Guest Authors: Alyssa Bland and Dillon Castro
With over 35 years of expertise, Advanced Estate & Insurance Services, Inc. (AEIS) is ready to help you find real solutions to these questions and beyond for an easier, more complete benefits plan.
Although the US and Canada are close neighbors, any business that manages teams on both sides of the border can tell you that there are major differences when it comes to employee benefits.Fairly obvious among those is that the US does not have universal healthcare so employer-sponsored health insurance is vital for employers to attract and retain talent for their organizations. Less obvious is, while the Affordable Care Act (sometimes known as “Obamacare”) created federal regulations around how businesses offer benefits; insurance laws can still vary widely from state to state and even from city to city in some instances.
For Canadian employers looking to offer benefits for US-based employees, here are some high-level considerations to keep in mind:
1. Partner with a trusted broker.
Partnering with a broker with specific and focused expertise in benefits will produce far better outcomes (and better mitigate disasters) than having a broker whose core competency is not in benefits. While many types of business services, such as payroll companies or property and casualty insurance brokers, offer health insurance brokering as part of their overall package, not all are created equal in this regard.
Consolidating various outsourced business functions along with benefits may seem convenient, but it is important to keep in mind that benefits are often one of the single largest investments businesses make, and one that comes with significant liability. Given its high value and delicate nature, it is best to partner with a brokerage whose main focus is employee benefits.
2. Quality health insurance is key.
It's no secret that healthcare costs for US residents can be staggering. Unlike in Canada, where residents have provincial coverage, US employee benefit plans start with medical insurance. Unfortunately, not all US medical plans are created equal, and some are more comprehensive than others.
Small group insurance plans (for 1-100 employees in some states, such as CA, and 1-50 in others) are classified into four different "metal tiers": Bronze, Silver, Gold, and Platinum. Much like a trip to the jewelry store, Platinum and Gold plans are more expensive, while Bronze and Silver plans are less so.
This naming system is meant to convey how comprehensive a plan's coverage is, with Platinum being the most comprehensive, followed by Gold and Silver, and Bronze being the least. Budget, of course, comes into play when determining what to offer, but employees are more likely to be attracted to employers offering Platinum and Gold plans than to those offering Silver and Bronze.
3. Be mindful of compliance with the laws.
Employee benefits have a significant impact on people's health and finances. To protect employees and their benefits from employers and insurers, there are various governance measures at the federal, state, and sometimes municipal levels. These measures define employees' rights and employers' responsibilities. Noncompliance, especially willful, can result in significant penalties and fines.
While it is virtually impossible to cover all of these measures in one article, here are some examples of what to be wary of:
- Knowing when employees must be offered benefits
- Avoiding Section 125 discrimination
- Ensuring the continuation of benefits when an employee leaves or is terminated (COBRA)
- Providing plan documents and required notices to employees
- Collecting waivers from employees who choose not to participate in benefits
- Conducting annual 1094/1095 and 5500 reporting (for larger employers).
Having a broker partner that is on top of these items to help keep you compliance ready is vital to insulating your organization from liability.
4. Take advantage of pretax benefits.
One of the biggest perks of having employer-sponsored benefits vs. procuring your own in the United States is that Section 125 of the Internal Revenue Code allows employees to reduce their tax burden on dollars used towards certain benefits their employer offers.
Like compliance, much more can be said about Section 125 benefits, but simply put, they provide a tax advantage for employees. Employers can put into place devices like "125 Premium Only Plans", "Health Savings Accounts" (HSA's), "Flexible Spending Accounts" (FSA), and others that can be leveraged by employees on a pre-tax basis*.
A “Premium Only Plan” allows employees to deduct the portion they pay for their portion of the premium and certain benefits from their paycheck on a pretax basis. HSAs** and FSAs are accounts that allow employees and employers to contribute tax-advantaged dollars and can be used by employees to pay for eligible medical expenses. Other benefits, such as “Dependent Care” and “Commuter” benefits, can offer similar tax-preferred benefits towards childcare and commuting expenses, respectively.
* Note that some highly compensated employees may not be eligible for pre-tax benefits. Consult your 125 plan administrators for more information.
** Only employees enrolled in a qualified High Deductible Health Plan (HDHP) can contribute funds to an HSA.
5. Offer ancillary / non-medical benefits.
In the US, medical benefits are the most important employee benefits as anyone can be subject to an accident or sudden illness that could be financially devastating without good medical coverage. However, other benefits are also important for US employees.
Many employers offer dental, vision, disability, and life insurance benefits. One benefit that is often overlooked is disability insurance, also known as "paycheck" insurance. Some states have state-run short-term disability insurance, and at a federal level, Social Security Disability Insurance (SSDI) is available to people who become fully disabled.
However, there is a risk in solely relying on these programs, as many states do not offer short-term disability, and SSDI is difficult to qualify for. Moreover, both government-run disability insurances offer only limited income replacement. Therefore, group disability plans are necessary for highly-compensated employees to receive a more reasonable percentage of income replacement in the event of a disability.
At our agency, we often say, "If your employee were to suffer a serious disability, would you rather send them a get-well card or a paycheck?"
There are lots of other factors to consider when setting up US-based employee benefits, but these basics will go a long way towards building a competitive benefits package to attract and retain top talent.
Not sure where to get started or wondering what else there is to keep in mind?
Contact us at AEIS, Inc. We are a fellow United Benefit Advisors (UBA) partner firm along with Montridge, so you can rest easy knowing you are using another high-quality UBA brokerage to help administer US benefits.