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April 05, 2017
Increased Cost-Sharing Makes Voluntary Benefits More Attractive

The Kaiser Family Foundation (KFF) reports relatively modest average increases—3% (2016) and 4% (2015)—in the cost of employer-sponsored health insurance premiums for family coverage. These limited premium hikes represent a significant slowdown in increase rates over the last decade or two.

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Are your employees dropping by to thank you?

We didn’t think so. While overall increases have slowed, premiums remain (for the aforementioned average family) at about $18,000 per year—a significant chunk of change. At the same time, medical expenses are taking a bigger bite out of the family budget in other ways.

 In fact, a primary reason for the slower premium increases seems to be cost-shifting. Employees today are responsible for bigger deductibles, copays, and coinsurance than ever before.

KFF President and CEO Drew Altman makes it clear: “We’re seeing premiums rising at historically slow rates, which helps workers and employers alike, but it’s made possible in part by the more rapid rise in the deductibles workers must pay.”

The cost increases are causing financial problems for American workers, says KFF. More notable statistics they report:

  • 43% of adults with health insurance report having difficulty affording their health insurance deductible, and about 1/3 say the same about their premiums and other cost-sharing.
  • 29% of Americans say they have trouble paying their medical bills, a situation that for 73% of them means they have had to cut back on food, clothing, or basic household items.
  • 27% said they have postponed needed health care, 23% have skipped a recommended medical test or procedure, and 21% reported leaving a prescription unfilled.

Time to find creative options

As national leaders debate ways to tackle health care troubles, employers may need to get creative in helping employees afford the health care they need. One way they can do that is by offering supplemental benefits.

These benefits, which may be paid completely by the employee, can help fill some of the gaps that open as employer-sponsored insurance coverage shrinks. Available products run the gamut from disease-specific policies, covering cancer, heart disease and stroke, to policies that pay when someone visits the emergency room or goes to the doctor.

For many employees, a typical $1,500 deductible would cause an extreme financial hardship. In fact, KFF found that 45% of Americans would find it difficult to pay an unexpected medical bill of $500. Some companies pair their High Deductible Health Plans with Health Savings Accounts, allowing employees to save money pre-tax to cover their deductible and other out-of-pocket medical costs. However, there is no guarantee that employees will take advantage of the opportunity to save for the unexpected.

A supplemental medical insurance policy could help fill the gap. When the employee experiences a covered event, the insurance company sends a check directly to the employee, who can then use it to pay for the medical services or anything else she or he decides is important.

Safe harbor allows ERISA avoidance

When handled properly, voluntary benefits are not covered by ERISA, the federal law governing qualified employee benefit plans. However, when things are not handled in accordance with stringent safe harbor rules, they may inadvertently become ERISA plans. ERISA coverage brings with it a long list of requirements, like annual reporting, participant notices and more. Add to those the possibility of lawsuits brought by an employee against a well-meaning employer.

The safe harbor requirements are strict, but the list is short. The plan must be completely voluntary for the employees; premiums must come only from the employees—no employer contributions allowed; the company must not endorse the plan; and any monies that come back to the employer because of the plan must be limited only to reasonable reimbursements arising from the collection and payment of premiums.

Unintentional endorsement spells trouble

If the plan is used to help employees fill gaps in their coverage, such as a high deductible, it can be difficult to find the line between providing the benefit and endorsing it. David M. Pixley, an attorney at Graydon, writes and advises clients on the subject and agreed to weigh in on how to walk that line. Unintentional endorsement of a voluntary benefit program, he said, is often behind a safe harbor violation.

There are a number of ways an employer may unintentionally endorse a voluntary program that is otherwise exempt from ERISA. “These may include selecting the benefit provider or insurer, negotiating the terms on behalf of employees, limiting coverage to certain employees, and helping employees make claims for benefits,” Pixley says.

Employers may publicize the availability of the programs, but they should do so with caution, according to Pixley: “Employers that publicize information about voluntary benefit plans should consider limiting the contents of such publications. It’s important for employers to be cognizant of the difference between educating employees about the availability of a voluntary benefit program from encouraging participation in it.

“An employer looking to keep a voluntary plan or program exempt from ERISA should limit the information it provides to employees to what is necessary to inform employees about the availability of a particular benefit or program without endorsing it. Because for purposes of ERISA, when you endorse it, you own it.”

Keep it completely voluntary

Because avoiding ERISA coverage also depends upon keeping the plan completely voluntary and employee-paid, some employers may try to help with the cost by allowing either pre-tax payments or by simply increasing pay to cover the costs. Either of these strategies could be problematic.

If premiums for a fixed indemnity plan are paid using a pre-tax Section 125 plan, Pixley wrote in a post at www.graydon.law that payments from the plan would then be included in the employee’s income and would therefore be taxable. “Employers cannot make any contribution toward the cost of the plan in order for the plan to be voluntary,” Pixley said. “However, employers may pay employees more in lieu of making a contribution towards the cost of plan coverage, but such amounts would be additional taxable compensation. 

"If an employer increases an employee’s salary, it cannot dictate that such increase be used to fund coverage under a particular benefit program nor should it only give the increase to those who actually enroll in the plan because such actions may be seen by the DOL as making a contribution.”

If you are seeking ways to help employees offset the increasing costs of their health care, a voluntary program is worthy of consideration. Just be sure to consult with an expert and learn how you can make it work for your particular company and employees.

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