Employers looking to attract and retain workers often need to supplement salaries for employees with health insurance or other type of benefits to be competitive in the market.
But what if you are a small employer and don’t have the funds to offer health insurance? There are ways a small business can offer benefits while keeping costs within budget.
How? A variety of welfare benefits — dental, life, disability and so on — provide valuable coverage to employees and their families. Though health insurance is the most coveted benefit, the Affordable Care Act (ACA) through the public marketplace is now making it possible for individuals to have some choices for health coverage.
Small employers can put together a package of voluntary benefits while controlling costs. One option that seems to be getting more popular is the addition of benefits, other than health, using a defined contribution approach.
That is, offering a set of voluntary benefits where the employer contributes a fixed amount of dollars to help employees purchase coverage.
Employees can spend more than what the employer contributes, but they pay for the additional cost through payroll deduction.
Defined contribution approach can offer a solution
The concept of defined contribution is not new. What is new is that several insurance companies are now offering coverage solutions to small businesses in an attractive package that comes bundled with a defined contribution system. In other words, the business can decide how much it wants to spend on benefits and can choose what to offer employees.
Say that a business owner decides that they can’t offer health insurance, but that their budget allows a monthly allotment of $50 per employee for other benefits. That may not seem like a significant sum, but that amount can go a long way toward helping employees purchase voluntary benefits.
Here’s how the actual benefit selection process works. A company offering dental, life, disability or another combination of coverage would set up an enrollment program where the employee can see that they have $50 from their employer to spend on benefits.
The employee can also see what types of benefits are available for purchase and what each type of coverage costs. Say dental insurance is $25 a month. When the employee selects dental coverage, the enrollment program deducts $25 from the total $50 package.
The employee can continue to choose other benefits and see that they are using up the total funds. If they decide to go over the allotted $50, any excess would be their responsibility and would be deducted from their paycheck.
In a defined contribution arrangement, one advantage the employer has is that they know their monthly cost, can budget for it, and be assured that if the price of the coverage increases in the future, their cost is still limited to — in this instance — $50.
In some ways, it may seem counterintuitive that $50 will encourage employees to participate in purchase voluntary benefits versus the employer simply offering the benefit without the fixed contribution.
But the fact that an employer is setting money aside for these benefits, and the employee can use those funds first, helps make this type of benefit arrangement very successful.
At Security Health Plan, we currently partner with a number of companies that offer these benefits as well as the defined contribution approach, because we realize that for the small businesses we work with, voluntary benefits is a good way to start offering certain insurance coverage while managing their budget.
In addition, for small employers who may not have dedicated HR staff members, this type of arrangement includes, at no additional cost to the employer, both education to employees about the benefits, as well as help with enrolling employees.
An added advantage is that enrollment can be done via paper, with electronic form on a computer or through a web-based application. With each type of enrollment, the employees get detailed instructions and assistance to help them understand what is being offered, what the cost will be, and how to enroll in the coverage they want.
For small businesses looking to differentiate themselves in the market to attract employees, a defined contribution approach tied with voluntary benefits is an effective option.