What Are Ancillary Benefits?

What Are Ancillary Benefits?

Ancillary benefits provide secondary medical coverage for miscellaneous expenses, often used to supplement traditional health insurance plans. Ancillary coverage is commonly used to cover hospitalization costs, including ambulance rides, medical supplies, and medicine. Other examples include vision, dental, and life insurance offered alongside group coverage.  

Employers may offer ancillary coverage to their employees as a pre-tax benefit, which means it does not count toward the employee’s taxable income. Some employers offer voluntary contributions to an ancillary plan, while others pay up to 100% of employees’ ancillary benefits. Employers can attract and retain high-quality talent by offering supplemental ancillary benefits. 

How Do Ancillary Benefits Work?

Ancillary coverage can bridge some of the gaps in traditional group healthcare plans, benefiting both employers and employees.  

Eligibility

Eligibility for ancillary benefits is often voluntary, which means employees can opt in or decline the additional coverage; however, some employers automatically pay all or a portion of the cost. Since ancillary benefits are designed to supplement group health insurance, employees seeking these benefits must first be enrolled in an employer-sponsored health plan. 

Tacking on ancillary benefits to your employee healthcare plan means you could lose coverage if you lose your job. Depending on the terms of your ancillary benefits and your employer’s HR policies, you may also be subject to medical underwriting to determine eligibility in some cases. However, most employer-sponsored ancillary plans do not require it.

What Ancillary Benefits Do Employers Offer?

While ancillary benefits can address a wide variety of employee needs, health-related ancillary benefits are especially popular. The following are among the most common examples:

• Dental insurance: Ancillary dental insurance is prevalent, as this type of coverage is rarely included in a traditional healthcare plan. Benefits typically include full coverage of preventive services and partial costs for major services like crowns and root canals.
• Vision insurance: Employers may offer vision plans as an ancillary benefit if it is not already included in group healthcare insurance. Specific benefits may include eye exams, contact lenses and eyeglass fittings and supplies, and discounts on eye surgery. 
• Critical illness insurance: Critical illness benefits help pay employee medical expenses if the employee is diagnosed with a serious medical condition such as cancer or undergoes a life-altering medical event such as a heart attack or stroke. 

Why Do Employers Offer Ancillary Benefits?

Employers with high recruitment and retention rates know how to listen to their employees. Nearly 75% of employees reported diverse benefits as a reason to stay with an employer in the long term, according to MetLife’s Employment Benefits Trend Study in 2022. The same study indicated health and wellness benefits were a “must have” for 52% of employees in a new job.

The advantages of going above and beyond to offer employees ancillary benefits include higher loyalty, productivity, and engagement rates, and increased job satisfaction. MetLife’s study indicated that employers are increasingly concerned with managing their employees’ holistic health, including through programs outside of basic healthcare benefits.         

Can Ancillary Benefits Improve Employee Health Outcomes?

Ancillary benefits geared toward improving employee health can benefit both parties involved. Employees with preventive ancillary benefits tend to enjoy greater peace of mind, less stress in the workplace, and a more productive mindset. For the majority of employers (84%), improving their employees’ health and well-being benefits was a top priority in 2022.  

How Much Do Ancillary Benefits Cost?

Employees can expect to pay roughly $50—$100 a month on ancillary benefits, though costs vary depending on the type of contributory system that pays for the ancillary benefits and the number of employees. Generally, the larger the group of participants, the lower the costs since the expenses are spread across more members. Ancillary fees are paid as a voluntary contributory or an employer contributory.

Voluntary Contributory

A voluntary contributory system requires employees to cover all or most of the cost of the ancillary benefits, with employers paying only up to 40% of the premium amount. Under a voluntary contributory system, employees can choose whether to participate in specific ancillary benefit coverage such as vision, dental, and/or life insurance. While such plans require employee contributions, they still tend to cost less than an individual separate insurance plan. 

Employees can use pre-tax income to cover ancillary benefits, meaning this cost is deducted from their taxable income and can help lower their tax rate. Most employers simply deduct the cost of the ancillary benefits from their employees’ payroll checks, for added convenience.

Employer Contributory

Employers may pay 50%—100% of ancillary benefit costs in an employer contributory system. The remaining costs of the monthly premiums for ancillary benefits are taken out of employee paychecks. Employer contributory systems are especially desirable among prospective employees looking to enjoy enhanced benefits at little to none of their own cost.

Employer contributory systems also offer pre-tax benefits, deducting the full cost of the ancillary benefits from the employee’s taxable income, regardless of how much of the premium they pay themselves. Employers may also contribute to an employee’s health savings programs, such as an HSA or FSA. 

The Top Five Uses of Ancillary Benefits

• Healthcare services: Popular ancillary health benefits include dental and vision care since these services are not always included in a basic group health plan.
• Life insurance: Group life insurance may be offered as an ancillary benefit, especially in small companies that cannot afford to provide a standalone life insurance package.
• HSAs or FSAs: Ancillary benefits may include one or both of these healthcare savings account options, allowing both employees and employers to make contributions toward out-of-pocket medical costs not covered by an employee’s insurance plan.
• Disability insurance: Employers may offer long- or short-term disability insurance as an ancillary benefit, covering some or all of an employee’s salary in the event they suffer an illness or injury and cannot perform their regular job duties.
• Accident insurance: Accident insurance as an ancillary benefit can help pay for the out-of-pocket costs not covered by health insurance if an employee suffers an accident on the job. Coverage can also be used for non-healthcare-related costs like rent or bills.

Putting It All Together

Ancillary coverage is an increasingly popular feature among employee benefit packages. Ancillary benefits can be paid using mostly employee funds through a voluntary contributory system or covered up to 100% by employers through an employer contributory system. The cost of ancillary benefits qualifies as pre-tax income and can be deducted from each paycheck.

Employers that offer ancillary benefits, including dental, vision, or life insurance, in addition to basic healthcare services, can attract and retain high-quality talent for their organization. Recent reports on emerging trends in the workplace suggest a major increase in loyalty, productivity, and employee engagement among companies that offer holistic employee benefit packages.