Welcome to the Illinois Health Matters Blog

What health reform means for the people of Illinois

A blog by IllinoisHealthMatters.org

Tuesday, December 16, 2014

Employers: Dropping Group Health Insurance Could Cost You

Looking ahead to 2015, many employers are deciding how to respond to the rising cost of employee group health insurance premiums. A study of employers by the large consulting group Mercer suggests that “the per-employee health benefit cost will rise by an average of 3.9% in 2015.” Although this is moderate compared to past premium-increase trends, “two-thirds of respondents say they will make changes to their health plans next year to rein in cost growth.”

Using Cash Pay-Outs Instead


To control costs, some small employers are considering dropping group coverage altogether. In a recent article by the Wall Street Journal, WellPoint, Inc. reported that “its small-business-plan membership is shrinking faster than expected and it has lost about 300,000 people.”

Many small employers are instead planning to offer a cash payout – a lump-sum of cash – for employees to purchase coverage on their own or through the new ACA marketplaces. While this may appear an attractive way to rein in health insurance costs, employers must consider the tax implications for employees and their organization. Taken together, cash pay-outs will actually increase costs overall for both employers and employees.

Employees Will Pay More...


Group insurance is a better deal for employees. With group health insurance, the amount that an employer pays towards an employee’s health insurance is not counted as taxable income. In addition, employee premium contributions can be withdrawn pre-tax directly from their paycheck. This substantially reduces the employee’s overall taxable income and the income tax they will pay. The example below shows the monthly take-home pay for a person making $6,250 per month who participates in an employer-sponsored group health plan.


As the example indicates, the employee’s net pay is $3,955. In comparison, if the same employee instead received a cash pay-out to purchase health insurance individually, they would make $3,595 per month. Example 2 shows how employees will end up paying more in taxes and more for their insurance when a cash pay-out is used.


As you can see, cash pay-outs will reduce overall employee compensation. When employees give workers cash to pay for their own health insurance, the money increases their gross income and in effect the monthly taxes they must pay. Additionally, the money directed toward employee premiums cannot be withdrawn pre-tax from their paycheck.

The real numbers will change depending on premium costs, tax brackets, and income level, but the message is consistent: employees will lose money. Employee Benefits Corporation has a great calculator tool that helps individuals understand the personal impact of pre-tax benefits.

... And So Will Employers


Because cash pay-outs increase employee gross income, the amount that the employer must pay in state and federal taxes will also increase. In our example above, when the employer offered group health insurance, the employee earned a base monthly salary of $5,650. In the second scenario, the employee’s monthly salary increased to $6,850. Employers pay on average 7.65% of their monthly payroll for Social Security and Medicare. For the employer providing group health insurance, the cost for Social Security and Medicare is $432; the employer offering cash instead of benefits would pay $524. This results in a difference to the employer of $92 per month – just for this one employee.

Higher salaries created by cash pay-outs also mean higher workers compensation costs, and short-term and long-term disability insurance. Since workers’ compensation replaces a portion of the employee’s salary, the higher the salary, the higher the costs. The same is true for short- and long-term disability insurance, which replaces all or part of employee salaries.

Stick With Group Health Insurance


Before quickly migrating to cash payouts employers should quantify cost implications for themselves and their employees. This calculation can complicate and lengthen the decision making process – but it is time well spent in the long run. If the goal is to reduce financial burden, using cash pay-outs ultimately creates the opposite effect and the promised reduction in costs is an illusion.



Michele Thornton, MBA
Insurance and Benefits Consultant


49 comments:

  1. This article is efficient. Thank you for sharing it with us. I am visiting this blog on a daily basis and I am finding so much helpful article each time. Keep working on this and thank you once again. xnxx

    ReplyDelete
  2. I see your point with the cash payout process versus the ultimate coverage of 1 body of people. Recently I read about a similar predicament with an answering service rather than a receptionist. Also, with insurance it is a lot easier to cover 1 customer who has 4 services, then 4 customers who have 1 service. commercial business insurance

    ReplyDelete
  3. Medical insurance for the majority of can be the most crucial form of insurance coverage you can obtain, if you where you'll get ill the money you'll turn out paying out can lead to financial damage until you are usually sufficiently covered. Throughout declaring that Medical insurance can be quite high-priced in fact it is essential that you are usually an educated customer prior to acquire the idea.Trucking Insurance

    ReplyDelete
  4. This comment has been removed by the author.

    ReplyDelete
  5. Hey one is always looking for something that really helps all to weight loss and become energetic and active. But also i heard about Total Cleanse Detox Diet which is related to being fit and active by natural ways like homemade detox cleanse and kidney cleanse diet. As name already shows hint i.e, it depends on your daily diet and drinking of water. There aim is to fit everyone through drinking enough water on daily basis, eating fresh fruits and vegetables. If anyone wants more information regarding that just need to visit www.totalcleansedetoxdiet.com.

    ReplyDelete
  6. Health insurance must be effective insurance for every people because any time needed for everyone.We are compare business insurance but thinking to add health insurance. For that reason your post must be helpful to me. Thanks Michele Thornton .

    ReplyDelete
  7. This article is a must read for the small business owner or self-employed consumer who is tasked with purchasing their own health insurance policy. It offers great insight on how to achieve insurance Agents between four important variables that affect plan price and quality. It also includes a list of 10 key questions that business owners should know about their current health insurance policy, but often don't. It also offers tips on how to find a reputable health insurance agent and advice on how to avoid falling prey to an insurance scam.

    ReplyDelete
  8. Professional medical payment and code deals with your submitting and succeeding follow-ups connected with boasts for medical products and services taken by
    Trucking Insurance firms. Yet, what on earth is medical code and how does it assist? Effectively, a large number of forms of boasts tend to be proven based on particular codes which might be representative of the processes set up.

    ReplyDelete

  9. This post is very useful for us. Because we have a lot of
    tips and tricks from this post. Thank you for this amazing post share. I many
    tips about job circular as well. If you want to know more about a career sites, please visit our website.
    www.bd-career.com

    ReplyDelete
  10. can i put it on my website giving you credit?

    ReplyDelete
  11. This article makes complete sense, I do not understand why more people are not looking at it like this. In the meantime, after reading your article I did a comparison my self and found that in Wisconsin the cost of the individual product is about the same as the group cost : https://medium.com/@Lifestyle.Health.Group/employers-save-money-by-not-dropping-health-insurance-89aa2e1ac4c5

    ReplyDelete
  12. mfingro.com is the best options to choose Employee Benefits, Life Insurance Retirement Plans and Group Health Insurance or Employee Benefits Guide.

    ReplyDelete
  13. I like to spend my free time by reading various internet recourses. Today I came across your website and I located it is as one of the best free resources available! Well done! Keep on this quality! Cheap Health insurance in Houston

    ReplyDelete
  14. Very nice site, I just came to know of it yesterday afternoon. Bookmarked this and also stumbled upon it. Thanks a lot,You had some nice ideas in the article, I enjoyed scaning it. Cheap Commercial insurance in Houston

    ReplyDelete
  15. read your post its really informative keep updating with newer post on medical insurance

    ReplyDelete
  16. While talking about payday loans, there are many people who tell you that it an expensive service that ask for high interest rate and fees that lead people to deeper debt. From all these people who talks about negative impact of payday service, there are very few who actually used it. Allied Cash is an Industry Leader in Payday Loans Online

    ReplyDelete
  17. Great Post! It's very nice to read this info from someone that actually knows what they are talking about. employee benefits program New York

    ReplyDelete
  18. Read your post its really informative and keep updating more about medical insurance plans

    ReplyDelete
  19. Every week-end I used to pay a fast visit this site, because I’d like enjoyment, because this web site conations certainly fussy material. Cheap Commercial auto insurance in Houston

    ReplyDelete
  20. Read your post its really informative and keep updating with newer post on Health Insurance

    ReplyDelete
  21. hi this is aarya and thanks for the informative blog on health insurance plan that's really informative blog for me

    ReplyDelete
  22. Nice and interesting information and informative too. Can you pls let me know the good attraction places we can visit: medical insurance policy

    ReplyDelete
  23. Life insurance is very important and it is the best way to save money. If you are busy person and have no any time to go insurance company and you can easily get insurance in the internet.
    group health

    ReplyDelete
  24. Cool stuff you have got and you keep update all of us. Texas low cost insurance

    ReplyDelete
  25. This a valuable topic indeed. I will be pleased if you inform me more about California Business Insurance

    ReplyDelete
  26. Health Insurance from reputable insurers like Bupa, Cigna, Aetna and Now Health. Health policy covers Malaysia, Singapore, Philippines, Myanmar and worldwide.

    ReplyDelete
  27. Take one day at a time. Keep your focus on the fact that you will get to where you want to be. read this

    ReplyDelete
  28. Great post, Thank you for sharing. Insurance is really important to us it is protects a person or entity from extreme financial loss or responsibility due to an unfortunate emergency, accident or negative unforeseen event.

    insurance philippines

    ReplyDelete
  29. One thing that I like about the Internet, it is that you can find more useful information. there are amazing information like that this one insurance agents near me

    ReplyDelete
  30. Thank you for sharing such great information.It is informative, can you help me in finding out more detail on
    health insurance reviews

    ReplyDelete
  31. Actually i was looking for this type of information over the internet and finally got here. Thanks for giving these helpful tips
    insurance companies near me

    ReplyDelete
  32. Hello my dear,

    I see your blog every day ... your blog is very useful for me and I love so much ...

    You can see also ..


    Find best health insurance, medical insurance company in Staten Island and New York @ life143.net with

    best price.



    Visit Now - http://www.life143.net//

    ReplyDelete
  33. Hello my dear,

    I see your blog every day ... your blog is very useful for me and I love so much ...

    You can see also ..


    We offer best health care insurance, health Plans in Manhattan & New York with affordable price at

    life143.net. Join Now.



    Visit Now - http://www.life143.net//

    ReplyDelete
  34. I believe there are many more pleasurable opportunities ahead for individuals that looked at your site.
    Insurance Tips

    ReplyDelete
  35. I've just decided to create a blog, which I have been wanting to do for a while. Thanks for this post, it's really useful!
    aia takaful

    ReplyDelete
  36. Hello my dear,

    I see your blog every day ... your blog is Very useful for me and I love so much ...

    You can see

    Find best health insurance, medical insurance company in Staten Island and New York @ life143.net with best price.

    Visit Now - Health Benefit Staten Island

    ReplyDelete
  37. Life Insurance is one of the most important insurance a person should have.. especially if you have a family you must take care of
    health insurance agent

    ReplyDelete
  38. I just see the post i am so happy the post of information's.So I have really enjoyed and reading your blogs for these posts.Any way I’ll be subscribing to your feed and I hope you post again soon.
    Group Medical Insurance Dubai
    Insurance Companies in Dubai
    Health Insurance Dubai

    ReplyDelete
  39. Hello my dear,

    I see your blog every day ... your blog is Very useful for me and I love so much ...

    You can see

    Find best health insurance, medical insurance company in Staten Island and New York @ life143.net with best price.


    Visit Now - new york health insurance

    ReplyDelete
  40. Hello my dear,

    I see your blog every day ... your blog is Very useful for me and I love so much ...

    You can see

    Find best health insurance, medical insurance company in Staten Island and New York @ life143.net with best price.


    Visit Now - Health Insurance New York

    ReplyDelete
  41. Keep your health safe and secure with nature and say "natural products are universal life" thanks

    ReplyDelete
  42. You may uses several helpful essential oil for your reguler heath maintain and young making natural products with http://www.aosproduct.com/ thanks

    ReplyDelete
  43. Find best health insurance, medical insurance company in Staten Island and New York @ life143.net with best price.

    Visit Now - Medical Insurance Staten Island
    -----------

    ReplyDelete
  44. When your website or blog goes live for the first time, it is exciting. That is until you realize no one but you and your. aetna uae

    ReplyDelete