It has long been known, employers tend to comprehend the advantages of offering benefits in their organization to increase employee engagement and attract and retain good employees to minimize expenses related to employee churn. Affinity groups such as unions and associations also appreciate the distinct advantages of offering benefits to their membership in order to attract and retain members.
Employers tend to view benefits and their administration as a “necessary-evil”, for lack of better term, due to: the complexity, administrative workload, and costs of offering and managing them. It is also common for unions and associations to experience challenges of accessing payroll slots for benefits, should they desire to offer them to their membership. For this reason, it is attractive to many employers and affinity groups alike to offer benefits, while avoiding the work and costs of accessing and managing payroll deductions.
With most insurance Premium Facilitators or TPAs that perform billing services, one of the services they offer is Electronic Funds Transfer (EFT). This billing method completely circumvents the need for payroll deductions and most of the administrative workload and costs commonly associated with them. This EFT method that Premium Facilitators and TPAs perform, is a process of drafting insurance premiums directly out of the employee or member’s personal checking account or preferred card, and remitting those to their respective insurance carriers. This process can emulate a traditional employer offering, since the carrier is receiving the payment file and an aggregated payment for all the employee or member’s coverages at one time. Some Premium Facilitators and TPAs can also accommodate drafting the employer/affinity group’s portion (if any) from the organization’s checking account. But for purposes of simplicity, we will stick with strictly managing drafts directly from employees or members for this description of the EFT process.
Utilizing this strategy of EFT-drafting insurance premiums directly from the employee or member, generally eliminates or greatly reduces the need for much of the administrative work and costs commonly associated with administering these employee/member benefits. This enables the organization to enjoy hassle-free benefit offerings, while employees and members gain access to group benefits, they would not otherwise have had access to.
Often, these benefits may be available with more forgiving carrier underwriting; and come at lower premium prices for the employee or member. Forgiving underwriting might mean all employees or members have access to benefits regardless of their health or health history. The administrative costs and workload being circumvented in this strategy may include, but are not limited to: managing payroll deductions, accounting of insurance premiums, and invoice reconciliation and payments, to name a few.
What an organization may be giving up by utilizing a direct EFT funding method for benefits, is in the event, benefits were qualified plans which the organization could have pre-taxed had they been deducted and managed through payroll on a pre-tax basis. Generally, the tax shelter is insignificant compared to the absence of the actual administrative costs of providing payroll deducted benefits, but this is something an organization would need to carefully consider and discuss with their tax advisor. It is this writer’s opinion that the avoided costs greatly outweigh the differed salary, but that again, is a conversation for their tax advisor.
In the event the organization is offering qualified plans and wishes to retain this deferment, they should discuss this consideration with the Premium Facilitator or TPA and see what options they have for insurance premium procurement, that will still enable them to enjoy the deferment and minimize as much of the workload and costs as possible.
If you choose to utilize a Premium Facilitator or TPA to manage premiums with this EFT strategy, it is important to ensure the Premium Facilitator or TPA has retention mechanisms in place to help your employees or members retain their coverage should a billing oversight occur. Billing oversights such as failures to fund, due to: Non-sufficient funds (NSF) or account closure, no available credit left on a credit card, or simply an expired credit card; causing an inadvertent loss of benefits. So having these technological methodologies that focus on helping employees and members recover from these oversights can help the employee/member become aware of the premium draft failure, and keep their coverages, avoiding the vulnerability that may come from a life event happening to the unknowingly uninsured. Retention mechanisms should include automated texting and emailing as well as placing phone calls to the effected employees or members following a funding failure.
It is also useful to have reporting readily available so a broker or carrier rep can communicate with their clients who have experienced a disruption in their insurance premium payments, enabling the broker or agents to optimally serve their clients by assisting the retention work the Premium Facilitator or TPA is performing. This collaborative approach between the broker/carrier rep can enhance the retention efforts resulting in helping the employees or members retain their needed coverage(s). This collaborative approach may simply be communicating with the affected employee(s) or member(s) as the billing oversights occur. With a real-time report available and a collaborative focus on retention; brokers and agencies can experience significant growth by the seemingly endless opportunities for new business with the natural client attrition being efficiently managed and minimized.
In today’s economy, more and more workers are stepping into the gig-worker space. Gig workers work as contractors rather than W2 employees and often work for more than one organization. A great example may be a driver who delivers goods for Door Dash or Uber Eats, and also picks up and delivers other goods and services through delivery.com or groceries via Shipt. Gig workers who utilizing these types of “gigs” are said to make up to $50/hour, and their main focus is keeping their workday tight and efficient to maximize their earnings in the time they’ve allotted to work.
If you’re an organization that utilizes gig workers, retaining workers is likely attractive to you and because of the nature of the business, it is likely not realistic to offer them group benefits traditionally due to the administrative roadblocks, especially from payroll deduction; when consistent pay may not be the reality for each worker. But organizations who do visualize the advantages and take that step to offer benefits to their workers, can put the organization in a unique advantage. This advantage can come to fruition by utilizing a Premium Facilitator or TPA to manage the premiums for group benefits.
This advantage comes by way of enjoying all the wins of offering employee benefits without the commonly required administrative workload of payroll deduction; all-the-while, the gig worker will likely remember and stay loyal to the “organization” that gave the security to them and their family. This loyalty usually results in greater worker retention; which tends to equate to less hiring and advertising costs, less training and development costs, and a solid bench of workers should the organization decide to convert some of their gig-workers to full-time status.
There are many reasons it may be advantageous for an organization to utilize a Premium Facilitator or TPA. It is important to choose the right company to partner with. Be sure to consider if they have surety bonds where required, insurance where required, it is generally preferred for the Premium Facilitator to be a licensed and bonded TPA, require real-time reporting, and one that commits itself to measures focused on retention. Having a company facilitate premiums may not be the right solution for every employer, union, or association, but in many cases, it can help overcome some exorbitant administrative costs or other roadblocks commonly associated with group benefits and their respective billing challenges. Ultimately, it may better position the organization to focus their resources on the purpose of the organization and avoid resources getting caught up in the important, yet peripheral tasks such as managing benefit offerings. Whether or not an organization should utilize this strategy is a decision that must be made for each organization, this writer hopes this article helped to illuminate this service, and highlight some good considerations towards finding the right provider to partner with, should this be an approach you want to utilize.
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