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Does it make sense to allow employees to self-insure healthcare but reimburse via the company?

Aaron Codak's Profile

My HR manager proposed something to me yesterday where we could go to Blue Cross Blue Shield and get individual plans for each employee (the employee would pay the monthly premium themselves) and the company would provide a stipend to each employee each month for what we cover now on their paychecks.  Me, personally, would be saving over $300 on the monthly premium I pay for Family HMO coverage versus the rate we are paying now through our agreement with BCBS through our insurance agent.  Has anyone else done this or tried this?  How has it turned out for you?

One downside I see is that you don't get the premiums (less your company contribution against the premium) deducted pre-tax from your paychecks.  But if you itemize, you can still deduct on your end of year personal tax return - right?

Answers

Pete DeWeese
Title: EVP & CFO
Company: Tanknology Inc.
(EVP & CFO, Tanknology Inc.) |

this is full of problems as I see it. First they are taxed today on the dollars you are giving them for premiums, they will have to adjust their withholding to get immediate saving. When they file their tax return they will not full tax savings because they can only deduct the amount that exceeds 7% of their AGI. So they will be paying taxes on the 7%. Most individuals do not exceed 7% in medical cost unless they have a very high deductible. From a plan standpoint what are you going to do about employees that have help issues or their dependents have health issues?? they may not qualify for a personal insurance policy or if they do the rate may be very high. So now you will run the risk of losing this employee. Also if a person is on a company medical insurance plan and changes jobs then they do not have an issue with pre-existing conditions, this is not when they are on personal insurance. So if they have medical issues they may not be covered with the personal plan. Next consideration, what are you going to do about the reimbursement rate each year are you going to increase it. You really need to understand you work force and where you get new hires, your competition and how long it takes to train new employees. In my business it takes us 6 to 8 months to get a new hire to a place where he is producing value to our company, so turnover is costly and retraining is costly. I would think that I would think long and hard before I would do something this drastic. You are giving up a lot of control of your employees by doing this.

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