible on your company’s federal income taxes. There are other tax benefits to small business health insurance, too. Read on to learn more.
Premium Tax Deduction
In general, the premiums you pay for your employees’ health insurance (and their dependents, if you contribute to those premiums, too) are 100% deductible as an ordinary business expense. That applies to your business’s federal income taxes as well as your state income taxes.
If you are a sole proprietor, a partner in a partnership, part of a Limited Liability Company, or a shareholder with two percent or more of stock in an S corporation, you should consult with a tax advisor concerning the potential deductibility of health insurance premiums on your taxes.
Reduced Payroll Taxes
Your tax savings do not end with your premium contributions, though. If you offer your employees a Section 125/Premium Only Plan (POP), you can reduce your payroll taxes, while giving employees the ability to fund their premium contributions with pre-tax money. That means they could spend less on their health coverage than what they might pay when buying comparable health coverage on their own in the individual health insurance marketplace.
If your employees are enrolled in a High Deductible Health Plan (HDHP), when they take part in your POP, they can reduce their taxes further by contributing to a qualified Health Savings Account (HSA). The combination of an HDHP and POP can yield a total payroll deduction in the range of 25% to 40%.
If you contribute to your employees’ HSAs, you can also deduct those payments from your small business taxes at the state and federal level.
Option for HRAs
Some businesses may choose to offer Health Reimbursement Arrangements (HRAs) to workers as an alternative. Instead of funding a Group Health plan, you put aside funds to reimburse employees for the plans they purchase on their own. Your HRA contributions are tax deductible and your employees’ reimbursements are excluded from their gross income and are 100% tax-free. Your HRA contributions also reduce your FICA (Federal Insurance Contributions Act) and FUTA (Federal Unemployment Tax Act) payroll taxes.
Another option for small employers not offering Group Health coverage is to provide employee help through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). A QSEHRA allows employers with fewer than 50 employees to provide non-taxed reimbursement of certain health care expenses. Eligible expenses include health insurance premiums and coinsurance amounts if an employee purchases minimum essential coverage (including coverage purchased in the Individual Marketplace like the public exchange Covered California).
With a QSEHRA, the employer selects the amount contributed to employees’ health care costs, up to the annual maximum set by the IRS. For the 2022 tax year, small businesses can contribute up to $5,450 for self-only employee coverage ($454.16 per month) or $11,050 for family coverage ($920.83 per month).
Employees pay their health care provider or insurance company, and then submit proof of payment to be reimbursed by the QSEHRA. If an employee does not submit a claim, the employer keeps the money, though an employer may roll it over from year to year for as long as the employee is still employed by the business.
Added Potential Tax Savings
Offering paid sick leave to employees can give your business still another tax credit under provisions in the Consolidated Appropriations Act of 2021. Paid leave meeting certain conditions gives employers a general business tax credit of 12.5% to 25% of wages paid to qualifying employees. The credit applies to tax years 2021 through 2025. For more information on the requirements for the tax credit, visit the Mercer website.
Talk With a Broker to Learn More
Employee benefits are a proven winner – and employer differentiator – for workers. Last year’s MetLife Annual Benefit Trends Study found 85% of employees put health insurance at the top of their “must have” list. Another 10% say it is “nice to have.” If you want to learn more about the potential cost to your business for employee benefits – and the range of health insurance options available – talk with a broker. If you don’t have a broker, you can search for one on the MyCalChoice website.