Employee Health and Life Insurance Benefits Explained

Introduction: Benefits Challenges for Family-Owned Businesses

What is the position of private businesses owned by families when confronted with the challenge of providing employee health benefits as we move further into the new millennium? What methodology is employed for optimizing benefits while at the same time controlling spending on employees? How do they attract and prevent the attrition of valuable professionals in a competitive labor market? How do they take advantage of legal and regulatory amendments through competent strategies developed over recent years? These questions and related issues will continue to challenge family-managed business owners.

Over the past several years, remarkable governmental amendments have equipped owners of family-run businesses with planning opportunities that would previously never have been considered possible. There are no longer restrictions on the amount a company can contribute for a staff member who participates in the company's defined benefit and defined contribution schemes. This will enable many family-run private business owners to significantly increase contributions to approved benefit schemes. (Quinn, 2000)

Employer-Sponsored Health Insurance Trends

As spending in health care rises at a pace faster than overall economic growth, companies and the health insurers whose plans they purchase are implementing new methods to reconcile robust demand for medical services with the resources available to pay for them. These modifications do not amount to large-scale policy reform; however, they reflect the emergence of a set of values that will shape the profile of insurance in the private sector for the foreseeable future. Central to this shift is a belief that individual consumers of health care must accept greater financial accountability for the choices they make when selecting insurance coverage and seeking clinical treatment. (Iglehart, 2002)

Using employer survey data from 1993 and 1997, Susan Marquis and Stephen Long found that 43% of employees nationwide had the freedom to choose from two or more plans in 1997. Individuals who have multiple health plan options are more likely to select a plan that offers a broader choice of providers. (Marquis; Long, 2000)

Fundamental to this trend is a conviction among employers that if their employees are able to manage their own insurance needs and assume greater accountability for their health, they will become a stronger competitive force against excessive investment in health care. Companies favor this market-driven approach to controlling costs over government intervention, which the majority of companies distrust. Although a small but growing number of analysts and policymakers argue that the job-based insurance model is distorted by the tax advantages it confers and is an inadequate foundation on which to expand coverage, this approach has been widely endorsed by most companies and workers according to recent studies. (Iglehart, 2002)

In the year 2000, employer-sponsored insurance coverage covered approximately 171 million individuals, including 11 million retirees with supplemental Medicare coverage, and around 16 million individuals purchased insurance independently. An additional 80 million individuals were covered through Medicare, Medicaid, and other public programs. Despite the strong economic growth that characterized the years from 1994 to 2000, the share of the population without health insurance remained essentially unchanged at around 17% by the end of that period. Although the number of individuals receiving employer-sponsored coverage rose by 15.9 million, coverage through Medicaid and other public programs declined correspondingly, offsetting this gain entirely. (Iglehart, 2002)

Crafting the appropriate benefit plan for your employees is an intricate task. The process becomes more complicated when selecting a specific plan given the various types of policies and different levels of coverage available. It is essential to understand how to obtain the right plan at the right price for your business. (Rice; Gabel; Levitt; Hawkins, 2002) There are many factors to consider, including tax obligations, legal issues, financing, and identifying the right vendor or broker.

Designing an Effective Employee Benefit Package

A well-designed employee benefit scheme serves several functions: it protects workers and their dependents from financial hardship resulting from illness, disability, death, or unemployment; it provides income to workers and their dependents following retirement; and it supports provisions for leave or temporary respite from daily work. (Gabel; Long; Marquis, 2002)

There are many reasons why companies offer these programs: to attract and retain skilled personnel; to remain competitive in the labor market; to foster strong morale; and to ensure that the organization is well-positioned to continue hiring as senior workers approach retirement. A carefully tailored blend of benefit plans is the most effective way of meeting employees' financial protection needs. For many companies, a benefit plan is an important component of the overall compensation structure, with employers either covering the full cost or asking workers to contribute a modest premium. (Gabel; Long; Marquis, 2002)

Many people neglect to obtain life insurance, viewing it as an unnecessary expense. Those who do intend to purchase coverage often find the documentation process burdensome and face the possibility of failing a medical examination or paying high premiums. For this reason, employer-funded life insurance can be an especially attractive benefit for prospective employees. Even small enterprises can extend this benefit to their staff by taking out a Group Insurance Policy. (Offering Life Insurance to Your Employees)

Conclusion

Workers' benefit schemes relating to health contribute a great deal to the lives of workers and their dependents, and have a substantial economic and managerial influence on a company. Nearly all firms operate in an environment in which educated employees expect a comprehensive benefits package. Indeed, the absence of a plan — or an inadequate one — can severely undermine a company's ability to attract and retain valuable employees. Workers should be aware of these matters and be prepared to make informed decisions when evaluating employee benefits.