Ancillary Benefits

Ancillary benefits is a term used to reference those add-ons that enhance an employee’s existing health insurance offered by their employer.   Ancillary benefits encompass three common employee benefits: vision, life insurance and dental insurance. Typically, dental insurance will cost both the employer and the employee the most in premium amount, while vision will typically cost the employee and employer the least.   Life insurance and disability insurance could be advantageous for employees when they need to have access to such benefits.   Ideally, employees dealing with circumstances from a chronic illness or issues resulting from an accident that requires some time away from work would have an emergency fund set aside to deal with these issues.  However, employers generally offer ancillary benefits to offset any unforeseen expenses that result from the illness or accident.

At a minimum, an employee should expect to spend less than $50 per month for ancillary benefits, including disability, life insurance, dental and vision insurance.   The average cost is closer to $100 per month.  Many organizations, with the goal of attracting and retaining top talent, will provide an ancillary benefits package that may cost $150 per employee with more attractive dental benefits, including orthodontia, term life insurance as well as some company-paid benefits (life and vision).  

Most business owners care enough about their employees and families to offer these ancillary benefits.   When an employee understands that their employer cares for their and their family’s wellbeing, the employee are generally happier, more productive and loyal to the employer.  For example, disability insurance allows employers to offer insurance that aids employees by providing a supplemental income stream while the employee cannot perform his/her responsibilities at work due to inability.   A recent study detailed that prospective employees and current employees often place great emphasis on the employers ability or willingness to offer comprehensive ancillary benefits.  As one may expect, those organizations with the greater number of employees are often in a better financial position to offer their employees more comprehensive ancillary benefits.  In one point of comparison, the study looked specifically at the availability of pet insurance to employees.   Eight percent of large employers offered this benefit, while less than .5 percent of employers with smaller workforces made this available to their employees.

Employers have come to realize that in a competitive or tight job market, the ability to offer ancillary benefits is vital.   Employers are also realizing that adding to the standard complement of ancillary benefits generally comes at little cost to them as they are able to attract the best resources while also retaining their top resources.  Of course, employers would be wise and best served to understand the extent of ancillary benefits being offered at the primary competitors to see where they stack up in comparison.  This benchmarking exercise will allow employers to understand the job market in which they operate to be in the best position when selecting those ancillary benefits that can aid their current employees while also working to attract highly qualified prospective hires.

The following statistics will help put some further context on the current landscape for ancillary benefits:

  • Approximately 75 percent of employers will offer their employees dental insurance, with greater than 95 percent of larger organizations offering their employees dental insurance
  • Approximately 95 percent of larger organizations offer term life insurance to their employees, while those organizations with a smaller number of employees will only offer term life insurance to their employees roughly 50 percent of the time

Ancillary benefits are also extremely valuable as a secondary form of health insurance to assist employees with the costs associated the expenses that an employee would incur during a hospital stay.  Such ancillary benefits would include transportation in an ambulance, blood transfusions, antibiotics and other medical supplies.  These types of benefits are usually an added layer on top of the basic health insurance coverage offered by employers.

In terms of disability insurance, the same aforementioned study revealed that roughly one-third of employers offer short-term disability insurance to their employees.  The long-term disability numbers are slightly better with just under 50 percent of employers offering this type of coverage.   However, one startling discovery was that those industries that have higher physical risks in the performance of the job only make long-term disability insurance coverage available approximately 30 percent of the time.

How do Ancillary Benefits Work?

Like all good things, ancillary benefits must be paid for by both the employee and employer.   Certain ancillary benefits may be voluntarily funded by the employee, while others will be funded by the employer fully or partly.  If the employer is contributing to the cost of an ancillary benefit the employer will general pay at least half of the premium associated with that coverage. If the employee is voluntarily contributing, they will usually be asked to contribute up to half the premium amount.  The employees will generally fund this premium payment through a payroll deduction.  Then, when the employees accesses their ancillary benefits, generally a claim will be submitted and remuneration will be provided directly to the provider.   In the event of a life insurance benefit event, the beneficiary of the employee’s policy will generally be paid directly.

As previously mentioned, there are different rationales and circumstances under which an employer would contribute to the cost of ancillary benefits for their employees.   There are several different scenarios that could work for certain employers.  Some employers may contribute 100 percent of their employees’ health care premiums, but make those employees voluntarily contribute for vision and dental insurance.   Whatever decisions are made by the employer, it is important for the employer to know the circumstances that best fit its individual situation.   Employers can discuss their needs as well as those of their employees with an agent at their insurance company to best determine how to structure payment of these benefits to be shared be employer and employee.

Advantages of Ancillary Benefits

There are certainly advantages for both employers and employees as it relates to ancillary benefits.  Employers may avail themselves of regulations that allow employees to contribute pre-tax dollars to pay for these ancillary benefits.  In addition, to monetary benefits, an employer can increase their visibility and reputation in the marketplace by offering top notch ancillary benefits.  Employers need not pay for all ancillary benefits, simply offsetting the costs of ancillary benefits for employees will go a long way to making employees more productive, increasing morale as well as lowering the amount of employee income that is taxable.

If you need help understanding ancillary benefits, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts on the top 5 percent to its site.  Lawyers from UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.