How Ancillary Benefits Can Round Out an Employer’s Health Plan

What Are Ancillary Benefits? | AEIS Advisors

Employer-sponsored health plans take many forms. They can be offered as traditional health insurance, high deductible health plans (HDHPs), and even self-funded health benefits. Regardless of the model, plan benefits are generally divided into two categories: core and ancillary benefits.

It is easy to understand core benefits if you think in terms of traditional health insurance. They would include access to primary care, annual physicals, well-child visits, and the like. Self-funded health plans tend to offer the same core benefits. As for ancillary benefits, these include everything else.

Typical ancillary benefits are things like:

  • dental and vision coverage
  • prescription coverage
  • mental health services
  • employee wellness programs.

Rounding out a core package with a range of ancillary benefits can be good for employers looking to compete for the top talent in their industries. But it can also be good for employees who expect more from their health plans.

Voluntary vs. Ancillary Benefits

Many of the items that would be considered ancillary health benefits can also be voluntary benefits. What is the difference? Voluntary benefits are benefits for which the employer pays nothing. The entire cost is borne by the employees who subscribe to them. The reason for offering them is to give employees access to lower group rates.

Ancillary benefits could be presented as either voluntary or traditional benefits. In other words, employers can choose to bear the entire cost, split it with employees, or pass it on. One employer might decide to offer dental and vision and cover the entire bill. Another might offer the same plan but split the cost at the same ratio as their core benefits.

Cost Is a Primary Concern

Ancillary health benefits can certainly round out any employer-sponsored health plan. They can make a basic plan with core benefits an amazing plan offering employees a lot more value. But the wildcard is cost. Cost is a primary concern whenever ancillary benefits are being considered.

StarMed Benefits (starmedbenefits.com), a Las Vegas-based third-party health plan administrator, explains that adding ancillary benefits to a traditional health insurance package can drive costs up substantially. This could encourage employers to choose the voluntary model. Their employees would cover the entire cost.

On the other hand, adding ancillary benefits to a self-funded plan might not lead to such drastic cost increases. By design, self-funded plans contain costs through flexibility, predictability, and customization. This is not to say that self-funded plans always do better with ancillary benefits. They don’t. But they tend to do better with overall cost containment.

Employees Expect More

At the heart of this entire discussion is the motivation behind offering ancillary benefits. Some 50 years ago, prior to the introduction of the HMO, ancillary benefits didn’t exist. Today they do, and employees expect them. In fact, employees expect more across their entire spectrum of benefits.

Benefits play a key role in a highly competitive labor market. Companies desperate to fill open jobs look for every avenue they can find. If that means offering ancillary benefits in addition to core benefits and higher compensation, so be it. That is the cost of competition.

Unfortunately, health benefits just keep getting more expensive. At some point, companies cannot afford to keep adding more. Perhaps that’s why so many are turning to self-funded health plans. Self-funding keeps ancillary benefits in play while still containing costs.

One way or the other, ancillary benefits are a nice way to round out a health plan. They can make health plans competitive among employers vying for the top talent. It turns out they can also be an effective tool for retaining employees already on the payroll.

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