Group insurance is an essential component of employee benefits that offers comprehensive coverage and significant tax advantages. This blog explores the intricate details of how group insurance benefits both employers and employees, focusing on the tax advantages and their implications for businesses and their workforce.
What is Group Insurance?
Group insurance is a policy designed to cover a group of individuals under a single contract, typically provided by an employer to its employees. It includes a range of insurance types such as health, dental, vision, and life insurance. Unlike individual insurance policies, group insurance benefits from the shared risk among many individuals, which often results in lower premiums and broader coverage options.
Types of Group Insurance
Health Insurance: Covers medical expenses, including doctor visits, hospital stays, and prescription drugs.
Dental Insurance: Provides coverage for dental care, such as cleanings, fillings, and orthodontics.
Vision Insurance: Offers benefits for eye exams, glasses, and contact lenses.
Life Insurance: Pays out a benefit to beneficiaries in the event of the policyholder’s death.
Tax Benefits for Employers
1. Deductibility of Premiums
Employers can deduct the cost of group insurance premiums as a business expense on their federal tax returns. This deduction reduces the company’s taxable income, which can lead to substantial savings. For example, if an employer pays $100,000 in premiums annually, this amount is deductible, lowering the overall taxable income and, consequently, the tax liability.
Example Scenario:
A company with $500,000 in taxable income that spends $100,000 on group insurance premiums can deduct this amount, reducing its taxable income to $400,000. This reduction lowers the tax bill proportionally, providing significant financial relief.
2. Reduced Payroll Taxes
Premiums paid for employee health insurance are exempt from Social Security, Medicare, and federal unemployment taxes. This exemption lowers the overall payroll tax liability for the employer. Since these taxes are based on gross wages, reducing taxable wages through pre-tax premium deductions can result in lower payroll tax obligations.
Payroll Tax Savings:
If an employer’s payroll tax rate is 7.65% (the combined rate for Social Security and Medicare taxes), and the total premiums paid amount to $100,000, the potential savings in payroll taxes would be $7,650. This reduction can contribute to overall cost savings for the company.
3. Enhanced Recruitment and Retention
Offering group insurance can significantly enhance a company’s ability to attract and retain top talent. A competitive benefits package, including health insurance, makes a business more appealing to potential employees. This, in turn, can lead to lower turnover rates and reduced costs associated with hiring and training new staff.
Strategic Advantage:
In a competitive job market, companies that offer robust benefits packages, including group insurance, can differentiate themselves from competitors. This advantage helps in building a loyal and stable workforce, ultimately supporting long-term business success.
Tax Benefits for Employees
1. Tax-Free Premiums
Employees benefit from the tax-free nature of group insurance premiums. Premiums paid through payroll deductions are deducted from gross income before taxes are applied. This reduces the employee’s taxable income, lowering their federal income tax liability.
Example Calculation:
If an employee earns $60,000 annually and pays $3,000 in premiums through payroll deductions, their taxable income is reduced to $57,000. This reduction can lead to lower tax liabilities and increased take-home pay.
2. Tax-Free Health Benefits
Group insurance plans often include additional tax-advantaged accounts such as Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). Contributions to these accounts are made on a pre-tax basis, reducing the employee’s taxable income. Withdrawals used for qualified medical expenses are also tax-free, providing significant financial benefits.
HSAs and FSAs:
Health Savings Accounts (HSAs): Contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free. HSAs also allow for tax-free growth on invested funds.
Flexible Spending Accounts (FSAs): Contributions reduce taxable income, and withdrawals used for qualified expenses are tax-free. However, FSAs typically have a “use-it-or-lose-it” policy, meaning unused funds may not carry over to the next year.
3. Lower Premium Costs
Group insurance typically offers lower premium costs compared to individual insurance plans due to the collective bargaining power of the group. Employees can benefit from reduced monthly premiums and, in some cases, employers may cover a portion of the premium costs, further lowering the employee’s out-of-pocket expenses.
Cost Savings Example:
An individual health insurance plan might cost $500 per month, whereas a group plan might reduce this cost to $350 per month. Additionally, if the employer contributes $100 towards the premium, the employee’s monthly cost could be as low as $250, resulting in significant savings.
The Impact of Group Insurance on Tax Planning
1. Planning for Business Expenses
Understanding the tax benefits of group insurance helps businesses plan their expenses more effectively. By incorporating these benefits into their financial strategies, companies can optimize their tax outcomes and manage their budgets more efficiently.
Financial Strategy:
Businesses should work with financial advisors to structure their benefits packages in a way that maximizes tax advantages. This includes considering the impact of different insurance options on both taxable income and payroll taxes.
2. Strategic Benefits Design
Employers can design their benefits packages to align with their strategic goals. For instance, offering enhanced coverage or additional benefits can improve employee satisfaction while leveraging tax benefits to offset costs. Tailoring benefits to meet the needs of the workforce can also enhance overall employee engagement.
Benefits Design Considerations:
Comprehensive Coverage: Offering a range of coverage options, including health, dental, and vision insurance, can attract a diverse talent pool.
Additional Perks: Incorporating wellness programs or financial planning services can add value to the benefits package and further enhance employee satisfaction.
3. Compliance and Reporting
Staying compliant with IRS regulations is crucial for businesses offering group insurance. Accurate documentation and reporting are necessary to ensure that tax benefits are realized and that the business meets all legal requirements. Consulting with tax professionals or benefits advisors can help navigate complex regulations and avoid potential issues.
Compliance Tips:
Maintain Detailed Records: Keep thorough records of premiums paid, employee contributions, and any other relevant documentation.
Regular Reviews: Conduct regular reviews of insurance plans and tax strategies to ensure compliance and optimize benefits.
The Future of Group Insurance and Tax Benefits
As healthcare and tax regulations continue to evolve, the landscape of group insurance and its associated tax benefits may change. Businesses and employees should stay informed about legislative updates and adapt their strategies accordingly.
Potential Changes to Watch For:
Healthcare Legislation: Changes to healthcare laws could impact the availability and structure of group insurance plans.
Tax Policy Adjustments: Modifications to tax laws may affect the deductibility of premiums or the tax treatment of health savings accounts.
Staying Informed:
Businesses and employees should regularly review updates from the IRS, healthcare providers, and other relevant organizations. Engaging with industry experts can also provide valuable insights into emerging trends and potential changes.
Conclusion
Group insurance provides substantial tax benefits for both employers and employees. For employers, these benefits include premium deductibility, reduced payroll taxes, and enhanced recruitment and retention capabilities. Employees enjoy tax-free premiums, lower costs, and additional tax-advantaged accounts. Understanding and leveraging these benefits can lead to significant financial advantages and improved well-being for both parties.
By strategically incorporating group insurance into financial and benefits planning, businesses and employees can maximize their advantages and ensure that they are well-prepared for future changes in the regulatory landscape. With careful planning and informed decision-making, group insurance can be a powerful tool for achieving both financial and personal goals.
Need Affordable Health Plans in Surprise, AZ?
At American Insurance Benefits, we’re passionate about helping individuals and families in Arizona secure the health insurance coverage they need at a price they can afford. Since 2004, Andy Orlikoff and our team have been dedicated to making the process of finding the right plan as simple and stress-free as possible. If you’re looking for expert guidance tailored to your unique needs and budget, don’t hesitate to reach out to us today. Let’s find the perfect health insurance solution together.
Hospitals and insurance giants are clashing over wildly popular Medicare Advantage plans as both sides try to protect their profits. Many seniors enrolled in these plans are caught in the crosshairs.
More hospitals and healthcare providers are terminating agreements with insurers that provide these private-sector alternatives to Medicare, citing too many denials, delays, and refusals to pay for care that government-run health insurance would typically cover. The fracas is deepening this year as the federal government issues new guidance on how the plans can be run, posing a major new threat to a profit engine for some of the country’s largest insurance companies.
“We call these knife fights in the industry and I think we’re seeing more and more,” Whit Mayo, an analyst with Leerink Partners, told Yahoo Finance. “And is this something that these insurers are going, ‘OK, this could become a bigger problem for our bottom line.’”
Seniors also have a lot at stake. If more hospitals ditch these plans, seniors who rely on that coverage will be forced to pay higher costs or may even be kept from seeing the doctor of their choice. Many have little recourse if they face these challenges.
“It stinks,” Mayo said. “You’re putting consumers in the middle of these negotiations and they really value being able to know if they’re facing out-of-network costs if they do see a provider that’s not within their network. So the emotional strain that this takes on the people caught in the middle is the worst.”
‘The deck is heavily stacked in favor of MA enrollment’
This year, 33 million Americans have MA plans, representing just over half of Medicare-eligible individuals, according to research from Chartis. They are offered by giant companies like UnitedHealthcare, which is owned by UnitedHealth Group (UNH), as well as Humana (HUM) and CVS/Aetna (CVS).
These MA plans have only grown in popularity since the program’s inception, with enrollment outpacing that of traditional Medicare in the last six years. Two big allures of these plans are their perks and cost.
MA plans provide benefits traditional Medicare doesn’t offer, such as dental and vision coverage and a grocery allowance. Many also offer a low or $0 monthly premium. That’s cheaper than Medicare’s $174.70 monthly premium and any supplemental coverage seniors who choose Medicare often buy.
“MA plans are very well compensated. With that extra money, MA plans are able to offer services that Medicare doesn’t offer,” David Lipschutz, the associate director for the Center for Medicare Advocacy, told Yahoo Finance. “The deck is heavily stacked in favor of MA enrollment.”
Of course, there’s a tradeoff. Depending on the MA plan, enrollees have to go to a network of providers who have contract agreements with the insurer. If an enrollee goes out of network, they either must pay higher costs for the care or may not be allowed to see that provider at all.
The consequences of that tradeoff came to a head in 2022 as MA insurers began denying more coverage for necessary care just as seniors who had delayed elective procedures flooded back into hospitals that were already struggling with major labor shortages.
The practice has infuriated healthcare providers.
“This practice does cost substantial amounts of time and money, but more importantly, it’s not right for our patients who are often caught in the middle or receive coverage that is different than that offered to patients enrolled in traditional Medicare,” wrote a spokesperson for Louisville, Ky.-based Baptist Health Medical Group, which last year terminated its MA agreement with Humana.
Some hospitals move forward with care without prior authorization because it’s an emergency and the appeals process takes too much time.
“There are patients out there that can’t wait. The delay of a cardiac procedure or cancer procedure could be life-threatening,” said Chris Van Gorder, the president and CEO of San Diego-based Scripps Health.
And when the hospital files a claim, “They deny it saying, ‘We didn’t approve it,’” Van Gorder said.
Many healthcare providers are losing money as a result.
Scripps Health lost $75 million last year from its MA-insured patients, Van Gorder said. Scripps Clinic and Scripps Coastal, the medical groups that have exclusive medical service contracts with Scripps Health, tried to renegotiate with MA insurers to reach acceptable terms, but that ultimately wasn’t successful.
The medical groups then withdrew from their MA HMO agreements with UnitedHealthcare, Anthem Blue Cross, Blue Shield of California, Health Net of California, SCAN Health Plan, UnitedHealthcare of California, and Alignment Health last year.
“The last thing in the world I wanted to do is cancel a contract for 32,000 patients. I’m in the business of delivering healthcare, not canceling healthcare,” Van Gorder said. “We just can’t afford it financially.”
In the last 18 months, more than a dozen other healthcare and hospital systems nationwide have dropped out of MA plan networks, many of them citing denial-of-care issues.
“I think we are sadly the vanguard of what is going to be some pretty confrontational contract negotiations between payers and hospitals in the next few years,” Van Gorder said. “I think this is going to get ugly.”
UnitedHealthcare told Yahoo Finance that “each year, we successfully renegotiate the vast majority of our contracts with providers. Our goal is to be a good steward of the resources available to cover our members’ cost of care by ensuring they are charged fair, sustainable prices for the services they need.”
Humana and Centene did not respond to requests for comment.
Still, the tumult also has gotten the attention of the Centers for Medicare & Medicaid Services, which recently put out new rules on processing prior authorizations, patient risk coding, and other reporting and transparency requirements designed to address some of the medical providers’ concerns.
It also adds more pressure on insurers by making it harder to deny claims, potentially forcing insurers to cut back on the perks their MA plans offer.
“The industry is engulfed in just a historically high level of controversies right now. It’s a very tough environment for the plans,” Mayo said. “And I think we’re going to see a sector that’s going to really pull back on benefits.”
In the meantime, seniors who need healthcare are stuck in the middle.
Seniors can opt for a different MA plan or original Medicare during the Medicare Advantage open enrollment period from Jan. 1 to March 31 — and they have been. Plan swapping was up in January and February, Mayo said, based on monthly data from the CMS.
Still, switching to traditional Medicare is no panacea, either. While seniors will have no problem getting Medicare, they may find it harder to get a Medigap policy, a supplemental policy that covers the 20% of costs that Medicare does not cover for medical care.
When a senior first signs up for Medicare at age 65, Medigap policies — which are provided by many of the insurers that offer MA plans — cannot deny or charge a higher premium based on preexisting conditions.
But insurers can deny or charge more for preexisting conditions when someone wants to switch to traditional Medicare down the road. That’s why seniors may choose another MA plan instead, one that could be dumped later by their medical provider.
“That is a danger each and every year,” Lipschutz said. “People don’t have much recourse if their doctor leaves the network.”
Janna Herron is a Senior Columnist at Yahoo Finance. Follow her on Twitter.
In a recent TikTok video, a nurse has issued a PSA to her viewers, advising against enrolling in Medicare Advantage plans.
The video, posted by Christy (@christyprn) on Nov. 21, has amassed over 128,900 views, sparking a lively debate among commenters about the pros and cons of these private health insurance alternatives.
In the video, Christy recounts encountering a billboard on her way home: “I saw a big billboard that said, ‘Enroll in a Medicare Advantage plan, and you’ll get a free gym membership!’ and it reminded me to give you guys your yearly reminder to not enroll in a Medicare Advantage health insurance plan.”
She explains, “When those Medicare health insurance plans are managed by the government, that is just called Medicare or some of us call it traditional Medicare. However, a while back, the government started allowing private insurance companies to distribute these plans as well. These are called Medicare Advantage plans.”
Christy goes on to express her reservations about these private insurance plans, citing concerns that they may deny crucial healthcare services that traditional Medicare would cover, “A lot of health care workers really don’t like these Medicare Advantage plans because they tend to deny a lot of really important care that traditional Medicare would have covered,” she claims.
However, while emphasizing the need for careful consideration, the TikToker gives out a disclaimer: “There may be some instances where a Medicare Advantage Plan offers some additional benefit that might be more beneficial to a patient than traditional Medicare.”
Since it was posted, the video has sparked a lively debate in the comments section, with healthcare workers and viewers sharing their experiences and opinions.
Some echoed Christy’s concerns, with one commenter saying, “I work in outpatient care, and the Medicare advantage plans are the worst. We can’t get anything covered.”
“Thank you, say it louder. Advantage plan are thieves,” a second added.
“RN here. Amen sister. It will bankrupt them,” a third wrote.
However, others disagreed, recounting their positive experiences with their plans.
“My father was on different Medicare Advantage plans here in NC. They worked out great for him. No extra monthly cost and more docs to choose from,” one such commenter wrote.
“Medicare Advantage has worked great [for] me. My Dr’s med group totally has their act together,” a second claimed.
“No doctors in my area accept regular Medicare. I can only use it at urgent care clinics,” a third commenter remarked.
The Daily Dot has reached out to Christy via TikTok comment.
For a true Medicare supplement/Medigap, contact [www.azhealth.us](www.azhealth.us).
If you watch any amount of television the old-fashioned way—live—it would be hard not to notice the onslaught of Medicare ads. Faded comedy stars and sports heroes flood the airwaves each year between October 15 and December 7, the Medicare Annual Enrollment Period (AEP). During nearly every commercial break, seemingly low-budget, high-pressure ads urge Americans over 65 to check their options and make sure they’re getting all the benefits to which they’re entitled.
With 65 million Americans on Medicare, it’s no wonder that health insurers and brokers are falling all over themselves to reach Medicare beneficiaries. The AEP is the only time many people on Medicare have the option to make coverage changes, such as joining or switching Medicare Advantage (MA) or prescription drug plans or moving between Original Medicare and MA.
Those ads aren’t just annoying; historically, many of them have been misleading, according to an analysis by KFF. That may be changing this year thanks to new Medicare rules.
Inundating, Misleading Ads KFF analyzed 650,000 airings of Medicare ads that appeared on air between October 1 and December 7, 2022. While the ads promoted all types of Medicare plans, including Part D prescription drug plans and Medigap supplemental plans, MA ads dominated with 85% of all airings.
More than one-quarter (27%) of the MA ads showed images of government-issued Medicare cards or images that closely resembled the official Medicare card. Most (83%) ads sponsored by brokers or other third parties pointed people to call a private Medicare hotline rather than the official Medicare line (800-MEDICARE). More than 50,000 airings used messaging that warned viewers they might be missing out on benefits, suggesting their current coverage could be incomplete.
The vast majority of MA ads (92%) focused on extra benefits, such as dental, vision, hearing, and prescription drug benefits, which most enrollees can get. However, 67% of third-party or broker ads promoted financial benefits such as getting a rebate for Part B premiums known as the “give back” benefit despite just 17% of plans offering such a rebate.
KFF also conducted focus groups to understand how consumers experience the process of choosing a Medicare coverage. The research found that many Medicare beneficiaries were unclear on their Medicare coverage options and the trade-offs between them. Focus group participants noted feeling overrun with often-misleading ads. Despite—or perhaps because of—the abundance of messages, participants reported feeling confused or unclear about the options.
At a September briefing on KFF’s findings, Lindsey Copeland, director of federal policy at the Medicare Rights Center, a national nonprofit organization, said that her organization often receives calls about misleading Medicare marketing. Copeland said that consumers often report feeling unsure who to trust. They may feel pressure to take action based on TV ads or direct mail, even if they are happy with their current coverage. Some report being confused about who is sending them official-looking mail and questioning if offers seem too good to be true are legitimate.
According to Copeland, 20% of calls to the Medicare Rights Center’s helpline about misleading marketing are from people who were enrolled in a plan without their knowledge or consent. Callers report thinking they were talking with Medicare or believing they were providing information to a broker but not consenting to switch plans. They may only realize what has happened weeks later when paperwork arrives, by which time they have little or no recourse. Other callers say they switched willingly but learned their decision was based on inaccurate or incomplete information, and that they failed to understand what they might be giving up.
New Rules To Protect Consumers New CMS rules may be shifting the nature of Medicare advertising. Advertisers can no longer use the Medicare logo, name, or the official Medicare card in a way that could imply that the ads are coming from the official Medicare program. Broker ads will need to specify which plans they are selling and benefits that aren’t available to everyone must be clearly identified as such.
“We are really trying to reign in misleading marketing practices,” Meena Seshamani, M.D., Ph.D., director of the Center for Medicare, said in an interview.
Seshamani said the agency is instituting what she calls common-sense rules and considering the experience of Medicare beneficiaries who are bombarded by ads and confused about their options, which include Medicare Advantage, Original Medicare, and Medicare prescription drug plans.
“These are all important pieces of the Medicare program; they are all important options for people to have,” she said. “But if they are getting confused and if they’re getting misled, then the program’s not working for them.”
In the KFF briefing, CMS administrator Chiquita Brooks-LaSure said that in response to skyrocketing complaints over the last couple of years, the agency will review all television, radio, and web-based ads in advance to make sure they meet the requirements.
“These protections that we put forward are really spurred in large part by the feedbackmthat we have gotten through partners and from the people we serve,” LaSure said.
“What we are focused on is just making sure that people have access to accurateminformation.
Terri Swanson, president of Medicare for Aetna, a CVS Health company with nearly 11mmillion Medicare members, is positive on the new rules.
“We want to make sure Medicare beneficiaries are getting the information they needmand feel supported in their experience,” Swanson said in an interview. “That’s whymAetna fully supports CMS oversight of marketing practices, and we are committed tompartnering with CMS to ensure that beneficiaries receive clear, correct and helpfulminformation about their Medicare plan options.”
Swanson encourages Medicare beneficiaries to take the time to learn about their options and understand what plan is right for them. She recommends starting with a few
basic questions, such as does the plan fit your budget? Are your favorite doctors,,hospitals, and pharmacies in the plan’s network? And does the plan cover your specificmprescriptions?
“As with all things in life, one size does not fit all,” she said. “Your team of doctors and healthcare professionals can also help you understand your health needs, which is important when deciding on a plan.”
According to Seshamani, CMS’ objective is similarly focused on consumers’ needs:
“How can we make sure that people are getting the information that they need, so that they can make the best decision for them?”
Author: Deb Gordon I am co-founder and CEO of Umbra Health Advocacy and co-director of the Alliance of Professional Health Advocates. I’m the author of The Health Care Consumer’s Manifesto: How to Get the Most for Your Money, based on research I conducted as a Senior Fellow in the Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government. For nearly a decade, I served as Chief Marketing Officer for a health plan during Massachusetts health reform and the ACA implementation. I am an Aspen Institute Health Innovators Fellow and an Eisenhower Fellow, for which I traveled to Australia, New Zealand, and Singapore to explore the role of consumers in high-performing health systems. I hold a BA in bioethics from Brown University and an MBA with distinction from Harvard Business School.
As you approach age 65, you’ll have some decisions to make about medical coverage. On one hand, you can enroll in Medicare. But you may be tempted to choose another option instead: a Medicare Advantage (MA) plan instead. If you’ve seen the advertisements for MA plans, you might think they’re more cost-effective and comprehensive than Medicare. But according to Keith Armbrecht, Founder of Medicare education company, Medicare on Video, that’s not necessarily true.
“I would never choose a Medicare advantage plan,” he says in a YouTube video entitled “Why Medicare Advantage Is The Worst Choice For Seniors.”
Here’s why he’s not a fan of these plans.
What is a Medicare Advantage plan?
Medicare Advantage plans are alternative insurance plans to Medicare, and they’re offered by Medicare-approved private companies. These plans are sometimes called “Part C” or “MA,” and they include Medicare Part A (hospital insurance) and Part B (medical insurance).
Those interested in MA have more than 40 different plans to choose from. The main
reasons to explore them include:
The potential for lower premiums compared to Medicare. In 2022, the average premium was $58, according to 2022 data from the U.S. Senate Committee on Finance.
Out-of-pocket costs may be capped. In 2023, the maximum was $8,300 for approved services.
Most plans include dental, vision, hearing and fitness benefits.
That being said, there are a few downsides to Medicare Advantage plans. Here are some important things to consider before locking into an MA plan.
Limited choice
If you opt for an MA plan, your choice of doctors can be limited and you’re likely to face obstacles in getting approved for procedures or seeing specialists. “The primary reason I would absolutely choose original Medicare and would never choose Medicare Advantage is because I want control over what I do,” says Armbrecht. With an MA plan, he warns, you can face wait times of “weeks, even months,” to get referrals or have procedures authorized.
You’re typically limited to doctors in the plan network and service area, as well,
according to the government’s Medicare website.
Deceptive marketing
The Medicare Advantage plan industry has a history of deceptive practices. In 2022, the Majority Staff of the U.S. Senate Committee on Finance found that Medicare beneficiaries were being inundated with aggressive marketing tactics, false and misleading information and overall predatory marketing from MA providers. According to the report, deceptive Medicare Advantage marketing practices are, “widespread, not isolated events.”
According to a 2022 review from the New York Times, four out of five of the largest MA providers (UnitedHealth, Humana, Elevance and Kaiser) have faced federal lawsuits for fraud and at least eight providers overbilled, according to the U.S. Department of Health and Human Services Office of the Inspector General.
Denied claims
Multiple studies have shown MA plans have a pattern of denying claims that should be covered.
A 2022 review from the Inspector General’s office found that MAs denied 13% of prior authorization requests that met Medicare coverage rules. Essentially, these claims would have been approved under original Medicare. The most commonly denied requests were imaging services, stays in post-acute facilities and injections.
Go to the source
“Medicare is probably the only government program that does exactly what it’s supposed to do and does it very well,” says Armbrecht. In other words, original Medicare is likely your best choice. If you’re nearing 65 and considering your options, you can visit Medicare.Gov for accurate and up-to-date information so you can make the right decision for your health insurance needs.
