Types of Insurance to Offer Employees

When someone says “benefits,” the first thought is often “insurance.” For companies of a certain size, you must provide at least health, unemployment, and worker’s compensation insurances. However, there are other types of employee insurance that workers value. We look at the best types of insurance to offer employees and tell you why it’s beneficial to your company.

Employee Insurance Types You’re Required to Offer

The types of insurance you are required by law to provide depends on your industry, state, and number of employees. However, in general, if you have more than 50 employees, you can anticipate providing health, workers’ compensation/disability, and unemployment insurance.

If you employ fewer than 50 people, you may still receive tax credits for supplying these. You should also check with your state Department of Labor to see if it has stricter requirements than federal law.

Should You Consider Offering Other Types of Insurance?

Providing employee benefits is not just about staying on the right side of the law. Insurance is one of the main reasons skilled workers look for employment with a company as opposed to self-employment or “gig” work. A good insurance package can set you apart from the competition—and the lack of one will set you behind your peers in the eyes of applicants.

Insurance is simply a good idea for you and your employees: It’s relatively inexpensive, gives your people security, demonstrates that you care for employee welfare—and it’s easier than making sure the juice bar stays stocked and clean.

Health Insurance (Required) Plus Additional Insurance Benefits

The Affordable Care Act (ACA) requires companies with over 50 employees to provide health care coverage. Not providing health insurance results in a penalty of up to $312 per employee per month of noncompliance. It does not result in jail time, loss of business license, or other such punitive measures. If you are a small business of under 50 employees and your state does not require you to provide healthcare insurance, you may get a tax credit if you do so anyway.

For ACA approval, a health insurance policy must pay for at least 60% of covered services. As an employer, you can have employees contribute toward their insurance coverage up to 9.86% of their household income. For a list of rules and requirements, visit the Department of Labor website. However, be sure to also check the regulations for your particular state, as some states have more stringent rules on which employers must provide health care.

Also, be aware that health insurance can include other benefits like dental and vision insurance. While you’re not required to provide this coverage for adults when you reach 50 FTE, you must offer plans to eligible minors. Another good place to learn more, especially for small businesses, is at healthcare.gov.

Types of Employee Insurance Policies

There are different types of health insurance policies, and they vary by cost, providers to choose from, and so forth. When choosing health insurance plans, some companies opt to provide more than one kind to give employees the ability to get the best policy for themselves and their families.

Preferred Provider Organization (PPO)

PPOs offer your employees more choice in their health care. While they feature a network of providers, they have fewer restrictions on seeing non-network medical professionals, and coverage is better within the network. If your organization is geographically widespread, a PPO might be a better option for your people. It might also be a better choice if your workforce has particular attributes such as older employees, work-related dangers, or out-of-town travel.

Health Maintenance Organization (HMO)

An HMO is a network of doctors who have agreed to lower their rates for plan members and to meet agreed-upon quality standards. It’s harder to see someone outside your network (and be reimbursed), and there are often more restrictions than with a PPO.

For example, you may need to select a primary care provider and get his or her approval to see specialists even within your network. However, the premiums and deductibles are often lower. If you are a local business with a good HMO in your area, this might be a better choice.

Discount/Referral

With discount plans, also called referral plans, physicians agree to provide medical services at a discount of 10% to 60% of their usual fees. Your employees can go to anyone who has agreed to the discount plan, but it does not pay for anyone or anything outside the discount group.

While this may be a good idea for a small town or as a supplement for a PPO or HMO, it’s not sufficient for complete healthcare coverage. Further, it does not fulfill ACA requirements.

Healthcare Sharing Ministries (HCSM)

In an HCSM, people don’t pay premiums, but contribute “shares” toward helping each other pay for medical expenses. Usually, these are done on an individual basis, but companies can participate. Many HCSMs are highly professional organizations handling millions of dollars annually.

Some are ACA-approved, however, many refuse to provide some of the ACA-mandated care (from contraception to gender reassignment surgery to abortion) and are a good alternative for those who object to these procedures on religious or moral grounds. Not all HCSMs are religious, and many of those that are will still allow members outside their particular affiliation.

High Deductible Vs Low Deductible

Deductibles are how much you pay out of pocket before the insurance kicks in. Once you meet that minimum amount, you pay a partial amount and the insurance pays the remainder until you meet the maximum out-of-pocket expenses. After that, the insurance pays 100% of covered services. The IRS sets a limit for deductibles per individual and per family.

• High deductibles: Usually offer lower premiums, but you have higher copays and deductibles. It’s usually good for healthy individuals who don’t anticipate expensive life changes such as childbirth. They can combine high-deductible plans with Health Savings Accounts.
• Low deductibles: At or below the IRS-set rate and some have no deductible. The insurance company handles more of the responsibility for payments, but employees pay higher premiums. This is better for employees with known health problems or who are active in sports or injury-prone activities, young families, or older employees.

COBRA—Continuation of Benefits After Lost Employment (Required)

It’s important to remember that health insurance does not end when you lose an employee due to layoffs, firing, or even death. Per the Consolidated Omnibus Budget Reconciliation Act (COBRA), you are required to offer continuation of an employee’s health care coverage for up to 18 months after the worker’s enrollment ends. The intent is to give the employee or their family some breathing room while they look for alternate coverage.

According to the Department of Labor, COBRA applies in the following circumstances:

• A covered employee’s death
• A covered employee’s job loss or reduction in hours for reasons other than gross misconduct
• A covered employee’s becoming entitled to Medicare
• A covered employee’s divorce or legal separation
• A covered child’s loss of dependent status (and therefore coverage) under the plan

To learn more, you can download the Department of Labor’s COBRA guide.

Unemployment Insurance (Required)

Companies are required by law to pay unemployment insurance (UI). This insurance provides cash stipends to people who lose their jobs through “no fault of their own” such as a layoff.

Employees who are fired due to their own fault are ineligible for unemployment insurance

According to the Department of Labor, “Other than service performed for the Federal government and railroads, Federal UI law does not technically ‘cover’ services since no benefit rights accrue under Federal law.”

The taxing provisions of the Federal Unemployment Tax Act (FUTA) influence some states’ coverage provisions since employers who pay taxes under an approved state UI law may credit their state contributions against a specified percentage of the FUTA tax owed (which means you owe less in federal UI). FUTA also mandates that states require coverage for groups not taxable under federal law, such as some nonprofit organizations.

Whether you must pay unemployment insurance depends on how much you paid an employee, for how long, and what industry you’re in. There are also some state regulations that may apply. Get the complete comparison of state coverage at the Department of Labor website.

To get unemployment benefits, former employees must be actively seeking a new job. In some cases, taking approved skill-building classes or participating in career center programs count. They register with the state unemployment office and report their job hunting to them.

Workers’ Compensation (Required)

Nearly every state requires you to provide workers’ compensation insurance, even if you only have one full-time employee. However, from there, the state rules vary. States administer the programs except for key industries covered by the federal government such as federal employees (of course) and coal miners. To learn the rules for your state, a good place to start is with the National Federation of Independent Business.

Workers’ Comp replaces salary lost due to accident or injury on the job. Each state has its own requirements concerning:

• Who must be covered
• What injuries must be covered
• What constitutes proof of on-the-job injury
• What injuries are not covered
• What circumstances are not covered (self-inflicted injuries, for example)
• How long an employee has to file a claim

Some states, like Alaska, let employers self-insure, as long as their policy meets state regulation minimums. This is called Disability Insurance.

Disability Insurance

Disability insurance provides compensation for salary lost during short- or long-term leaves of absence due to injury or illness. It differs from worker’s compensation insurance in that it covers any injury and more than just wages lost due to injury.

• Short-term disability: These payments usually kick in a week after the injury and run 13-26 weeks, depending on the policy you get. They can replace up to 80% of your employee’s lost pay, depending on the policy. The annual cost is about 1% to 3% of your employee’s annual income.
• Long-term disability: Long-term disability starts when short-term ends and runs an average of six months. It covers up to 60% of lost income and can continue up to retirement, depending on the policy. The annual cost is about 1% to 3% of your employee’s annual income. It covers one or both types of disability:
  • Any occupation disability: The inability to perform any job you’re suited for. It’s harder to prove but less expensive.
  • Own-occupation disability: The inability to perform the tasks of the occupation you were in when injured. In this case, you may (1) get benefits even if you get a different job, (2) get enough benefits to make up the difference in salaries if you get a different job, or (3) get benefits until you start a new job.

Life Insurance

Life insurance is not required by law, but many companies provide at least a small amount. Employees appreciate the ability to harness the power of a group to get good policies at lower rates. Plus, you get a tax advantage for up to $50,000 in coverage for your employees, which decreases your life insurance costs.

One common insurance policy is a small one you provide employees free of charge that is only designed to cover final expenses—usually $1,500-$2,500. Greater insurance policies can provide a bigger set amount or a percentage of the employee’s annual salary (usually 100% to 300%) If your employees are in dangerous jobs, like construction, security, or law enforcement, you might want to look at higher policies.

Companies wanting group life insurance must show it benefits at least 70% of their employees and meet other specifications. It may cover spouses and children as well. Consider offering both whole life and term life insurance. Whole life insurance is a great investment for your younger population, especially those with dependents, if they are willing to pay a little extra (compared to term) to lock in the rates for life. Term life insurance is cheaper and is a better option than not having life insurance at all.

One of the biggest differences between whole and term life insurance is that premiums are fixed under whole life policies while those under term insurance policies increase as your employees age.
Source: Worldwide Assurance for Employees of Public Agencies

Group Term Life Insurance

Group term insurance is the most common and builds up cash value that is paid out when the employee dies. Some term life insurance policies expire after a certain time or age. Other policies’ fees may increase as an employee ages. It’s a better choice for a younger workforce. It’s the best policy for you to consider because it’s simple and offers a tax advantage for up to $50,000 in coverage for your employees.

Permanent (Whole) Life Insurance

Whole life insurance is more involved, making it less attractive for companies. In permanent life insurance, part of the policy is put into investment by the insurance company, and the dividends pay back into the insured’s account. Companies, therefore, pay an investor’s fee as well as the insurance policy fee. In addition, the cost of the permanent benefits, minus the amount paid by the employee, is included in their taxable income.

The cost of permanent benefits also varies by employee. This adds complexity for you. We do not recommend getting permanent life insurance as an employee benefit.

You can make it easier for employees to get such insurance themselves. There are three kinds of permanent life insurance policies:

• Traditional: The cash value grows tax-deferred investments. The insured will be able to stop paying premiums after a certain point and borrow from the cash value. The terms are fixed for life.
• Universal: Offers flexible premiums and adjustable benefits. It usually guarantees a minimum rate of return. The accumulated value can be used as retirement income or cover premium payments
• Variable: Insurees can allocate a portion of the premium dollars to a separate investment account in the insurance company’s portfolio. The value of the death benefit can thus fluctuate depending on how the investments perform. It’s regulated under federal securities law.

Other types of group insurance include:

• Group accidental death and dismemberment: This covers loss of life or limb but only if it happens in an accident covered by the policy. This coverage can also be added as a rider to a standard life insurance policy. Business travel accident insurance is a kind of accidental death insurance.
• Split-dollar life insurance: Employers and employees pay into this insurance, making it an investment as well. When the employee dies, the employer is reimbursed the amount they put into the premium; the beneficiaries receive the rest. Tax benefits depend on how it’s set up. The value of the policy dividends is included in taxable income.
• Reverse split-dollar: Similar to split-dollar, but at the employee’s death, the beneficiaries receive the amount they put in plus the cash value of the policy, while the employer receives the balance. Employers sometimes consider this to protect themselves from the loss of business due to an employee’s death, so it might be a good policy for salespeople, key workers, or executives.
• Company-owned life insurance (COLI): When the employer owns the policy and pays the beneficiary upon the death of the insured. There are more complex criteria for COLI policies. You can learn more at the HRSimple web site.

Dental Insurance

Dental coverage is not mandatory under the ACA for people over 19; however, employers must provide it for qualified (ex: full-time) employees and employee dependents under 18. Any ACA-qualified health care plan offers pediatric dental insurance. State laws sometimes require dental insurance for adults and include them in their ACA-approved health care plans. Check with the states where you have employees to ensure you meet requirements.

Under the ACA, pediatric dental plans cannot have coverage limits, nor can they deny anyone for pre-existing conditions. However, there can still be deductibles and percentages covered. Braces, always a concern for parents, are not required to be covered in every state.

Even though you may not be required by law to provide your employees over 19 with dental insurance, it’s still a good idea.

Dental health insurance works similarly to health insurance in that there are PPOs and HMOs. They also have high- and low-deductible plans. In addition, there are dental groups that are not insurance but agree to discount their services up to 60%.

What’s covered under dental insurance can vary, but in general includes:

• Preventative care: Cleanings, X-rays—once or twice a year
• Tooth care: Fillings, crowns
• Gum care: Scaling, root planing
• Root canals: Treatment removes infection & disinfects, cleanses, shapes the root canal
• Oral surgery: Teeth extraction, reconstructive surgeries
• Dentures, bridges, & implants: Shaping, measuring, placement

Vision Insurance

Just like dental, vision insurance is not required by law, except for minors (18 and younger, including dependents of your employees), though some health insurance plans will cover it.

In general, vision insurance covers routine eye exams, including the in-depth exams that require dilating the pupils, and purchasing prescription glasses or contact lenses. Usually, the exams are free, while the insured pays a percentage of the eyewear, including add-ons like photochromic or progressive lenses or anti-reflective coating. In some cases, it covers elective vision correction surgeries like LASIK or photorefractive keratectomy (PRK). A few may offer coverage for cosmetic services.

Most vision plans are set up as a PPO, although there are some discount vision plans on the market. Discount plans are usually 15% to 35% of the price of exams and eyewear.

Additions to Health Insurance

Many health insurance plans come with other programs: Health Savings Accounts (HSA), Flexible Spending Accounts (FSA), and wellness programs. Some can earn you tax credits as well as help your employees financially.

Health Savings Accounts

This add-on to healthcare is for people enrolling in high-deductible health insurance plans and lets employees put money into a dedicated savings account specifically for health care issues. HSAs can be used to cover qualified medical expenses like prescriptions, MRIs, or home healthcare.

In 2019, the maximum annual contribution allowed was $3,500 for an individual and $7,000 for a family. However, people over 54 years old may contribute an additional $1,000 a year. Savings in an HSA do not expire. The government does not tax HSA contributions or any interest earned in these accounts. Employees can opt for pretax payroll deductions or make tax-deductible contributions independently.

Health Flexible Spending Accounts

Health Flexible Spending Accounts are similar to HSAs in that they are pre-tax savings accounts that do not incur taxes on distribution. FSAs have a limit of $2,700 per year, and the accounts expire at the end of the year, meaning the money must be spent or lost.

Employees have more freedom on how they spend their FSA. In fact, there’s a store specifically for FSA-approved items. For example, they can use it for:

• A spare set of glasses
• Massage, acupuncture, or other alternative medicines
• Over-the-counter medicines
• Humidifiers, thermometers, heating pads
• Sunscreen, aloe
• First aid kits
• Ice packs, eye masks

Wellness Programs

The ACA offers employers incentives for certain extra programs, provided they are designed specifically to promote health or prevent disease. Many health insurance companies and benefits packages include these in their healthcare offerings.

Nurse hotlines are a popular alternative, as it can allow employees to make a call when they have a simple medical question that may not require a doctor’s visit. Some HMOs also offer virtual doctor or nurse visits, where you can video chat with a medical professional. There are similar programs for mental health as well.

Other programs bring the medical technician to the office. This could be for blood work, giving flu shots, or doing a health screening. Finally, some health insurances offer online programs that provide health risk assessments online, fitness programs with personalized diet and exercise advice, and even incentive programs for losing weight or getting fit.

The great thing for employers is that you can get rewarded for up to 30% of the cost of coverage when your employees participate. You can learn more from the Department of Labor’s wellness program webpage.

Frequently Asked Questions (FAQs) About Types of Insurance to Offer Employees

Insurance is a tricky business. For specific policy questions, ask the providers or your benefits packager. Here are answers to some of the most common employer questions.

How much can I expect to pay for insurance?

This depends on what policies you purchase. However, a survey by the Kaiser Family Foundation showed that in 2018, annual health insurance premiums were $19,616, of which workers paid $5,54. A rule of thumb for benefits in general (including non-insurance) is 30% of the employee’s annual income.

If I must choose, should I opt for lower deductibles, better benefits, or lower premium?

That depends on your workforce. Consider factors like age, activity (on and off the job), and general health-consciousness. You can also survey your employees to determine their preferences.

Do I have to cover family members?

You are not required to cover family members by law. However, most employees expect it.

For religious/moral reasons, my company does not want to provide ACA-approved insurance policies. What can we do?

The ACA requires approved health insurance to include items that some organizations cannot morally support. These include abortion, contraception, gender reassignment surgery, and assisted suicide.

Many HCSMs provide healthcare insurance that specifically do not include procedures that contradict right-to-life and other moral issues. Some are even ACA-approved, but be careful: Such an HCSM may be approved because it supports the procedures you stand against.

If you find you cannot support any of the federally-approved healthcare plans available to you, then you may have to face federal or state penalties for not providing ACA-approved insurance.

Do I have to find all the insurance companies myself?

No. Many employee payroll and benefits services like Gusto or Zenefits offer packages of benefits and insurances. They do the research and make sure your offerings meet federal and state laws. Plus, they administer the programs for you.

Where can I find out what’s required?

We provided links throughout the article for good places to seek more details. However, the departments of labor for the federal and state governments are good places to find the most authoritative information. Also, check with professional business organizations or HR associations. Finally, look to your competitors to see what the standard is for your industry.

Do my employees have to all have the same benefits?

It’s certainly easier, but no. You can select certain plans for specific groups. Also, employees have a level of choice. For example, with working couples, one spouse may elect not to get health insurance but be a dependent on the other’s policy instead.

Is insurance the best benefit to offer employees?

Aside from what’s required by law, insurance is not necessarily the best benefit to offer employees. They may prefer you put those benefits dollars into increased salary, greater 401(k) contributions, or even the juice bar. The best way to know is to ask.

Bottom Line

Insurance won’t protect your employees from bad things, but when tragedies happen, it can help keep a bad situation from getting worse. While some, like health and unemployment insurance, are required by law for companies of a certain size and situation, others are completely up to you and what you think will best serve your employees. Take time to explore options and make a decision that works best for the company budget as well as worker morale.