Employees are typically one of the single biggest costs of doing business, and providing benefits for those employees represents a large—and growing—chunk of the cost. Healthcare costs, in particular, are rapidly rising; the cost of healthcare including premiums and out of pocket costs for employees and dependents is expected to average $14,300 per employee in 2019.
To combat this trend and save on expenses, while attempting to remain competitive in a tightening employment market, many small employers are closely examining their total benefits packages. Whether employers opt for more traditional or high deductible health plans as the centerpiece of their benefits packages, there are some other approaches that can help in simultaneously offering robust, attractive benefit packages and controlling costs.
Health Savings Accounts: FSA’s and HSA’s
Employers frequently use Flexible Spending Account (FSA), Health Savings Account (HSA), or variants to help manage the total cost of compensation.
Both plans are:
- Governed by formal plan documents
- Funded by salary reductions that must be elected annually prior to the calendar year for which they will be in effect
- Exempt the contribution amount from payroll taxes, federal income taxes and most state and local taxes
- Subject to annual contribution limits:
- FSA: $2,700 maximum contribution
- $3,500 maximum contribution for individuals
- $7,000 maximum contribution for families
- Additional $1,000 contribution for individuals 55 and over
Some key differences are outlined below:
In addition, there is a type of FSA known as a Limited Purpose FSA (LPFSA). LPFAs work like regular FSA, except that funds in these accounts can be used only for vision and dental coverage. Some employers choose to combine HSAs with LPFSAs to provide maximum flexibility for their employees.
Health Reimbursement Arrangements: HRAs
Under an HRA, employers commit to reimbursing a certain amount of health-related expenses per year. Key facts about HRAs:
- Governed by plan documents
- Funded entirely by the employer
- Exempt from payroll taxes, federal income taxes and most state and local taxes
- Subject to annual contributions specified in the prior calendar year
- Accumulate and remain available to the employee for the duration of employment
- Available to reimburse only types of expenses pre-designated by the employer in the plan
Health Management: Concierge Wellness Plans
In an effort to control costs and reduce productivity losses and downtime due to employee medical issues, some employers are initiating a proactive approach to wellness which actually provides direct access to specified medical services from licensed physicians. Traditional wellness plans allow employees to use certain designated services and then receive reimbursement from their employers. The IRS has issued at least two rulings that such reimbursements must be treated as part of employees’ taxable compensation. Under the concierge wellness model, however, employers pay a contractual rate directly to service providers. For tax purposes, this is treated like any other business expense and is generally fully deductible as such. Expenses associate with concierge wellness programs are not subject to payroll taxes. Additionally, concierge wellness programs do not interact at all with major medical insurance, so implementation will not lead to an increased usage record with resulting premium increases. Some providers of concierge wellness programs project that employers can save approximately $50,000 net annually per 100 employees who enroll.
GETTING STARTED: EVALUATING YOUR BEST OPTIONS
By their very nature, employee benefit programs are complicated and subject to several layers of regulation and compliance mandate. Fortunately, a number of reliable entities have pre-packaged fully compliant plans designed to meet the needs and goals of employers of various sizes. Your AKM CPA can help you formulate your objectives and explore the combination of health-related cafeteria benefits that can most readily help you achieve them. You are virtually certain to realize significant tax savings, while boosting employee productivity and satisfaction.