It’s no secret that medical practices face an ever-shrinking talent pool of recruitable physicians, along with increased competition for them. By 2024, there will be 4,500 fewer medical school graduates than available residencies, according to a 2015 analysis published in The New England Journal of Medicine. By 2034, the United States might face a shortage of 124,000 physicians, according to the Association of American Medical Colleges (AAMC). At the same time, it will be increasingly difficult to retain top talent. As fewer doctors emerge from residency, practices will experience a physician workforce that’s aging and retiring, or just plain burnt out.
It’s not surprising that top hires today make employment decisions based not only on a competitive salary, but also benefits — particularly health insurance benefits, the number-one workforce cost behind salaries. These hires seek optimal health coverage beyond what typical group plans provide. Yet in this era of increasing premium costs and diminishing benefits, how can practices affordably and tax-efficiently offer that?
An often-overlooked solution to this dilemma are excepted-benefits health plans. These plans can dramatically and cost-effectively boost a practice’s health benefit offerings to top doctors and key staff members, while also providing a highly effective recruitment and retention tool that can differentiate its total compensation package from the competition.
What are excepted-benefits health plans?
Excepted-benefits health plans are non-traditional, fully insured and tax-advantaged health plans that are exempt from Affordable Care Act (ACA) requirements, which means they can be offered to select (versus all) employees at the employer’s discretion, including practice owners/partners. They also are exempt from other ACA restrictions, including annual limits and the age 26 rule. These plans are known and marketed as “select,” “key” or “executive” employee medical (or health) cost reimbursement plans — and are not to be confused with government-regulated HRA excepted-benefits plans.
Excepted-benefits health plans provide typically tax-exempt reimbursement to select employees and their eligible dependents for virtually all medical costs not covered by their primary health plan, including deductibles, co-pays, co-insurance and other out-of-pocket (OOP) costs. The employee’s primary health plan can be the practice’s group plan, an individual policy, spousal policy or Medicare plan — as long as those policies meet the requirements of the excepted-benefits plan provider.
Importantly, all fixed and variable premium costs are fully tax-deductible for employers. This is a particularly attractive feature for S corporations, whose owners/partners often cannot take tax deductions for primary health insurance costs.
Broad benefits coverage plus other perks
Excepted-benefits plans offer an annual maximum benefit of as much as $100,000, which covers the employee and his/her eligible dependents. This not only covers deductibles, co-pays, co-insurance and other OOP costs not covered by the participant’s primary health plan, but also a multitude of medical expenses rarely covered by most health plans today.
Among the broad range of covered expenses these plans offer are dental/orthodontic procedures; vision care, including eyeglasses, contacts and even Lasik surgery; hearing aids; in-home nursing; speech therapy; physical therapy; substance abuse treatment and facilities; and comprehensive psychiatric and psychological treatment for mental health issues. Some plans even offer coverage for infertility diagnosis and treatment, including IVF.
A few excepted-benefits plans also offer participants several value-added benefits at no added costs. These can include Accidental Death & Dismemberment (AD&D) coverage with up to a $100,000 maximum lifetime benefit, as well as 24/7 worldwide health coverage, and even medical travel concierge services.
Additionally, excepted-benefits plans can be added to any prospective or existing employee’s qualifying base health plan any time during the calendar year, according to a practice’s workforce needs. So there’s no need to wait for 2023 renewals to offer these plans. What’s more, excepted-benefits plans typically have no pre-existing condition exclusions, very limited eligibility requirements, and no enrollment waiting periods.
Advantages over HSAs and HRAs
To minimize and control health insurance costs, many medical practices offer their employees a high-deductible health plan (HDHP) in conjunction with a government-regulated health savings account (HSA), sponsored by employers, employees or both. Because of their high deductibles, it can be months or far longer for true insurance coverage to kick in once deductibles are satisfied. However, even with the maximum allowed contribution amounts, HSAs do not nearly cover an HDHP’s OOP costs.
Many other medical practices offer their employees an employer-sponsored health reimbursement account (HRA) or a flexible spending account (FSA), funded by employers and/or employees. These, too, are restricted in funding amounts, which only make a dent in annual medical costs for individuals and families.
While these consumer health-savings accounts offer tax advantages for employers and employees, they are not health insurance. And while they may be adequate for rank-and-file employees, they offer little compensation allure for top hires seeking optimal health benefits. Excepted-benefits health plans, on the other hand, provide key employees with true insurance coverage, benefits and value — as well as tax advantages.
Suppose your practice provides its employees an HDHP with an HSA. If you want to offer your key employees an excepted-benefits health plan, those employees cannot participate in your HDHP/HSA. Instead, you can offer those employees a qualifying, low-cost base health plan and augment it with an excepted-benefits plan. The same goes for HRAs: Employees cannot participate in two tax-advantaged plans simultaneously.
Costs of an excepted-benefits plans and how to choose one
Excepted-benefits plans charge a fixed annual premium, which can be as low as $500 per plan participant. They also charge a variable premium, which is a percentage of employee claim amounts, and is only incurred if and when a claim is approved. To protect employers from excessive claim amounts for a single procedure or treatment, most plans feature a “per occurrence” claim limit that’s roughly 10% of the plan’s annual maximum.
Of course, fixed and variable premiums costs (all of which are tax-deductible for employers) vary by plan provider, as do annual plan maximums. For example, some plans may charge an annual fixed premium per employee, while others charge a more costly monthly fixed premium.
Excepted-benefits plans also offer different value-added benefits — that is, AD&D coverage, 24/7 worldwide coverage, travel medical-concierge services, etc. Plus, they require different minimum numbers of plan participants, ranging from three to 50 employees.
Thus, it’s wise for practices to research available plans to find the one that best meets their budget and workforce needs.
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