Page 169 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
Insurance Benefits
Insurance benefits may include medical, dental, vision, and life insurance.
Deductions are usually taken from every paycheck to help defray the
cost of the insurance,either in part or in total.A company may contribute
to this cost by paying for some portion or all of the insurance itself.

Even if employees pay the entire amount of the insurance, it is still usu-
ally less expensive than if they had obtained it themselves, since insur-
ance companies generally quote lower prices to businesses employing a
number of people. The contribution made by the company to defray
the cost of medical insurance is not considered income to employees.
Furthermore, if the company has a medical expense reimbursement
plan under which employees can be reimbursed for any out-of-pocket
medical expenses incurred by them, these additional payments also are
not considered income to employees.

Example. In a sudden burst of generosity, the president of the
Humble Pie Company announces at the company business party that all
co-payments and deductibles on its medical insurance plan for the
upcoming year will be paid by the company. These reimbursements are
not taxable income to the employees.
The most common ways to provide medical insurance are through
the Health Maintenance Organization (HMO), Preferred Provider

Organization (PPO), and Point of Service (POS) plan.
• The HMO arrangement requires employees to go to designated

doctors who have signed up to participate in the plan.
• The PPO option allows employees to consult with doctors
outside of the group of designated doctors, but at a higher
cost in terms of co-payments and deductibles.
• The POS plan requires employees to choose a primary care
doctor from within the HMO network of doctors, but they
can then see doctors outside the HMO’s network, as long as
the primary care doctor is still the primary point of contact.

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