Big Benefits, Bogus Budget

Julie Shenkman
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You are an owner or hiring manager. Your competitors offer employee benefits that include medical, dental, and vision coverage. In addition, they offer a barrage of other benefits ranging from disability income to additional vacation time, a 401(k) plan, and a profit-sharing plan. You just received a 30% increase for your medical insurance renewal, and cannot understand how these companies afford such rich benefits.

You are not alone. With such dramatic increases in medical insurance, companies are struggling to maintain existing levels much less enrich employee benefits. Many have responded by increasing deductibles and co-pays, negatively impacting employee morale.

What can you do? The answer depends on how you think about and define benefits. The simplest way to think about benefits is this: If you offer something to your employees that they wouldn't get working across the street, it's a benefit. The key word here is offer. Employees don't have to participate in order for something to be considered a benefit.

For example, Sampleco offers medical insurance to its employees. If an employee wants to cover their spouse and children, the employee pays the difference in rates between individual and family coverage. Some employees may be single, so they don't participate. Since not everyone in the company participates, and those that voluntarily elect to do so fund the premiums, does this diminish the impact of offering medical insurance for employees' families? What about an employee whose spouse has medical insurance through work? Would any employer say that since only a percentage of employees participate in family coverage, they are no longer going to offer it?

A valid question then is this: Can a company offer life insurance, a dental plan, disability income insurance and other highly sought after benefits, with a limited budget? Absolutely, and at zero employer cost!

Large annual increases in medical insurance premiums and employee demand for richer benefits are just two trends driving the remarkable growth of Voluntary Supplemental Insurance Benefits (VSIB). Never heard of it? In all likelihood, you will. Several thousand employers enhance their benefits offerings every month, allowing employees to choose from a menu of VSIB that meet their specific family situation and budget. This includes employers with very comprehensive benefits as well, since VSIB fill gaps in virtually all benefits offerings.

If adding world class benefits at no employer cost isn't enough, there's more. When the employee contributions are made using tax-free dollars through a qualified cafeteria plan, the employees receive a tax savings equal to their tax rate times the premium. This normally saves the employee taxes equal to 25 - 35% of the premiums. Also, since payroll is reduced by the amount of premium that goes through the cafeteria plan, the employer saves matching FICA and certain other payroll taxes. Laws vary by state, although employers often save thousands of dollars every year.

Richer benefits. Zero employer cost. Tax savings. Employee choice. Sound too good to be true? Even the most skeptical need only look at the numbers. Since there is no employer cost, no risk and no downside, the industry growth is not surprising at all.


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