Deciphering Insurance: The Impact of Legislation on Your Business
Changes in legislation and economic ability make it increasingly difficult for business owners to make insurance and benefits decisions. The changes pushed through in the past several years, while some might say were well-intentioned, have severely increased the costs many businesses are obligated to pay for employee benefits packages. Though, it’s not just the past changes that are frustrating employers. Industry experts are forecasting many more changes to be made over the next several years that will continue to impact your ability to find and purchase benefits packages for your employees.
Some owners want to forego the whole mess and refuse to offer benefits packages to their employees. While that might be an enticing decision, considering the shaky state of insurance, it does come with a hefty price tag. This applies not only in the form of tax penalties, but also in employee loyalty.
Your employees value benefits packages – even more so now that new legislation has passed making premiums skyrocket. Taking them away or not providing them from the start sends a signal that you don’t care about their health, regardless of your actual intentions. Thus, it is imperative that you find a way to offer at least a basic package that will take care of some of their needs. Obviously the why is much easier to determine than the how.
Impacts of Legislation
The largest cause of uncertainty, right now, in regards to employee benefits is the Affordable Care Act (ACA), passed by the Obama Administration in 2010. This act was originally created with the intention to add new benefits, rights and protections for the American people and make it more accessible to individuals of all socio-economic backgrounds.
However, a detrimental byproduct is increasing premiums for employer-sponsored health plans. Now, not only are you required to offer health plans for your full-time employees, but you also have to pay more to do it. Even if you see the benefits of offering benefits packages to your employees, the ACA puts extra stress on an already confusing renewal period.
The ACA, while frustrating, isn’t the direct cause of much of the confusion and uncertainty that surrounds it. Rather, two of the most pressing concerns are the impending excess tax and the current administration’s incessant desire to see the whole plan scrapped.
The “High Cost Employer-Sponsored Health Coverage Excise Tax”
This tax recognizes employee benefits packages for what they are – a form of compensation – and attempts to level out the playing field. It establishes a “statutory dollar limit… which is adjusted annually” after which employers are taxed on the excess applicable coverage provided. The tax was originally supposed to be implemented January 1, 2018, but after the Consolidated Appropriations Act of 2016 was signed, the date moved to January 1, 2020.
The uncertainty lies in when, or even if, the tax will go into effect. If it does, employers will have to adjust their benefits package. However, President Trump could continue to delay implementation until a repeal and replace effort can make its way through Congress. As of now, employers are left in a limbo that is resulting in confusion and frustration.
The Trump Administration’s Repeal and Replace Efforts
One of the platform issues President Trump campaigned on, and one of his main legislative pushes over the past 10 months, was to repeal and replace the Affordable Care Act. While attempts to this point have been unsuccessful, there is still the possibility that the ACA could go away anytime in the next three years. This does nothing to help the frustration already brewing from the looming and moving excise tax date.
The most infuriating part in all of this is the back and forth. If the ACA is repealed and replaced with something new, employers most likely won’t have to worry about the excise tax being implemented, but they’ll have to contend with a whole new set of requirements and regulations. On the other hand, if the excise tax were to take effect, many employers would see a drastic increase in their benefits spending as a result of the new tax. The frustration lies mostly in the unknown because once a decision has been made by the federal government, employers will at least know where to begin planning.
The Current Standard
Even though the future of insurance is unknown, you still have to find and purchase benefits packages for your current full-time employees. Finding a provider and a plan that works for you is hard enough, but making sure it fits in with your budget adds additional complexity to the issue.
As a rule, you should be spending approximately 9 percent of your total budget on your employees’ overall benefits packages. This is based on the understanding and common practice of allocating an additional 25 to 40 percent of an employee’s base salary specifically for their benefits package, so that an employee making $50,000 annually, would end up costing your company up to $70,000 with benefits.
From an overall standpoint, payroll should make up approximately 15 to 30 percent of your overall budget, and employee benefits should make up 29 percent of the payroll budget. That means approximately 9 percent of your budget specifically allotted for your employee benefits packages.
These numbers may change as legislation becomes more and more concrete, but with renewal period wrapping up it’s unlikely much will change.
Preparing for the Future
This insurance battle is far from over, and it probably will get worse before it gets better. That’s why finding a provider that understands your needs and your business, as well as the industry landscape, is crucial right now. You don’t have to wade through IRS notifications or follow every legislative change to make sure you’re doing what’s best for your business and your employees. Find the right expert, and you won’t have to worry about it ever again.