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 are a sort of health insurance that covers a variety of medical expenses incurred during a hospital stay.
The definition of ancillary benefits means it can cover expenses such as ambulance transportation, blood, drugs, and medical supplies like bandages.
These benefits are usually layered on top of major medical coverage so they are purchased in conjunction.
Understanding Ancillary Benefits
Ancillary benefits are offered to cover those expenses which many neglects to factor into the cost of healthcare. They are usually quoted as a multiplier of daily benefits provided by the hospital. For example, an ancillary policy may cover 20-times this daily benefit.
- Ancillary benefits are a secondary type of health insurance coverage. It takes care of miscellaneous medical bills that may add up in an emergency.
- Ambulance rides, bandages, drugs, and other medical supplies are costly, and ancillary benefits will usually cover those expenses.
- Ancillary benefits either a voluntary or employer-contributory benefit and the amount paid varies depending on the type of benefit.
- There are many positive aspects to ancillary benefits, including, but not limited to, the use of pre-tax dollars to pay for them, and they pay for preventative care as well.
Health plans aren’t enough to keep employees healthy because they still need oral and vision care. Covering costs for these insurances make sense for companies because research shows that dental and vision plans can be effective, and preventive, healthcare tools that might lower medical claims costs in the long run.
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-sponsored 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 support 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.
Wellness benefits are often a popular choice for employers and employees because they 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.
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 covering veterinary check-ups or other wellness treatments.
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.
A wider range of benefits. Employees can enjoy a wide range of benefits not covered under their primary health insurance, which can help contribute to 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.
How Ancillary Benefits Work
Ancillary benefits are also known as voluntary benefits, though they can be classified as employer-contributory as well. The difference comes down to who pays the associated premiums.
With voluntary benefits, the employee pays 100% of the premium, making this type of benefit simple to offer as an employer. The premium is deducted from the insured’s paycheck and the company isn’t required to contribute (though they can).
With employer-contributory benefits, an employer typically pays between 50 and 100% of the premiums. The remaining premium, if anything, is deducted from the insured’s paycheck.
When you grow your benefits package by offering voluntary types of coverage, a few things can happen. Your business’ reputation can improve within the employment marketplace.
Current employees can become more engaged and loyal, and you may be able to lower FICA contributions by taking advantage of a section 125 cafeteria plan. As an employer, it’s in your best interest to offer ancillary benefits.
What is important to know about ancillary benefits?
Ancillary benefits can involve voluntary plans, where the employer contributes from 0 to 40% of the premium, or employer-contributory ancillary benefits, where the employer pays 50 to 100% of the premium.
Employees pay whatever portion the employer does not cover through payroll deductions. The employer may cover the full cost of an employee’s health plan and leave it to the employee to decide to purchase a voluntary dental or vision plan. Often, the offering of an employer-contributory ancillary plan encourages more employee enrollment.
There are advantages to both the employer and the employee when it comes to ancillary benefits. Whether the employer contributes more, or the employee voluntarily purchases a plan, it is beneficial in various ways:
- Pre-tax dollars are used to pay for these benefits, which lowers an employee’s taxable income.
- An employer offering ancillary benefits will be at the top of the competition when searching for valuable employees to join the team.
- Some ancillary products are available for benefits not included in many typical health care plans, such as vision insurance and dental insurance, and preventative care is often included too.
- Premiums are fairly reasonable with a generally large group of people participating in the plan.
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