Small-business owners are a rich market for insurance agents and financial advisors. However, it can be difficult to attract successful owners and keep their attention long enough to convert them from prospects to clients. I solve this dilemma by offering them a unique solution to two of their biggest problems:
- How to convert funds from the business into personal income without incurring payroll or income taxes
- How to attract and retain great employees
Insured medical reimbursement plans
I perform both of these tasks with an insured medical reimbursement plan. An IMRP allows the business owner or a covered key employee to be reimbursed by the business for his family’s out-of-pocket medical expenses, such as:
- Drug and office visit co-pays
- Co-insurance and deductibles
- Vision and dental expenses (including laser eye surgery)
- Massage therapy and chiropractic services
- Other medical expenses, such as smoking cessation or weight loss, which might not be covered by group health insurance
Benefit checks are normally tax-free income, and all expenses to the business are tax deductible. What is most important, no discrimination test is required. he business owner is free to add only the person he desires to the plan, with no fear of violating IRS rules that limit benefits to highly compensated employees. It is fine if the owner only adds himself to the plan and excludes the rest of the employees. The business owner may also choose to add selected key employees as a retention tool.
IMRPs normally have a maximum out-of-pocket expense that the business might incur in any plan year. In other words, if the business has a $5,000 per person stop-loss limit, and the person covered by the plan incurs $8,000 of eligible expenses, the business reimburses only the first $5,000, and the insurance company reimburses the remaining $3,000.
The business first pays a nominal enrollment premium each month or each quarter to the insurance company, based on how many persons are insured under the plan.
The insured employees then submit their claims each month for out-of-pocket medical expenses to the insurance company.
The insurance company bills the business for a premium equal to the claims amount, plus a small administrative fee.
The insurance company writes benefit checks to the covered employees after receiving the premium. The covered employees enjoy the proceeds as tax-free income.
Although many insurance companies offer IMRPs, I encourage you to consider only companies that will provide you with a current tax opinion letter from a reputable accounting firm. As with any tax-related issue, you will need to sell the business owner’s tax advisor on the idea. A valid tax opinion letter is indispensable if you are to succeed in persuading a skeptical CPA. However, most accountants become enthusiastic about the idea once they understand the concept of an IMRP.
Prospecting with IMRPs
I have found that sending out an informative letter about IMRPs to small-business owners is remarkably effective in catching their attention. My letters invariably draw a 5 percent to 7 percent incoming telephone response rate. A typical letter might begin like this:
How much do you and your family spend each year on the following?
- Health and prescription drug co-pays or deductibles
- Eye glasses, contact lenses, dental or orthodontic expenses
- Chiropractic services or massage therapy
- Other medical expenses, such as laser eye surgery, smoking cessation, weight loss, etc.
Do you spend $1,000, $2,000, $4,000 or more? Wouldn’t it be nice to pay these costs with tax-free money? I have good news for you …
I then explain how an IMRP can provide them with tax-free personal income without cumbersome IRS discrimination tests or DOL forms to file. I end the letter by urging them to call me at my office or email me for more information.
I have also taught continuing-education classes on IMRPs to CPAs. They are a great source of referrals to business owners who can benefit from the tax advantages of these plans.
Scott Teel, CEBS, GBA, RPA, is the president of Teel Benefits in the San Antonio and Austin, Texas, markets. He specializes in the needs of small businesses with both group and individual insurance and retirement benefits. Contact him at firstname.lastname@example.org.
Invest in education. If you are a member of a professional organization, make sure you attend its meetings and network. “Learn what works for others,” advises Matt Tassey, owner of Scribner Insurance in Portland, Maine. Tassey also believes in attending educational events run by carriers. “Issues are discussed at these events—such as innovative ways of working with health care—which the rest of the world hears about four years later. Attendance makes you aware of the alternatives,” he says.
In addition, you should consider taking a certified employee benefit specialist course from the International Foundation of Employee Benefits.
Tassey adds: “Most people in the health-insurance business don’t think of these things. They’re so busy putting out the brush fire [that] they don’t take time to understand what’s causing it.”
Improve a company’s existing plan. This may sound elementary, but many advisors don’t spend enough time researching a company’s existing health plan so they can propose a better one. “Don’t just sell them your plan,” says John Lawler, an agent with McGreevy & Associates in Sioux Falls, S.D. “Sell it in the context of what already exists. If a company has a ‘cookie-cutter’ health plan, offer it a customized one.”
This customized plan should have a lower cost, features the company wants, or both. “If you can increase the benefits without increasing the cost, you’re golden,” he adds. Lawler spends most of his time analyzing an existing plan and putting together a comparison matrix, often using a simple Excel spreadsheet. He recently designed a new plan that included a preventative-benefits feature, with features like in-house educational seminars and free flu shots. “The company bought it,” he says.
Peter Bates is a contributor to Advisor Today.