What are Other Benefits?
Understanding Government Employee Benefits: Health Plans, Flex Accounts, and More
One of the draws to employment with a government agency is the reliability of benefits. Government agencies, whether it be federal, state, county or city, are normally in the forefront of progress and stability for benefits. Following is a brief overview of some of the most commonly provided benefit options for government agencies. Utilizing the benefits as part of the draw to employment can offset the salary issue that is normally present due to budget constraints. Health benefits include medical, dental and vision plans. There are standard offerings available that include a plan administered through a pool, self‐funding, or fully-insured group. A pool is a group of similar entities that “pool” their resources in order to spread the risk. MMIA is an example of a health plan pool. Each member entity contributes a certain amount per employee, and the pool works with a Third-Party Administrator (TPA) who receives, and processes claims according to the plan designed by the pool/member entity. The biggest cost in a pool is actual claims dollars. A self‐funded group is an entity or employer forming their own plan and contracting with a TPA to administer the claims. The risk is higher with a self‐funded group because they absorb the claims as well as the administrative fees (just like a pool) but are restricted to spreading the risk with the amount of people insured from just their entity. A self‐funded group is not subject to many of the same regulations as a fully insured group. Often, a self‐funded group Montana Municipal Officials Handbook 116 (as well as a pool) will contract with a re‐insurer. A re‐insurer is, essentially, insurance for claims above a set
amount. The group pays premiums and then if they have the need to pay on a high dollar claim that reaches the agreed upon threshold, they submit it to the re‐insurer. A fully insured group is the more traditional product when insurance is considered. The costs for a fully insured plan
can be higher because the risk is not spread through a pool. Funds are directed to claims and administrative fees as well as components such as overhead, taxes, inflation, profit (for the insurance company), etc. Determining which plan is best depends on many things such as eligibility to belong to a pool, entity size, needs of the municipality, financial solvency, and many more factors. Once that is determined, the actual plans themselves must be designed or chosen. Plan variables include the following:
• Deductible ‐ Specified dollar amount that must be incurred before the plan will pay for each benefit period.
• Co-insurance - Set percentage amounts that indicate how the plan and covered employee share responsibility of allowable charges.
• Out of Pocket Maximum (OOP Max) ‐ The maximum amount of co-insurance that an employee will pay before the plan begins paying 100%. This sometimes includes deductibles and copayments but not always.
• Copayment ‐ Specified dollar amount payable by the employee for specific charges, often seen as an “office visit charge”. This amount is charged regardless of if the deductible has been met. It does not apply toward the deductible and usually not toward the Out of Pocket Maximum. The plan pays for any allowable amounts above the copayment.
• Limitations & Maximums ‐ These can be visits, treatments, therapies, services or even dollar amounts. For example, a plan may set a limit of 30 chiropractic visits per year.
• Allowable Amount ‐ Almost all TPAs utilize provider networks. There may be benefit differentials when utilizing in-network and out-of-network providers. However, the biggest reason to utilize an in-network provider is that those providers accept the set allowable amount as the amount of reimbursement and will not bill the difference between their charge and the allowable amount. Catching conditions early on is a great preventive measure. Most plans include services that do just that, including, but not limited to, wellness programs, large case management, employee assistance programs, nurse lines, and wellness/preventive screenings. Flexible Spending Accounts, also referred to as Cafeteria Plans, are pre-tax benefits available under Section 125 of the IRS. It is a tax‐advantaged financial account that allows employees to set aside pre‐tax earnings for qualified expenses. Qualified expenses include out-of‐pocket medical expenses such as deductibles and copayments, dental
and vision expenses, and many over‐the-counter health items like aspirin or bandages. Dependent child-care (daycare) can also qualify as an eligible expense on some Flex Plans. Any portion of health coverage premiums that an employee is responsible for can also be run through the Flex Plan so that premium payments are tax‐free too. Although there are obvious advantages to the employee as they are not paying taxes on these expenses, there are
also benefits to the employer. The employer’s share of FICA tax (6%) is saved on every dollar an employee contributes to a Flex Plan. There are fees assessed to the employer to make the plan available. However, the fees are nominal compared to the FICA savings and the benefits made available to the employees. 3. Governing the Municipality 117.
Other Benefits to Consider
• Life insurance for the employee and their spouse and/or dependents - Most employers break this up into an automatic Basic Life policy and a Voluntary Life Policy to which the employee contributes.
• Accidental Death & Dismemberment (AD&D) ‐ These premiums are nominal and yet it is insurance for future use if something were to occur. This is usually a supplement to traditional Life Insurance.
• Short/Long Term Disability ‐ This is essentially paycheck insurance. Premiums are paid to purchase a policy that ensures ongoing paychecks in case of an extended illness that prohibits the employee from working. This is not Workers’ Compensation Insurance that is required for the employer to provide. This is a supplemental policy paid for by the employee.
• Voluntary Employee Beneficiary Association (VEBA) ‐ This is another pre-tax benefit available to employees under section 501 of the IRS Code. It is a voluntary group of employees that share an employment-related common bond, such as under the same collective bargaining agreement. This association of employees provides certain specified benefits to its members or their designated beneficiaries. It can be funded by the employer or the employee. Funds are contributed and held in a trust for payment of benefits that typically include health related expenses. The funds are not taxable, nor is the interest earned, however the benefits paid out may or may not be taxable depending upon the benefit.
amount. The group pays premiums and then if they have the need to pay on a high dollar claim that reaches the agreed upon threshold, they submit it to the re‐insurer. A fully insured group is the more traditional product when insurance is considered. The costs for a fully insured plan
can be higher because the risk is not spread through a pool. Funds are directed to claims and administrative fees as well as components such as overhead, taxes, inflation, profit (for the insurance company), etc. Determining which plan is best depends on many things such as eligibility to belong to a pool, entity size, needs of the municipality, financial solvency, and many more factors. Once that is determined, the actual plans themselves must be designed or chosen. Plan variables include the following:
• Deductible ‐ Specified dollar amount that must be incurred before the plan will pay for each benefit period.
• Co-insurance - Set percentage amounts that indicate how the plan and covered employee share responsibility of allowable charges.
• Out of Pocket Maximum (OOP Max) ‐ The maximum amount of co-insurance that an employee will pay before the plan begins paying 100%. This sometimes includes deductibles and copayments but not always.
• Copayment ‐ Specified dollar amount payable by the employee for specific charges, often seen as an “office visit charge”. This amount is charged regardless of if the deductible has been met. It does not apply toward the deductible and usually not toward the Out of Pocket Maximum. The plan pays for any allowable amounts above the copayment.
• Limitations & Maximums ‐ These can be visits, treatments, therapies, services or even dollar amounts. For example, a plan may set a limit of 30 chiropractic visits per year.
• Allowable Amount ‐ Almost all TPAs utilize provider networks. There may be benefit differentials when utilizing in-network and out-of-network providers. However, the biggest reason to utilize an in-network provider is that those providers accept the set allowable amount as the amount of reimbursement and will not bill the difference between their charge and the allowable amount. Catching conditions early on is a great preventive measure. Most plans include services that do just that, including, but not limited to, wellness programs, large case management, employee assistance programs, nurse lines, and wellness/preventive screenings. Flexible Spending Accounts, also referred to as Cafeteria Plans, are pre-tax benefits available under Section 125 of the IRS. It is a tax‐advantaged financial account that allows employees to set aside pre‐tax earnings for qualified expenses. Qualified expenses include out-of‐pocket medical expenses such as deductibles and copayments, dental
and vision expenses, and many over‐the-counter health items like aspirin or bandages. Dependent child-care (daycare) can also qualify as an eligible expense on some Flex Plans. Any portion of health coverage premiums that an employee is responsible for can also be run through the Flex Plan so that premium payments are tax‐free too. Although there are obvious advantages to the employee as they are not paying taxes on these expenses, there are
also benefits to the employer. The employer’s share of FICA tax (6%) is saved on every dollar an employee contributes to a Flex Plan. There are fees assessed to the employer to make the plan available. However, the fees are nominal compared to the FICA savings and the benefits made available to the employees. 3. Governing the Municipality 117.
Other Benefits to Consider
• Life insurance for the employee and their spouse and/or dependents - Most employers break this up into an automatic Basic Life policy and a Voluntary Life Policy to which the employee contributes.
• Accidental Death & Dismemberment (AD&D) ‐ These premiums are nominal and yet it is insurance for future use if something were to occur. This is usually a supplement to traditional Life Insurance.
• Short/Long Term Disability ‐ This is essentially paycheck insurance. Premiums are paid to purchase a policy that ensures ongoing paychecks in case of an extended illness that prohibits the employee from working. This is not Workers’ Compensation Insurance that is required for the employer to provide. This is a supplemental policy paid for by the employee.
• Voluntary Employee Beneficiary Association (VEBA) ‐ This is another pre-tax benefit available to employees under section 501 of the IRS Code. It is a voluntary group of employees that share an employment-related common bond, such as under the same collective bargaining agreement. This association of employees provides certain specified benefits to its members or their designated beneficiaries. It can be funded by the employer or the employee. Funds are contributed and held in a trust for payment of benefits that typically include health related expenses. The funds are not taxable, nor is the interest earned, however the benefits paid out may or may not be taxable depending upon the benefit.