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Getting Started with Employee Benefits in California

Getting Started with Employee Benefits in California
Pat Dickson Interviews Robin Van Vliet - Mon Jul 16, 2012 @ 12:56PM
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"Robin, thanks for taking some time to discuss how new companies in California get started with employee benefits.  But first, please tell me a little bit about you and your company. What is your expertise and experience and what types of employee benefits do you offer California businesses?"

Thanks Pat. I have an independent consulting practice working with small and medium-size businesses in California. I’ve been an employee benefits consultant for over a dozen years, and during the last five years I’ve become known as an expert in California and Federal healthcare compliance (e.g. COBRA, ERISA and PPACA) and employee wellness programs. 
Over the years I’ve worked with all types and sizes of businesses from manufacturing to lawyers to technology.  In the last year I have worked mostly with startups, non-profits, and existing small businesses that want to spin out from a professional employer organization (PEO) or a parent company. It's been great seeing these small businesses grow.
Here’s where I come in.  I help them establish their California employee benefits program.  Usually it will start with just medical coverage, because this is the one benefit you don't want to trust employees to go purchase on their own - and sometimes they have a pre-existing medical condition which prevents them from being able to buy on their own. Beyond that, I assist my clients with purchasing dental, vision, life and disability benefits. I also have great partners for 401k and Worker’s Comp, and even commercial auto, property and casualty, business loss, and umbrella insurance.
California Preventive CareI evaluate the various top insurers in the marketplace, and will recommend my top two or three picks based on the client’s budget and population. Currently I'm very excited about a new insurer in California called SeeChange, because their medical plans will reward you with lower out of pocket costs if you take “healthy actions” like get an annual health exam.  SeeChange’s rates are very competitive and the network is stable. 
In addition to helping a client evaluate the California insurance marketplace, I also I assist with contracting, getting employees enrolled in benefits programs, helping with any ad hoc issues that come up during the year. And at renewal, I help them not only evaluate their rates and see if there are better options, but see if there's anything else we could do to help their employees understand their benefits and take better advantage of the health insurance resources that they already have.
What many small employers don’t realize is that California regulates the small group health insurance market, so every broker will get you the same price. It’s the service that this broker brings that earns them their monthly commission (yes, monthly, whether they talk to you or not).  So even if the group already has benefits and doesn’t want to change them, they can always change their broker if they want better service. 
"The big question is where does a new company start with employee benefits? Let's assume I'm a business owner and I've been a sole owner operator, but business has grown really fast. I need to start hiring people. For the first time I'll have a payroll. Help! What do I do? At a minimum, I want to do what I must to avoid breaking the law."
California does not mandate that employers give health insurance to their employees.  The exception to this is for San Francisco employers, where there is a ‘play or pay’ type mandate called the Health Care Security Ordinance. In 2014 we will have a state health exchange but the penalties for employees obtaining insurance through the California State health benefits exchange will only impact large employers – at least at first.

Here is your California Employee Benefits “Must Do” action plan:

  • Find a solid payroll provider. There are many lower cost providers these days, don’t assume your bank or bookkeeping software is the best choice. They often will charge you lots of transaction fees, have very little service, or have other hidden expenses. I have preferred pricing with Compupay for my clients.
  • Provide worker’s compensation coverage. This can be purchased through the California State Fund, but a good agent (like my friend David Forsyth) can often get you a far better rate.
  • Contribute to State Disability Insurance (SDI). This is done through payroll deductions. When selecting your payroll partner, ask them if they'll handle this calculation and remittance for you.
This is really all you have to do. But let’s say you are a competitive employer and you want to give health insurance to employees.  You'd rather have the peace of mind knowing that they can get quality care in case they get sick or injured, they won't have to face medical bankruptcy because something happened to them- which is the #1 cause of personal bankruptcy.

Our next California Employee Benefit steps are to: 

  • Evaluate the cost/benefit of providing a comprehensive benefits package. We can look at all of the pieces, and then decide if we just start with medical now and add the other pieces as the business grows.
  • Determine your philosophy around providing benefits. Is it free? Do you require employees to contribute? Do you want to start out with an employee health and wellness philosophy?  
California Dental InsuranceThe California Department of Insurance regulates the small group market. This regulation does generally make group insurance more expensive than individual policies if you are healthy, but provides many more protections such as Guarantee Issue (GI), non-cancellable, premium increase caps, and CalCOBRA.  The most recent regulations mandated coverage for behavioral therapy for autism. 
Companies can only obtain “GI” insurance once the business has employed between 2-50 full-time eligible employees for at least 50% of the previous calendar quarter. Each carrier varies a bit on how they define this, but generally it is 6 weeks of payroll.  Some require payroll and others will accept a letter from the employer's attorney or CPA stating that they've been in business for certain period of time (for example if they are all owners and no one is on payroll yet) and a copy of the business license.  If the owners aren’t on payroll, then the ownership paperwork needs to be for natural persons (not the NV holding company you set up to avoid state income taxes).
Once an employer does provide health insurance and other benefits, they do become subject to federal ERISA and IRS laws. While these sounds cumbersome, I work closely with my clients to make sure that they have appropriate plan documents, and that their employees and dependents are receiving the legal notices that they should be getting. 
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Robin van Vliet
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