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Insurance & Flexible Benefits for Employees

Insurance & Flexible Benefits for Employees
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  • 0:03 Employee Benefits
  • 0:57 Health Insurance
  • 2:15 Flexible Spending Accounts
  • 2:57 Other Benefits
  • 4:30 Lesson Summary
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Lesson Transcript
Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

Employee benefits, such as insurance and flexible spending accounts, offer a valuable incentive for employees to join and stay with a company. In this lesson, we'll explore a few common types of benefits and how they work.

Employee Benefits

MicroNinSny is a growing video game accessories company that is looking to attract and retain quality employees. A comprehensive benefit plan is an expense for a company, but provides an incentive to retain talent beyond just base pay. In this lesson, we'll review some of the common employee benefits offered as part of a cafeteria plan.

You might be asking yourself what cafeteria plan means. Companies have realized that different employees have different motivations and desires for benefits packages. MicroNinSny can't afford to pay the entire cost of benefits, so it splits the cost of each benefit with its employees. Rather than offer a one size fits all set of benefits, the company cafeteria plan gives employees the option to pick which benefits they'd like to receive. The perk of this approach is that employees aren't forced to pay for benefits they don't want, or expect to use, in the near future.

Health Insurance

For many employees, health insurance is one of the most valued benefits. Health insurance allows employees to access routine and emergency care for medical problems. Dental and vision coverage are typically covered by separate policies which also might be offered by the company.

The cost of health insurance is broken up into two main components. The employer pays some, or all, of a premium and the employee pays the rest of it. When the employee has to go to the doctor, he may be required to pay a co-pay, which is a set amount or percentage of the bill for medical services. A deductible is the amount of money an employee must pay in full before the insurance company begins paying the rest of the bill. Generally, a higher deductible means the monthly premium is lower. This is because the risk is transferred from the insurance company to the employee.

For example, a common arrangement is an 80/20 plan. The employee pays a fixed amount per month. If an employee's medical bill is $2,000, and his deductible is $1,000, he would pay the first $1,000 of the bill plus 20% of the remaining balance. An out-of-pocket maximum is the highest amount of money an employee would have to pay for health care in a given year; once that number is reached, the insurance company picks up the remainder of costs in that year.

Flexible Spending Accounts

Every employee has taxes withheld from his paycheck, but Uncle Sam is ready to give a break for some expenses. Childcare and health care flexible spending accounts are benefits programs that allow employees to legally avoid paying taxes on money used for medical expenses or to have their children cared for so they can work. This can easily save an employee a few hundred dollars depending on his tax bracket.

Each year, employees let their benefits office know how much they want to have taken out for these accounts; the annual amount is then divided and taken out in equal amounts with each paycheck. If the employee does not use this money by the end of the year he can lose that money, so he must be careful to not overfill the account.

Other Benefits

Aside from health insurance and flexible spending accounts, employers can offer many other benefits to attract and retain employees. An employer can choose to offer nearly anything that helps it retain talent. It might offer free lunches, contribute to employee childcare expenses, provide sporting event tickets, or give free public transportation passes. Let's briefly cover a few of the most common benefits:

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