Using Nontraditional Health Benefits as a Cost-Effective Way to Attract and Retain Key Talent

The most valuable asset of any business is, undoubtedly, its workforce — particularly its key employees who strategize and execute the company’s vision, growth, and success. Not surprisingly, today’s top candidates make employment decisions based not only on salary but also on health insurance benefits.

In fact, a survey conducted by America’s Health Insurance Plans shows that 56 percent of US adults with employer-sponsored health benefits say that whether or not they like their health coverage is a key factor in deciding to stay at their current job. Another 46 percent say health insurance was either the deciding factor or a positive influence in choosing their current job.

Yet in today’s turbulent healthcare market of ever-increasing deductibles, copays, coinsurance, and other out-of-pocket expenses not covered by a company’s primary health plan, it’s difficult — if not cost-prohibitive — for businesses to provide key employees with the level and scope of insurance coverage they seek. This, in turn, affects a company’s ability to attract new talent, satisfy existing talent, and retain both.

According to industry sources — including the Mercer National Survey of Employer-Sponsored Health Plans and the Business Group on Health’s 2021 Large Employers’ Health Care Strategy and Plan Design Survey — employers will see a 4.4 to 5.3 percent increase in 2021 health plan costs. Even if premiums don’t increase to those levels or remain the same as in 2020, these sources say that employers will continue to struggle with affording adequate employee health benefits amid plummeting revenues due to COVID-19.

The tremendous economic strain caused by the pandemic has exacerbated the longstanding challenge of providing optimal health benefits for top talent. The future course of the disease and economy may still be unclear, but this is certain: Businesses that use affordable, nontraditional health plans to boost benefits for key hires will be better able to recruit and retain talent going forward.

Key employee healthcare cost reimbursement plans provide one example of a nontraditional health insurance benefit plan that could help employers solve the costly healthcare market/competitive workplace dilemma. These fully insured, excepted-benefits plans are also referred to as “select” or “executive” healthcare or medical cost reimbursement plans, and they are not to be confused with health savings accounts (HSAs) or other consumer health accounts.

Excepted-benefits plans offer employers a cost-effective way to boost their underlying health insurance benefits for key employees while differentiating their total compensation packages from competitors. In general, these plans provide participants with tax-free reimbursement for virtually all medical expenses not covered by the employer’s base plan, and all premiums are tax-deductible for employers. The employer’s base plan can be a group policy, individual policy, spousal policy, or Medicare.

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Beyond covering deductibles, copays, coinsurance, and preventative care, these plans can sometimes cover healthcare expenses rarely covered by most medical plans today, including dental/orthodontia, vision care, hearing aids, chiropractic and physical therapy services, and others. In general, if an expense is medically necessary and qualifies under Section 213(d) of the Internal Revenue Code, it is eligible for reimbursement under these plans.

Additionally, most excepted-benefits plans provide a generous maximum annual benefit — up to $100,000 with some plans covering the plan participant and their eligible dependents. Some plans also include other valuable benefits, such as accidental death and dismemberment (AD&D) insurance, worldwide coverage through emergency travel assistance, and health concierge services.

Excepted-benefits plans are markedly different from and offer many advantages over HSAs, which employers often pair with high-deductible health plans (HDHPs) to reduce insurance costs. HSAs are limited in terms of their funding amounts and what those funds can be used for. Even the new 2021 contribution limits for HSAs ($3,600 for individuals; $7,200 for families) only make a rough 50 percent dent in HDHP maximum employee out-of-pocket costs, according to the Kaiser Family Foundation 2020 Employer Health Benefits Survey. Excepted benefits plans, on the other hand, cover all employee out-of-pocket costs.

In summary, providing your top talent with extra health benefits provides extra protection for your most valuable business asset. That, in turn, can drive increased productivity, satisfaction, loyalty, and morale. Excepted-benefits plans offer employers an affordable way to provide those benefits and a cost-effective means of attracting and keeping key hires on board.

Michael S. Fawcett is the executive vice president and chief operations officer of Sankaty Light Benefits.