Employers may offer insurance benefits to their employees through a group insurance plan. The term group insurance simply means that the insurance covers a ‘group of people,’ and in the case of an employer, the group is its employees. A good reason for selecting group insurance is that the coverage is based on a contract with the employer; an employee’s physical condition and age are not a factor, as in most other individual insurance contracts.
There are several types of insurance an employer may offer. Here are some with a brief explanation. For more detailed information on the specific type of insurance, see the referenced pages under each type.
Health Benefits
Common group health insurance may be offered through an indemnity plan, major medical plan, a preferred provider organization (PPO), health maintenance organization (HMO) or a point of service plan (POS). The mains differences between these plans are the flexibility to see your provider of choice (any provider or a specific network of providers), seeing a specialist, and of course, premiums, deductibles, co-pays, out-of-pocket expenses, and lifetime maximium limits. Indemnity plans, are the most expensive but offer the most patient flexibility. HMO's and PPO's are less expensive but limit patient flexibility. POS plans are a hybrid between HMO's and PPO's. They have low premiums like HMO's but greater choice like a PPO. The catch here is that if you use a provider outside of the network, your out-of-pocket expenses will be greater.
Most group plans include prescription drug coverage, as it is now considered an essential benefit as part of the Affordable Care Act (ACA) of 2010. Other health insurance coverage that group plans may offer includes dental care, vision benefits, and long-term care. These are all optional under the ACA. See the Health Insurance page of the Protect Your Potential for more information.
Income Protection
We don’t often think of our employers providing us income protection, but that’s what life, and disability insurance really does. Life insurance can be used to replace the income for the family when an employee dies. Some employers provide a base amount life insurance coverage, for example one times annual salary and may offer additional coverage at the employees expense. It’s important to know that group life benefits include both term and permanent insurance. There is a big cost difference between the two. See the Life Insurance page of the Protect Your Potential for more information.
Disability insurance replaces a portion of an employee’s income (usually up to 66 2/3%) if he or she becomes disabled. Short-term disability usually covers the employee in the first 3-6 months of a disability and long-term is usually beyond six months. See the Disability Insurance page of the Protect Your Potential for more information.
Unemployment insurance and workers’ compensation are not group insurance benefits but are part of state employment laws to protect worker’s income. One thing to note about disability, unemployment, and worker’s compensation, these programs are not designed to replace 100% of an employee’s wages. Disability and worker’s compensation max out at 66 2/3% of annual wages. The unemployment limitations are no more than 49 ½%. See the Income Sources page of the Jobs section for more information on these programs.
Other Insurances
Other insurances available through group benefits or provided directly by the employer might be property & casualty (auto/home) policies and professional liability insurance (errors and omissions for financial and law professionals, malpractice for medical professionals, surety bonds for the construction industry).
Again, review your employee benefits manual to learn what insurances are available to you. More importantly, understand what the coverage will cost you every pay period. Click on Insurance Benefits to access the worksheet which will help you record and evaluate general insurance and related benefits available to you.
At the bottom of the worksheet, there are two non-insurance but related benefits: flexible spending arrangements (FSA’s) and health savings accounts (HSA’s). Booth accounts are designed to pay for out-of-pocket medical expenses. The important thing about them is that contributions made to both plans are not subject to federal tax or FICA taxes! There are some key differences which are discussed next.
Side Bars: Flexible Spending and Health Savings Accounts
