What is Supplemental Insurance?

Supplemental insurance plans, or voluntary benefits, are the products or services that employers can provide or make available for their employees to purchase as an expansion of their core benefits package. These may cover dental care, vision care, maternity care, critical illnesses and injuries, accident care, disability insurance, and more. These optional benefits may be provided by employers to supplement their core health insurance options, or made available to employees on a voluntary basis so they may enjoy the freedom of customizing their benefits to suit their needs with a la carte options. Employers, meanwhile, receive the direct benefit of increased employee satisfaction, frequently at low or no cost to the business.

While once seen as entirely optional, many of today’s employees view supplemental insurance as vital to their financial health and overall wellness. Many of today’s employers agree. In a recent survey, 75% of surveyed employers reported that their benefits programs positively influence their businesses goals by increasing productivity, attracting top talent, and reducing turnover. At a time when rising health care costs prevent two-thirds of employers from increasing employee compensation, voluntary benefits allow maxed-out employers to offer employees the benefits that yield business-growing productivity and satisfaction.

Unlike the over-the-top perks that tech giants provide to lure in the best and brightest, voluntary benefits do not require a big budget or a big business behind them. In fact, many plans require fewer than five employees to qualify. For small companies competing with Google-sized Goliaths, voluntary benefits can provide a low or no cost way to offer the robust benefits packages that attract the modern workforce’s top talent.

In addition to protecting meal and rest breaks, the California labor code covers issues such as overtime pay, tip pooling laws, vacation laws and more. When it comes to California labor law, meal and rest period rules can sometimes be extremely technical and complex for HR compliance. However, the basic requirements and compliance practices are fairly straightforward for most employment situations.

Here is all you need to know about a voluntary benefits plan and what it can do for your employees and your business. 

Why Should My Company Offer Supplemental Insurance? 

Attracting the top talent in today’s workforce has many businesses working overtime to appeal to three different generations at once, which often results in a confusing and fragmented company culture that fails to impress any of them. As the foosball table in the breakroom gathers dust, great jobs go unfilled as recruiters go back to the drawing board.

Much of the modern US workforce has the same concern, and it has nothing to do with whether there are bean bags in the break room. According to a 2017 Aflac Workforces report, 65% of surveyed employees reported that they could not afford an unexpected illness or accident if their out-of-pocket costs exceeded $1000, with 46% sharing that they are not very or not at all prepared to pay out of pocket for an accidental injury or illness.  

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While economic indicators point to an economy in recovery, nearly 80% of the US workforce is living paycheck to paycheck and report that the recovery has had little impact where it counts: their wallets. Many small to medium-sized employers feel a similar squeeze and find themselves trapped between the already high costs of employee benefits and the stark reality and equally high costs of a stressed, financially insecure employee population: financial stress impacts employee productivity and performance.

This is why many employers have begun to view benefits packages as one of the many tools that helps them to achieve organizational goals. With a workforce in control of their healthcare decisions and feeling confident in their ability to weather the financial storm that an unexpected illness or injury might bring, employers provide employees with the financial security they need to stop stressing and start performing their best again.

What Types of Voluntary Benefits are Available?

Health

Supplemental health insurance benefits can provide employees with additional options to cover gaps in their core health insurance policy. Vision and dental insurance are two commonly offered plans in this category.

These plans may also offer assistance paying for hospital bills or living expenses in the event of injury or illness. These benefits are not a substitute for primary health insurance but, instead, give employees the freedom to choose additional coverage beyond their primary plan and tailor their overall benefits package to their needs. 

health

Financial insecurity has become the rule rather than the exception for workers across generations and demographics. Nearly half of employees surveyed by Aflac reported being unprepared to pay for the expenses associated with an unexpected illness or injury, should one occur. The same survey revealed that 1 in 5 employees have avoided seeing a doctor or delayed a medical procedure due to cost. For nearly a quarter of employees, stress over their personal finances creates a distraction for them at work.

Employers who offer supplemental insurance that helps to alleviate the financial burden of an unexpected accident or illness is one way that employers can use voluntary benefits to improve the financial well-being of their employees while also protecting their bottom line.

Cancer Insurance

Cancer is the second leading cause of death for Americans. According to the American Cancer Society, US men have a one in two chance of developing cancer in their lifetime, and one in four will die from it. For American women, the chances are that one in three will develop cancer with a one in five chance of dying from it. With the prevalence of this disease and the high costs of treatment, it is not unusual for employees to worry about how they could afford to pay for the life-saving treatments they would need should they receive a positive cancer diagnosis.

critical-illnessSupplemental cancer insurance can provide employees with scheduled or lump sum payments to cover some of the treatment costs that their primary health insurance does not. Depending on the policy, an employee with a positive cancer diagnosis may receive payments or reimbursements to cover the cost of:

  • Tests

  • Treatments

  • Procedures

  • Deductibles

  • Co-pays

  • Other expenses that result from cancer diagnosis and treatment

  • Child care and other non-medical expenses

Some policies may cover only a select few of these specified expense types while others, such as the portable coverage offered by Aflac, provide an initial diagnosis benefit or lump sum payout to be used as the policyholder sees fit when a covered individual receives a positive cancer diagnosis.

Critical Illness Insurance 

Similar to cancer insurance, critical illness insurance is intended to cover the gaps in an employee’s primary health insurance coverage and provide assistance paying some of the costs to treat a diagnosed critical illness. Some illnesses covered by this type of plan may be:

  • Heart attack

  • Stroke

  • Coma

  • Human organ transplant

  • Renal failure

  • Third degree burns

Just as with the payouts associated with cancer insurance, critical illness insurance plans will vary by provider. Some may cover different illnesses, only cover the individual policyholder, or pay just for specific, pre-approved expenses. Others, such as that provided Aflac, include coverage for dependent children and payout a lump sum upon diagnosis to be used at the discretion of the policyholder.

Disability, Hospitalization, and Accidental Injury  

Illness is not the only concern that may keep employees awake at night. Illnesses and injuries can strike at any time, and many employees cannot afford to take the time off of work for their own or a loved one’s recovery. In the event of a qualifying long-term disability, Social Security payments will not begin until at least six months after the qualifying event.

Many employees are already stretching their budgets as far as they can go. They know they need a financial safety net to protect them financially if they become sick or injured; they simply do not have the resources to build one. Offering supplemental insurance plans that will help employees cover the costs of short-term disabilities or accidents is an easy way for employers to throw their employees a much-needed lifeline that brings with it a sense of financial security.  

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Short-term Disability Insurance

In five US states and one US territory, short-term disability insurance is a required benefit. These states are:

In these locations, disability funds are collected through payroll taxes and can be employee-funded, employer-funded, or a combination of both. When an employee is temporarily disabled and cannot work due to illness, non-work related injury, or childbirth, the state program pays out disability benefits to the employee equal to a percentage of their typical salary.

Short-term disability insurance may also pay benefits to an employee who has sustained an injury that will qualify them for federal Social Security benefits. As Social Security does not cover the first six months of disability, however, qualified individuals may collect short-term state payments in the interim.

Employees not living in one of the above six locations above may still be covered by FMLA leave provisions depending on their employer. This protection, however, only provides leave time for qualified events, leaving many unable to afford to take the necessary time off of work that they need to recover when they experience a qualifying short-term disability. A supplemental short-term disability insurance policy, sometimes referred to as a third-party disability plan, can help those whose illness or injury requires extended leave for recovery to do so while receiving benefit payments to help pay their bills while they are unable to work.

Supplemental disability plans may not be limited to those in areas without state coverage. Some programs, such as Aflac’s short-term disability plan, may provide partial disability payments even if the qualifying event does not prevent the covered individual from working. With this type of arrangement, payments for a qualifying partial or total disability events are made directly to the policyholder regardless of any other coverage they may receive.

Accident Insurance

When employees are injured on the job, their employer’s workers’ compensation insurance should cover the costs of their medical care and make wage replacement payments until they are recovered and able to resume work. For off-the-job accidents, however, workers’ compensation does not apply.

Accident insurance is one option for employees to cover the out-of-pocket costs their health insurance does not pay for and which they might incur as a result of an accident. Accident insurance serves to supplement any payments they may receive under a disability plan. Policies may be used to cover accidents and injuries such as:

  • Fractures

  • Dislocations

  • Concussions

  • Burns

  • Lacerations

  • Eye Injuries

accident-insurance-fractureIn addition to paying policyholders directly after a qualifying injury, some accident plans may pay out additional benefits related to ongoing rehabilitation and therapy costs, initial treatment costs and exams, and hospital expenses, such as:

  • Diagnostic exams

  • X-rays

  • Follow-up treatments

  • Occupational therapy

  • Physical therapy

  • Speech therapy

  • Hospital stays

  • Ambulance transportation

  • Medical appliances

  • Prosthetics

  • Home modifications

  • Family lodging

Additional options

Other plans that employees and prospective employees may find valuable include:

  • Dental insurance

  • Vision insurance

  • Life insurance

  • Hospital insurance

  • Maternity insurance

  • And more.

⟶ Not sure what benefits to offer? Learn how to determine which voluntary  benefits to offer your employees.

Can my business afford to offer voluntary benefits?

What do these benefits cost?  

Supplemental insurance plans may be employee-funded, employer-funded, or funded jointly. These types of voluntary benefits are often a low or no cost option for employers who want to provide high-value benefits for their employees. By choosing a provider who offers comprehensive benefits administration services with their policies, employers can also offer supplemental insurance coverage without adding significant administration costs.

Many employers fund the benefits in full for their employees and offer the option for their employees to extend coverage to their spouse and qualified dependents, typically on a pre-tax basis. These voluntary contributions, when deducted from your employee’s pre-tax wages, give them the additional benefit of a reduced tax liability. For example:

An employee receives a weekly gross pay of $500. Their employer provides the benefit of supplemental cancer insurance and pays for the employee’s premiums. The employee chooses to extend this coverage to their spouse through pre-tax payroll deductions.

The weekly insurance premium for her spouse’s coverage is $25. This $25 is deducted from her pay before Federal Income, Social Security, and Medicare taxes are calculated.

$500 - $25 = $475 federal taxable income per week.

Her employer is responsible for making Social Security and Medicare (collectively known as FICA - Federal Insurance Contributions Act) payments on her wages, as well as FUTA (Federal Unemployment) contributions if the limit has not been met.

When contributions are made pre-tax by an employee, the tax liability for the employer is also reduced for FICA, and may also reduce FUTA liability for some plans, though there are exceptions and limitations for some benefits.

In the example above, 100% of the premium cost paid by the employer would be deductible for the business and the employer would also enjoy a reduced payroll tax liability as a result of the employee’s pre-tax contributions.      

Taxability, ACA, and ERISA

Are they taxable?

As noted above, the taxability of voluntary benefits when employees contribute to the premiums will vary.

  • If benefits are voluntary and paid for by payroll deductions from an employee’s wages, the cost of the premium may be excluded from an employee’s wages in many cases, though exceptions and limits may apply. A tax liability may be created when an employee receives a benefit payout from a plan that is funded entirely by pre-tax deductions.

  • When an employee contributes to their premium payments with post-tax earnings, such as with many short term disability and life insurance policies, the employee will not incur a taxable event when they receive lump sum benefits from these policies.  

Employers should review the impact that these plans will have on their tax liability with their benefits administrator and accountant for an individualized assessment of how their business will benefit from these plans. Generally, if the employer funds the plan entirely, 100% of the cost is deductible to the business.

What should employers know about ERISA?

ERISA (Employee Retirement Income Security Act of 1974) is a law that provides a minimum set of standards for voluntary health and retirement plans in the private sector. As employers add supplemental insurance products to their benefits packages, it is crucial that they understand which benefits are or are not subject to ERISA.

How does ERISA affect employers? Any benefits that fall under the umbrella of ERISA must follow specific administration and claims procedures and comply with ERISA disclosure and reporting requirements. How does an employer know if ERISA governs one or more  supplemental insurance plans? According to the Department of Labor:

“In general, ERISA does not cover group health plans established or maintained by governmental entities, churches for their employees, or plans which are maintained solely to comply with applicable workers compensation, unemployment, or disability laws.”  

Some voluntary benefits that are funded entirely by employee contributions may be exempt from ERISA under the DOL’s Safe Harbor for welfare plans. However, an employer’s role in the the administration of a plan must be extremely limited in order for it to be ERISA-exempt. If employees receive a premium discount for enrolling through their employer, or if the employer is compensated for offering the plan, the Safe Harbor would not apply.

Simply endorsing the plan and promoting it as part of a company’s benefits package could signify that it is ERISA-covered. While individual exceptions may apply, in general, voluntary benefits that meet the exemptions of the Safe Harbor will fail it once an employer solicits participation or promotes it as part of their benefits package. To determine if ERISA governs a voluntary benefit, employers will need to discuss their options with the plan administrator and their legal adviser.

Does the ACA have any impact on Voluntary Benefits? 

The ACA (Patient Protection and Affordable Care Act) was enacted in 2010 to expand the availability of affordable health insurance to those with household incomes between 100% and 400% of the federal poverty level; to expand access to Medicaid to adults whose income falls below 138% of the federal poverty level; and to promote innovations in medical care that could lead to reduced costs. Allowing for health insurance that is more portable than employer-sponsored plans, it also made affordable group health insurance premiums available to part-time and gig workers.

For many employers, the 2010 act also required learning and complying with a new set of regulations and changing tax filing forms. For those running small and medium-sized businesses, keeping abreast of the latest changes and remaining compliant can seem like a challenge that requires more hours than they have in a day.  If this sounds like you, here are the answers to the questions you need to know:

Do I have to provide health insurance to my employees under the ACA?

If you meet the criteria of an Applicable Large Employer (ALE), you must provide affordable minimum essential coverage to qualifying employees and their dependents and are subject to the ACA’s information reporting responsibilities. ALEs who do not offer minimum essential coverage may be required to make payments to the IRS. Many US employers fall below this threshold and are not subject to the ACA.

Is my business considered an Applicable Large Employer (ALE) under the ACA?

ALEs are employers with 50 or more full-time (FT) or full-time equivalent (FTE) employees. ALEs are required to offer affordable coverage that provides minimum value to all FT and FTE employees and their dependents under the employer shared responsibility provision.

If your company has fewer than fifty FT or FTE employees, this provision does not apply to you.

My company qualifies as an ALE under the ACA. Am I required to provide supplemental insurance plans to my qualified employees?

No. The ACA requires minimum essential coverage for qualified employees. Supplemental insurance does not meet these requirements, and is neither required by the ACA nor is it an alternative to primary health insurance under the ACA.

I’m not an ALE according to the ACA. Am I eligible for the Small Business Health Care Tax Credit if I offer Voluntary Benefits to my employees?

No. Voluntary benefits do not meet the definition of affordable minimum essential coverage, even if the employer contributes to the employee premiums. You may qualify for the Small Business Health Care Tax Credit if you have fewer than 25 FT and FTE employees to whom you provide core health insurance that meet ACA requirements, and meet the additional criteria for small employers. However, supplemental insurance plans are not a replacement for the minimum essential coverage required of the ACA and will not meet the criteria for this credit.

Will I owe an Employer Shared Responsibility Payment if my Voluntary Benefits are 100% employee-funded?

No. Since supplemental insurance policies supplement but do not replace the minimum essential coverage requirements of the ACA, employers who offer but do not contribute to supplemental insurance plans do not need to calculate or make shared responsibility payments.

Understanding the Affordable Care Act

How to decide which benefits to offer

What benefits will add value for your employees

Before you add supplemental insurance options to your benefits package, take the time to speak with a benefits advisor and explore all of your options to identify those which might add the most value for your employees. Not only will this help you zero in on the plans that are most worth your time to explore, but it can also help you to gain a thorough understanding of them so you can better educate your employees when you’re ready to roll your new benefits out.

In addition to discussing the types of coverage that your employees would be interested in, find out what they would like to spend on voluntary benefits. Frequently, there is a disconnect between an employer’s perception of their benefits and their employees’ financial reality. For example, a 2017 Aflac WorkForces Report found that while 73% of employers believed their employees had enough options to meet their financial obligations for medical costs, 46% of employees reported being not very or not at all prepared to do so.

Voluntary benefit providers may also offer supporting literature or make benefit counselors available to speak with your employees to help them decide which options fit within their budget and meet the needs of their lifestyle.

Finding a provider  

What to look for in a provider

If you have an existing relationship with a benefits administrator, they may offer additional benefits that can be bundled with your current plan or offered to your employees a la carte. The benefits that you provide to your employees should add value to them, but that does not mean you should overlook your needs as the employer as you weigh your options. Whether you are working with an existing partner or a new provider, consider some of the following aspects to determine if their services are the best fit for your business.

What administration costs will I incur?

Before you offer a new voluntary benefit, talk with the plan administrator to understand which administrative tasks they will handle and make sure you have the capacity to shoulder any that will be your responsibility. Gaining a greater understanding of the time and resources you’ll need to dedicate to setting up, launching, and maintaining any new benefit will help to determine if it is a good fit for your business. Ask about ongoing administration duties, as well, such as claims submissions, new hire enrollment, payroll deduction reporting requirements, and other tasks that will be required to maintain the plan.

What funding options will my budget allow?

Knowing whether you would like to offer benefits that are employee-funded, employer-funded, or mutually funded will help to identify the policies and providers that meet your needs. A provider who offers fully customizable options is ideal and can help you maximize your and your employee’s investments to gain the most value from their policies.

What impact will voluntary benefits have on my tax liability?

Talk to your accountant about the voluntary benefits you are considering to ensure you understand which, if any, options are deducted pre-tax from your employees as well as the savings you may see as a result.

supplemental insurance provider

Are there minimums I’ll have to meet?  

Some plans or providers may require minimum enrollment numbers for a policy, so you should ask providers about these and ensure that your company has enough interest to meet these minimums before moving forward.

Will any of my employees be excluded from coverage?

Ask providers if their insurance products are guaranteed-issue or if they require medical underwriting. Guaranteed-issue policies will cover employees without requiring a health screening, whereas medically underwritten policies may require a health screening and can exclude interested employees as well as those needed to meet minimum participation numbers.

Is it a group or an individual product?

Individual products typically do not have minimum participation requirements and are considered owned by the employee and portable. Group products, on the other hand, are deemed to be held by the employer -- these plans may have lower pricing structures but can require minimums and employees may lose their coverage if they leave their employer.

What support will my employees and I receive?

Can your employees call your benefits administrator to ask questions about their existing plan or to get answers that will help them with enrollment? Will the benefits administrator coordinate with your payroll provider to make reporting and payments a seamless process for you? Knowing whether you would like to offer benefits that are employee-funded, employer-funded, or mutually funded will help to identify the policies and providers that meet your needs.

Implementing voluntary benefits

Educate employees  

Once you have decided on which benefits to offer and who will provide them, talk with your provider to find out what support services you can expect. These may include online enrollment portals, coverage comparison materials, on-site benefit counselors, and more. It’s essential for employees to feel that they have the time and resources to understand their options well in advance of your open enrollment period.

If your supplemental insurance provider sends brochures and other literature, review it before it is distributed to your employees. Identify any confusing language and ask your provider to clarify it. Remember that you’re offering voluntary benefits to improve your employees’ well-being. If the options presented to them are confusing or make enrollment more difficult, they may not feel empowered to make the right decision.

Surveyed employees have expressed that, more than any other option presented, they wished that their benefits enrollment process would make it easy to compare their choices in an online environment similar to Amazon.com. Among those surveyed who reported being extremely satisfied with their benefits, 75% felt that they understood the total annual cost of their healthcare, while only 11% of those who do not understand their policies feel secure after enrollment.

workplace-si-1

Enrollment

Coordinate enrollment with your employees well in advance of the open enrollment period, if there is one. If your plan allows employees to enroll at any point, you may wish to create educational opportunities that follow a standard schedule to remind employees of their options throughout the year so they can take advantage of them if their circumstances change.  For new hires, include enrollment paperwork or information with their onboarding paperwork, and make enrollment part of your new hire checklist.

For existing employees, consider company-wide emails, group meetings, individual benefits counseling, banners, memos, and instant messages. If your employees need time to review their existing selections, consider scheduling blocks of time while they are in the office where their primary job functions are put “on hold” so they can focus on reviewing their options, asking questions, and gathering the information they need to make an informed decision.

While many employers provide brochures and logins to provider portals that employees can review from home, setting aside paid time for these activities communicates to your employees that you are invested in their well being and available to help.

If your provider has an online enrollment process, have your employees confirm that they can access it and navigate it before open enrollment begins. This will ensure that any password issues or other technical problems are resolved with time to spare and don’t create an unreasonable burden on employees who are trying to make their selections before enrollment ends.

Communicate any provider visits well in advance, as well, so employees can arrange to attend any informational sessions or schedule one on one time if they feel that they need it. Also, make it clear how employees can find answers to their questions by communicating any self-help materials or hotline numbers frequently and sending reminders as the open enrollment period approaches and throughout.

Conclusion

With the right mix of benefits, employers can expand the value they offer to their employees and enjoy the benefit of an engaged, enthusiastic, and productive workforce. The key to striking the right balance lies in listening to what your employees need and finding the supplemental insurance plans that will help them attain those goals. With a benefits administrator who shares your commitment, you can make sure your employee’s plan preferences are met while your budget and administration boundaries stay in place.

An active partner in providing your employees’ benefits will also help to raise awareness of your voluntary offerings and make it easy for you and your employees to navigate coverage and enrollment. In an employee’s market such as the one we are in now, the right benefits partner can be the difference between an engaged and productive staff and a staff marked by employees who are actively looking for another job offering the benefits that they need.

Partner with Accuchex for benefits administration

Founded in San Rafael California in 1990, Accuchex is one of the largest independent payroll providers in the San Francisco Bay Area, Offering a wide array of comprehensive solutions for payroll processing, human resources outsourcing, employment tax deposits and filing, benefits administration, and other human capital management functions.

contact accuchex for supplemental insurance solutions

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