Section 105 & The Small Employer
December 1, 2007
The Problem:
California group medical insurance premiums have skyrocketed 75% in the past 5 years and additional increases of 9% to 18% are being reported for the upcoming year.
Employers are being forced to resort to painful measures to cope with these recent medical cost increases:
1. Pay for the increases: how much longer can employers realistically continue this?
2. Reduce benefits: what do you do when you’ve already stripped your benefits?
3. Pass cost-increases on to employees – who’s going to pick up the tab on future rate increases?
4. Discontinue providing health insurance – sad, but true….
What’s the Solution?
For years, large employers have been able to take control and reign in their health insurance costs with self-insured plans and with partial self-funding under Section 105 of the IRS Code.
Self-insurance is not an option for most California small employers. However, Section 105 Plans allow all employers to partially self-insure any aspect of their health insurance program.
These plans are designed to take advantage of the tax benefits under Section 105 of the IRS Code, offering tax deductibility for the Employer and tax free benefits to employees.
Section 105, also known as Medical Expense Reimbursement Plans (MERP), provides opportunities for creative brokers and innovative employers to actually reduce health insurance premiums by 50% to 60%, with overall savings of 35%. This is accomplished in most cases by sharing some of the risk with your insurance carrier (our goal is to minimize, if not completely eliminate your liability with proper plan design).
Until recently, small group health insurance carriers have been reluctant to provide plans that would work in conjunction with Section 105 Plans and even more reluctant to pass the savings on to small group employers with lower premiums.
As with anything, enough pressure coupled with new competition entering the small group market in California has changed the carrier’s acceptance of Section 105 Plans and significant savings can now be achieved.
The timing is perfect for small employers to take advantage of these recent changes in the California small group marketplace NOW.
To take advantage of these savings, you first must be willing to pay for your medical insurance in a slightly different manner and second, be willing to fire your current broker (regardless of how long you’ve played golf together).
If you can do this you’ll save 25% to 40% on your health insurance without reducing benefits.
With your help, the small group health insurance market in California will continue to change for the better…
