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Employee Benefits: Reimbursement of Dental Costs- Policy Thoughts?

 

Background of my company - California-based internet startup (<100 employees). 

In the past we've been reimbursing dental costs for all of our employees (up to a certain amount/year/person). We found that a lot of our employees don't care about dental benefits, and buying one big dental policy that will enroll everybody was not cost effective.  

Our current policy only reimburses direct costs paid to a dentist. However, few employees brought up a question on whether they can purchase their own dental insurance policy (Metlife sells individual policies, for example) and then get reimbursed for premiums paid. For married folks with kids, that's cheaper than having have to pay $185 for each cleaning. Obviously, this will save us money as well - it seems that $400/year covers the whole family. 

Before we revise this policy - are there any traps/issues with that I should be aware of? 

 

Answers

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

One of the implications I can think of is how it will be reported on the employee's W-2. It may cause the employee's taxable income to increase, being in California as your company is, that is federal and state tax implications.

Also, what will the company do, in its policy, if an employee has dental work done under their personal plan, then quits before your company reimburses the costs, will the company be responsible to pay for the policy since when the work was performed the individual was an employee? Or will the reimbursements stop the day an employee decides to leave?

Here is my question, rhetorical nonetheless, but if an employer is generous enough to pay for a policy why in the world would an employee not want to take advantage? It is essentially free money, with the expection of big dental items, even to that extent insurance policy pays quite a bit normally. If you were in Alabama I could understand the dental insurance issues...but that is a whole other joke, not appropriate for a professional discussion board.

Mike Poe
Title: CFO
Company: XinRay Systems Inc
(CFO, XinRay Systems Inc) |

You need to understand the taxation of these dental benefits before you make any changes. Depending on whether your company has a Section 125 Cafeteria Plan and how you're dental plan was set up, then the employer’s reimbursement of the current dental reimbursements and the proposed dental premiums might, or might not, be taxable to the employees. Under traditional insurance arrangements with a Section 125 Cafeteria Plan, employer paid insurance premiums are not taxable to the employees, and the employee’s portion of the premiums are paid with pretax dollars, which lowers their overall income tax bill. Depending on your current situation, and how you set up their premium reimbursement, you could change the taxation of the dental insurance for better or worse, and this could greatly affect the net economics to your employees. You need to get your HR and tax advisers to evaluate the current and proposed alternatives before making changes.

Topic Expert
Mark Sphar
Title: Chief Accounting Officer
Company: Veracity Payment Solutions
(Chief Accounting Officer, Veracity Payment Solutions) |

Agree with Mike on this. Your broker should be able to help you navigate these questions. May also want to consider what happens if you happen to hire outside the Republic of California as well. If it is in your near term plans, make sure the broker or tax advisers are thinking ahead for that as well. Good luck.

Robert Morton
Title: Treasure, Trustee, Div. Manage
Company: RPA
(Treasure, Trustee, Div. Manage, RPA) |

(Treasurer, Trustee, Director ~50 Emp. Engineering Firm)
We used to carry full dental and also found it expensive and not fully used. We have eventually evolved in to eliminating firm payment of the full dental, but still offer it to those who want to pay (some large families still participate). In discussion with our health care provider they have offered simple dental cleaning and annual exams as part of the normal employee policy and it is inexpensive and well recieved.

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