Employee benefits in the USA

Benefits

1. Healthcare / Private Medical Insurance

The US is the largest private health insurance market in the world. As there is no single nationwide system for health insurance in the US, most healthcare cover is provided via employers and, as a result, health insurance is seen as the critical employee benefit by most employees. Healthcare is also expensive and quite complex to navigate with an endless amount of providers, plan designs, and state-by-state regulations. 

Many small employers will contract healthcare through a Professional Employer Organization (PEO) to try and keep healthcare costs low, however, there are many pros and cons with the decisions. 

What kind of medical insurance do employers offer?  

Supplemental medical benefits are offered by over 90% of employers in the US. 

There are many types of health insurance plans in the US, which determine how employees, employers, and insurers share the costs for medical expenses. These plan types include: 

• Health maintenance organisation (HMO) - lower deductible costs, lower coverage
  • Lower deductibles
  • Primary care physician required
  • Referrals required to see specialists
  • No out-of-network coverage
• Preferred provider organisation (PPO) - higher deductible costs, higher coverage
  • Higher deductibles
  • Primary care physician not required
  • Referrals not required to see specialists
  • Out-of-network coverage available
• Point-of-service (POS) - moderate deductible costs, moderate coverage
  • Moderate deductibles
  • Primary care physician required
  • Referrals sometimes required to see specialists
  • Out-of-network coverage available
• Exclusive provider organisation (EPO) - lower deductibles, medium coverage
  • Lower deductibles
  • Primary care physician not required
  • Referrals not required to see specialists
  • No out-of-network coverage

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With a Preferred Provider Organisation (PPO), employers pay 70% - 80% of premiums and employees pay the difference. Within each plan, employees have a few different options so they can choose their deductible amount and the level of coverage based on their own health and the level of risk they’re comfortable with. 

In employer-sponsored supplemental medical coverage, 50% - 80% of medical expenses are typically covered for employees and their families. Vision coverage is usually available, but mainly paid by the employee. Telemedicine is also quite common in the package. Most companies provide supplemental dental coverage, for which employers pay 50% - 60%, and employees pay the difference. Preventative dental care is typically covered at 100%, while basic care is 80% covered and major reconstructive care is covered at 50%. 

Healthcare deductible costs (this is known as “excess” in the UK”) are quite high in the US. 

Trends:

• Plans which include tele-medecine are increasingly popular, especially in the wake of the Covid-19 pandemic
• Voluntary benefits which allow employees to flex up their coverage and pay the difference 

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Provider vary widely state by state, but some of the biggest Health Insurers in the US include: 

• United Health Group
• Anthem
• Kaiser Permanente
• Centene
• Humana
• Aetna
• Blue Cross Blue Shield

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Click here to view our catalogue on health insurance providers in the US.

Flexible Spending Account

A Flexible Spending Account (FSA) is an employee benefit which establishes a salary sacrifice savings account that can be funded by either the employer, the employee, or both, and spent on qualified medical expenses. Funding the account with pre-tax dollars lowers employee spend on deductibles, copayments, coinsurance, and some other expenses. 

Health Savings Account

A Health Savings Account (HSA) is the same salary sacrifice concept as an FSA, but it is available only to those enrolled in a High Deductible Health Plan (HDHP). A portion of your HDHP premium is allocated to your HSA, and, typically, HSA accounts cannot be used to pay premiums. 

How does the statutory medical system work and what’s the difference between the Affordable Care Act (ACA), Medicaid and Medicare? 

Enacted in 2010 and often referred to as “ObamaCare,” the ACA is the program through which the government ensures that nearly all American citizens and residents are covered. The ACA does the following:

• Employers are required to provide healthcare coverage for full-time employees
• US citizens and residents are required to have healthcare coverage
• Low and middle income individuals have access to subsidised coverage, and tax credits help small businesses to offer coverage
• Established the healthcare exchange market, through which individuals and small businesses can purchase approved healthcare plans

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While the ACA ensures coverage from private healthcare providers, Medicaid is a government program (albeit often administered by private companies). Medicaid is designed to offer either free, or low cost health care coverage to those most in need (such as parents, minors, low income, pregnant or disabled individuals). Medicare is designed especially with retirement in mind, so it supports people over the age of 65, along with some younger people with certain disabilities. While Medicare recipients pay a premium, the majority of the cost has been paid during their working years.  

Click here to view our catalogue on wellness providers in the US.

2. Disability (Income Protection)

Long term disability is covered in the social security fund, which is included in the retirement contribution. Eligibility kicks in after 5 full calendar months of being unable to work. 

There is no statutory provision for paid short-term disability, but state specific mandates exist. The qualifications and benefits vary by jurisdiction. Typically the premium is shared between employers and employees, but family leave premiums are typically 100% employee paid. 

• State mandated disability: California, New York, New Jersey, Rhode Island, Hawai’i, Puerto Rico
• State mandated paid family leave: California, New York, New Jersey, Rhode Island
• State mandated paid family and medical leave: District of Columbia, Massachusetts, Connecticut, Oregon, Colorado (coming 01/2024)
• State mandated paid sick leave: Arizona, California, Colorado, Connecticut, Maine, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, Oregon, Puerto Rico, Rhode Island, Vermont, Washington, District of Columbia. City specific mandates: San Francisco, Seattle, New York City, Portland, Newark, Jersey City, Oakland, San Diego, Philadelphia, Pittsburgh, Minneapolis, St. Paul, Los Angeles, Chicago. 

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About 72% of employers provide supplementary short term disability protection, which is 100% employer paid and typically pays up to 6 months at 60-100% of pay. This benefit is tax deductible for employers and typically fully insured for companies with fewer than 500 employees, and self-insured for companies with more than 500 employees. 

The majority of employers (80%) provide supplemental long term disability. Sometimes this is included in a defined benefit (DB) retirement plan. Pay is typically 60% of salary up to a ceiling, covering up until typical retirement age. It is typically covered entirely by the employer, at least at a core level. Employer contributions are tax-deductible.

Federal law requires that employers provide unemployment insurance coverage for most employees. All employers must contribute 6%, with a 5.4% tax credit for employers that are also paying state unemployment tax. The benefit typically provides 50% of previous salary, with maximum and minimum requirements, and can be paid for up to 26 weeks. 

Leading providers include:

• Aflac
• MetLife
• Guardian Life Insurance 
• Prudential
• Cigna

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Click here to view our catalogue on insurance providers in the US

3. Life Insurance

Statutory life insurance (also called death benefits) pays out to widows/widowers, and in some cases a surviving divorced partner or dependent children. The contributions to the social security death benefit are included in retirement payments. Payout is a lump sum of 225 USD, as well as some or all of the pension of the deceased person, depending on their age at the time of death. 

Because the payout is low, supplemental life insurance is expected by most employees in the US, and 95+% of employers provide fully funded coverage, offering a payout of 1-2x salary. The first 50,000 USD of the coverage is non-taxable, so some employers limit coverage to 50,000 USD. Employees may have the option to pay to flex up, and their contributions may be pre-tax, but are usually post-tax. 

Supplemental coverage also provides the benefit of covering more than just death; it often covers dismemberment, disability (both natural and accidental causes), death of a spouse or child, business travel accidents. 

Some popular providers include:

• State Farm
• New York Life
• Prudential Financial
• MetLife
• Nationwide
• Allstate

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Click here to view our catalogue on insurance providers in the US

4. Retirement

Social security benefits support individuals in retirement with a government-sponsored, Defined Benefit (DB) plan. Employer contributions are 6.2%, and employee contributions are also 6.2%. The amount is calculated based on the average earnings for a worker’s highest 35 years’ lifetime earnings. 

About 99% of companies offer supplemental, Defined Contribution (DC) plans, which are jointly funded. About 20% of these companies offer both DC & DB plans, which are fully employer funded. Fewer than 1% of companies offer only DB plans. 

DC plans in the US are also called 401(k), savings plan, thrift plan, retirement savings plan, and profit-sharing plan. Contributions are typically about 5% - 6%, matched by the employer.

Employees are usually able to select between regular 401(k) and Roth IRA plans. Contributions to a 401(k) plan are tax deductible, while contributions to a Roth IRA are not. Individuals pay taxes on amounts withdrawn from a 401(k) once they retire, but do not pay taxes on withdrawals from a Roth IRA (because contributions were already taxed). Therefore it is generally advantageous to choose a Roth IRA at earlier stages in your career when there is less money to be taxed. 

Some popular 401(k) providers include:

• Vanguard
• Merrill Lynch
• Voya
• Fidelity Investments
• ADP

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Click here to view our catalogue on insurance providers in the US

5. Other Benefits

A range of additional flexible benefits are commonly offered in the US. These include:

• Wellbeing budgets of up to $3,000 / year
• Reiumbursed educational expenses and student loan forgiveness
• Group rates for home, auto, and identity theft insurance
• Pet insurance
• Personal travel insurance
• Employee retail discounts 
• Financial advice
• Earned wage access 
• Fertility treatment support
• Mental health support
• Legal advice 

Policies

1. Annual Leave

There is no statutory requirement for holiday leave (also called vacation days) in the US. 

2. Sick pay

There is no federal statutory sick leave, but many states and cities have mandates. See the short-term disability section for more. Typical sick leave pay and duration varies greatly by jurisdiction, but an above average policy offers 4 weeks full pay, after which point payments are reduced. 

3. Maternity & Paternity

Statutory maternity & paternity leave in the US is well below the standard expected in much of the world. Maternity and adoption leave is 12 weeks unpaid, and there is no statutory paternity leave. This only applies to companies with more than 50 employees. Some states require more generous leave. The Family and Medical Leave Act has provision over this legislation and grants 12 weeks of unpaid leave to any employee who is caring for a newborn, adopted child, or the serious injury of oneself or a close family member. 

About 65% of companies offer paid leave for the birth parent. Typical offering is 6 weeks of 100% paid leave for the birth parent and 5 weeks of 100% paid leave for a non-birthing parent.