Ancillary health insurance is a secondary type of coverage used to supplement your traditional health insurance. The term “ancillary” means “providing additional help or support,” and that’s just what ancillary health insurance does.
Often referred to as “ancillary benefits,” ancillary insurance can include coverage for miscellaneous medical expenses incurred during a hospitalization that may not be covered by your group health insurance. Examples of this coverage could include ambulance transportation, drugs and medical supplies, such as bandages.
Ancillary benefits can also include benefits outside your medical insurance, such as dental, vision, life and disability insurance.
Types of Ancillary Benefits
There are two main types of ancillary health insurance: voluntary benefits and employer contributory benefits. With employer contributory ancillary benefits, the employer usually pays 50 to 100 percent of the premiums. With voluntary ancillary benefits, the employer may contribute up to 49 percent of the premiums.
Through payroll deduction, employees pay the premium balance left over after the employer contribution. When employees use their benefits, a claim is submitted, and benefits are paid directly to the network-contracted provider or to the member (if a network provider is not used). For life insurance claims, the claim would go directly to the policy’s beneficiary.
Examples of Ancillary Health Insurance
There are a number of ancillary benefits an employer can choose to offer its employees. Some of the more popular benefits include:
Dental insurance is a common type of ancillary benefit. Typically, dental coverage includes services related to the teeth and gums, like preventive care such as annual cleanings. Deductibles, co-pays and coinsurance usually apply, and policies will differ as far as what procedures are considered preventative, basic, major and necessary.
Vision insurance can provide coverage for preventative services, such as eye exams, and discounts on eyewear, such as glasses or contact lenses, and procedures, such as LASIK. Some vision benefits may have deductibles and some may not; some may offer discounts on eyewear on a calendar basis, such as once a year.
Group Life Insurance
Group life insurance helps employees provide their families with financial security in the event of their death. Once the policyholder dies, life insurance policies pay out a lump sum of money to beneficiaries that they can use to maintain their quality of life and prepare for the future. Many life insurance policies also offer accidental death and dismemberment benefits, which pay fixed amounts in situations where the insured person dies or is dismembered due to an accident.
Disability insurance is designed to replace a percentage of the income you lose due to your inability to earn a paycheck if you become sick or injured and are unable to work. Disability insurance can help to pay for essential expenses, including food, utilities, school tuition, mortgage and car payments.
Critical Illness Insurance
Critical illness insurance provides additional coverage for medical emergencies, such as heart attacks, strokes or cancer. These critical illnesses can be unexpected and incur higher than average medical costs. Critical illness insurance helps cover over and above what your health insurance policy pays.
Long-Term Care Insurance
Long-term care insurance is designed to cover long-term services and supports with a fixed daily or monthly amount for services associated with a lengthy illness or disability, such as a stay in a nursing home, assisted living center, hospice or for home health care services. Long-term care insurance policies reimburse policyholders a daily or monthly amount (up to a pre-selected limit) for services to assist them with activities of daily living, such as bathing, dressing or eating.
Pet insurance coverage can help your employees offset expensive medical bills that their pets may accrue. They reimburse owners for accidents and illnesses and may even extend to cover veterinary check-ups or other wellness treatments.
Wellness benefits are often a popular choice for employers and employees because it can be a win-win. These benefits can include perks like free or discounted gym memberships, smoking cessation programs, free medical screenings, flu shots and more. The benefit is that these practices can improve the health of employees, helping to reduce health care costs and premiums.
Benefits of Ancillary Health Insurance
Ancillary health insurance can benefit both employers and employees.
Benefits to Employers
Reduced FICA contributions. Section 125 is the section of the IRS tax code where the items that can be deducted from employee pay on a pre-tax basis are defined. If an employer takes advantage of Section 125, employer FICA contributions will be reduced.
Enhanced reputation. Companies that offer ancillary benefits often find it helps with employee recruitment and retention and can also help make an employer more competitive in the industry and enhance the company’s reputation in the employment marketplace.
Lower medical claims costs. Because employees are taking advantage of preventative care, such as with dental and vision plans, medical claims can be reduced.
Benefits to Employees
Use of pre-tax dollars. Section 125 is the section of the IRS tax code where the items that can be deducted from employee pay on a pre-tax basis are defined. In the context of Section 125, “pre-tax” means that a deduction is exempt from Federal Income Tax Withholding, Social Security and Medicare Taxes.
Preventative care. Ancillary insurance can provide workers with preventative care, such as dental and vision, helping to prevent future problems and/or procedures.
Affordable. Costs of ancillary benefits are usually affordable.
Wider range of benefits. Employees can enjoy a wide range of benefits not covered under their primary health insurance, which can help contribute to a positive employee culture.
Ancillary health insurance can be a great addition to a company’s offerings; however, the company must do its due diligence and be aware of the regulations and tax implications, such as in relation to the Employee Retirement Income Security Act (ERISA), the Affordable Care Act and other tax laws. Be sure to talk to one of our insurance professionals or financial advisors to discuss your options.