Compounding this dilemma for employers are health insurance premiums, which have topped the average 5% annual increase for those costs over the past 10 pre-COVID years. According to industry sources, health insurance costs for employers were up an estimated 5.3% in 2021, and are predicted to rise 6.5% in 2022. What remains the same is the high importance of health benefits to high-ranking employees, who continue to seek those beyond what typical employer health plans offer, make job decisions based on those, and literally "shop" employment opportunities accordingly. While health benefits have always been key to recruiting and retaining key employees, they are now critical in the face of a pandemic that has affected nearly every aspect of their working lives and health.

Clearly, in order to lure and keep top talent, employers will have to revise and customize their health benefits for prospective and existing top hires to meet their needs and demands post-COVID. That means not waiting until open enrollment in 2022 to offer new, attractive health plans to augment existing ones.

A readily available and tax-advantaged solution

So, in this highly competitive workforce and costly health insurance environment, how can smaller companies recruit and retain top talent affordably? One often-overlooked, yet increasingly popular, solution to this double-edged dilemma are excepted-benefits health insurance plans.

These non-traditional, fully insured and tax-advantaged health plans are exempt from Affordable Care Act (ACA) requirements, which means they can be offered to as few as three select (versus all) employees at the employer's discretion. They also are exempt from other ACA restrictions, including annual limits and the age 26 rule. These plans are called and marketed as "select," "key" or "executive" employee medical cost reimbursement plans – and are not to be confused with government-regulated HRA excepted-benefits plans.

Basically, excepted-benefits health plans provide typically tax-exempt reimbursement to select employees and their eligible dependents for virtually all medical costs not covered by their primary health plan, including deductibles, co-pays, co-insurance and other out-of-pocket (OOP) costs. And importantly, all fixed and variable premium costs are fully tax-deductible for employers.

Thus, they offer employers one of the most cost-effective ways to boost underlying health plan benefits to attract and retain key employees, while also differentiating their total compensation package from competitors.

Broad benefits coverage plus other advantages

Excepted-benefits plans offer an annual maximum benefit of up to $100,000, which covers the employee and his/her eligible dependents. This not only covers deductibles, co-pays, co-insurance and other OOP costs not covered by the participant's base health plan, but also a multitude of medical expenses rarely covered by those today. Generally, if an expense is medically necessary and qualifies under Section 213(d) of the IRS Code, it is eligible for reimbursement.

Among the broad range of covered expenses these plans offer are: dental/orthodontic procedures; vision care, including eye glasses, contacts and even Lasik surgery; hearing aids; in-home nursing; speech therapy; physical therapy; infertility treatment; substance abuse treatment; maternity care; and comprehensive psychiatric and psychological treatment for mental health issues – perhaps the most important benefit in this post-COVID age of record-high job stress, anxiety, insomnia and depression among employees.

Some excepted-benefits plans also offer their participants several value-added benefits at no added costs. These can include Accidental Death & Dismemberment (AD&D) coverage with up to a $100,000 maximum lifetime benefit, as well as 24/7 worldwide health coverage, and even travel concierge services regarding medical care.

Additionally, excepted-benefits plans can be added to any employee's underlying group health policy as well as to an employee's individual, spousal or Medicare policy – as long as those policies meet the requirements of the plan provider. Also, they can be added to approved underlying health plans any time during the calendar year, and according to an employer's workforce needs. So, there's no need to wait for 2022 renewals.

What's more, plan coverage can be near immediate. Excepted-benefits plans typically have no pre-existing condition exclusions, very limited eligibility requirements, and no enrollment waiting periods.

Advantages over HSAs, HRAs and FSAs

In order to minimize and control health insurance costs, many employers offer their employees a High Deductible Health Plan (HDHP) in conjunction with a government-regulated Health Savings Account (HSA), sponsored by employers, employees or both. Even with the maximum allowed contribution amounts, HSAs do not nearly cover employee OOP costs. And while these plans are a top choice for smaller companies, it's important to remember that they have to be offered to all, versus select, employees.

Other employers who can't afford an employee health plan may offer their employees an employer-sponsored Health Reimbursement Account (HRA) or a Flexible Spending Account (FSA), funded by employers and/or employees. These, too, are restricted in funding amounts that only make a dent in annual medical costs for individuals and families.

While these consumer health-savings accounts offer tax advantages for employers and employees – and may be adequate for rank-and-file employees – they offer little compensation allure for top hires seeking optimal health benefits. Excepted-benefits health plans, on the other hand, provide key employees with true insurance coverage, benefits and value – with as much as a $100,000 annual benefit per plan participant.

Let's say your company offers your employees among the most popular of these consumer health accounts: an HSA combined with an HDHP. If your company wants to offer its key employees an excepted-benefits plan, those employees cannot participate in your HDHP/HSA. Instead, you can offer those employees a qualifying low-cost base health plan and augment that with an excepted-benefits plan. The same goes for HRAs and FSAs: employees cannot participate in those tax-advantaged accounts if they participant in a tax-advantaged excepted-benefits plan.

Costs of excepted-benefits plans and how to choose one

Excepted-benefits plans charge a fixed annual premium, which can be as low as $500 per plan participant. They also charge a variable premium, which is a percentage of employee claim amounts, and is only incurred if and when a claim is approved. In order to protect employers from excessive claim amounts for a single procedure or treatment, most plans feature a "per occurrence" claim limit that's roughly 10% of the plan's annual maximum.

Of course, fixed and variable premiums costs (all of which are tax-deductible for employers), as well as annual plan maximums, vary by plan provider. For example, some plans may charge an annual fixed premium per employee, while others offer a more costly monthly fixed premium. And, maximum annual plan benefits can be as much as $100,000 per covered employee with some plans.

Excepted-benefits plans also offer different value-added benefits – that is, AD&D coverage, 24/7 worldwide coverage, travel medical-concierge services, etc. Plus, they require different minimum numbers of plan participants – ranging from just three employees to 50 employees.

Thus, it's wise for employers to research available plans to find the one that best meets their budget and workforce needs.

While the worst of COVID-19 may be in the past, the pandemic is far from over. The CDC predicts that it may be another year or more before the virus is totally eradicated. Meanwhile, the coronavirus will continue to wreak havoc on the availability and need for key hires who drive your company's growth and success. It also will continue to challenge employers in their provision of optimal, customized health benefits that help to recruit and retain those key employees in the face of ever-rising health insurance costs. Excepted-benefits plans just may be your key to solving this dilemma affordably.

Michael S. Fawcett is the executive vice president and chief operations officer of Sankaty Light Benefits, a Miami-based health insurance and services company. The company specializes in cost-effective solutions to today's costly health care environment and highly competitive workplace, such as its recently introduced ExecSelect™ health plan.