Business owners are trying just about any strategy they can to deal with the increased expenses of providing health-care coverage for employees.
Rising premiums and larger deductibles are taking money from both employers and their workers, forcing some companies to reduce coverage or to cut it altogether.
But employers can find savings if they look beyond their insurance plans alone. Section 105 of the federal tax code provides the framework for Employer Welfare Benefit Programs that business owners can use to trim their taxes, lower their premiums and put money back into the pockets of employees—without switching plans.
An Employee Welfare Benefit Program defined-benefits overlay plan increases pre-tax deductions that employees can take based on actual medical costs, by adhering to IRS tax codes that date back to the 1940s. As a self-funded defined benefit plan, it also reduces the employer’s tax liability and puts tax-exempt income back in employees’ pockets.
On average, participants with qualified Employee Welfare Benefit Program plans report $300 to $500 in tax savings per employee, and overall cost reductions of 10 percent to 40 percent in six months. Employees are reimbursed 75 percent of their deductibles and expenses, and there is no net cost to the employer.
Employers who are pleased with current plans or agent relationships can keep them in place, but still pay less while also providing more benefits to their employees. Participation in an Employee Welfare Benefit Program plan is voluntary for employees, but workers that do partake can build up a pool of money that they can use to pay qualified deductibles and medical expenses.
As a business owner, with an Employee Welfare Benefit Program plan, you can:
- Pay up to 40 percent less in premiums;
- Save $400 per employee per year in Federal Insurance Contributions Act (FICA)/ Payroll taxes;
- Eliminate the burden of high deductibles and co-pays on your employees;
- Increase take-home pay for most employees without taking it from your pocket;
- Receive a reimbursement of $20 per employee each month for payroll processing costs;
- And, depending on the state, reduce workers’ compensation rates by as much as 25 percent as well.
If you are considering an Employee Welfare Benefit Program plan, confirm that it is compliant before committing. It must be properly designed to comply with regulations found in the Affordable Care Act (ACA), the federal Health Insurance Portability and Accountability Act (HIPAA) and the Employee Retirement Income Security Act (ERISA).
Calculate your potential savings as well. You can do so by sharing a payroll run, an insurance invoice and a copy of your health plan with the representative of the Employee Welfare Benefit Program plan provider.
In doing so, you may find that an Employee Welfare Benefit Program plan may be a strategy worth pursuing as health-care mandates evolve and associated costs rise.
Brian Bibb is a leading financial expert serving small to mid-size businesses in the Southeast. He founded Bibb Financial Services in 2002 to deliver little known and hard-to-find benefit solutions to businesses, corporations, municipalities, and sole proprietors. . Today, Brian Bibb and his firm represent The Total Financial Group and the Classic 105 program in the North Florida and South Georgia region.
How S&W Concrete uses the Employee Welfare Benefit Program
The implementation of the Affordable Care Act (ACA) has prompted businesses to seek ways to save money and maximize benefits for employers.
One 100-employee group, S&W Concrete, has used an Employer Welfare Benefit Program based on Section 105 of the federal tax code to do so.
The company created a $1.9 million Employee Tax Free Medical Expense Reimbursement Account that produced annual net savings of $47,650 for the company and generated an $180,000 annual after-tax payroll increase for employees.
Section 105 allows employees to maximize their medical expense reimbursement accounts by using national averages for health-care costs ($1,150 per month for single employees and $1,850 per month for married employees). Funds purchase a medical prepaid certificate annually (of $12,000 for a single employee and $19,2000 for a married employee) and 75 percent of each explanation of reimbursements are reimbursed.
Expenses that are eligible for reimbursement include deductibles, co-pays and other qualified expenses not paid by insurance. Employers do not have to change insurance plans.
An employer also can reduce its matches of employee-related expenses under the Federal Insurance Contributions Act (FICA) by contributing towards medical certificates for employees. S&W Concrete saved $365 per year for each single employee and $588 per year for each married employee by doing so.
Employers are eligible for additional Internal Revenue Service deductions as well. All told, Employer Welfare Benefit Programs can:
- Reduce current plan premiums by as much as 40 percent
- Reduce FICA tax exposure by an average of $400 per employee annually
- Create a benefit for employees that helps reimburse them for their out-of-pocket medical expenses
- Increase employees’ net take home pay without any costs to the employer.
- Be implemented with no additional costs.
Employee Welfare Benefit Programs have been vetted by several of the nation’s largest Employee Retirement Income Security Act law firms and are fully compliant with IRS, Health Insurance Portability and Accountability Act (HIPAA), and ACA regulations.
You can earn more about Employee Welfare Benefit Programs and S&W Concrete’s use of one by watching this webinar presented by Advantage and Total Financial Group: