Fam Pract Manag. 2003 Jun;10(6):70.

Offering health benefits


I am considering offering my employees health insurance benefits. Should I give an equivalent cash bonus to those employees who opt out of the health benefits? How can I avoid the employer’s share of employment taxes?


Health insurance is considered a welfare benefit under the Employee Retirement Income Security Act (ERISA), so offering it to some employees and not to others would be considered discriminatory. Even if an employee is covered by other insurance (e.g., a spouse’s plan), you must cover that employee if he or she wishes to participate in your program.

If an employee chooses not to participate in your plan, you do not need to provide him or her with an equivalent cash bonus. In fact, doing so would likely backfire on you. Employees may consider the payment a raise and expect to see it every year, or they may see it as a new base salary from which future raises should be calculated. Compensating nonparticipants may also cost more than you realize in additional payroll taxes, wage-rate disparity and associated morale problems. If you attempt to circumvent payroll taxes on this type of payment, you subject your practice to penalties and interest on the underpayment of payroll taxes. These cash payments do not qualify as a nontaxable benefit and are considered wages just as the employee’s regular earnings are.

Governance rights


Our physician group has an outside board of directors that is willing to give us some governance rights. How do we proceed, and what similar models are available to view?


Without knowing the details of your arrangement, it is difficult to tell you how best to proceed. However, there are some basic issues you should consider. It sounds as though you are employed by nonpracticing physicians or nonphysicians. Presumably, the board’s willingness to involve you in governance means that you will have representation on the board. If so, you need to find out how much representation you will have (i.e., the number of seats on the board and votes required for board action) and how your board representative(s) will be selected (i.e., by the board or by election). Typically, representation by election is preferable since it allows you to choose your leaders internally.

In addition to giving you representation, the board may be willing to put certain issues entirely under your control (e.g., management of the clinical aspects of the practice) and allow you to advise the board on other issues (e.g., hiring, firing or compensation matters). Identify the issues you want to be involved in and discuss them with the board.

Finally, your attorney should be able to assist you in settling on a model that will work best for your specific employment arrangement.

Employment agreements


With the help of a lawyer, our practice created a 15-page employment agreement. We have offered this agreement to several doctors already, but none of them want to sign it, even though they like our salary and benefits. The agreement seems to be a little intimidating to them, but we must protect ourselves. What should we do?


A 15-page physician-employment agreement is not too unusual, particularly if hospital-supported income guarantees are involved. Assuming that your agreement was written by a knowledgeable attorney who has experience working with physician practices and that the candidates truly are pleased with the compensation package, a direct approach might work best. Call the candidates (or have a neutral intermediary such as a consultant call) to ask them why they rejected the offer. They may have rejected it for specific reasons, such as difficult buy-in terms, lack of opportunity to become an owner, a tough call schedule or unacceptable noncompetition terms. If they simply are intimidated by signing an employment agreement – a 15-page employment agreement in particular – consider these options:

  • Have the agreement rewritten in a more understandable and friendly manner. Because physician candidates respond well to data, provide a summary sheet that includes data on physician income, work hours, etc. Groups such as the AAFP, the Medical Group Management Association or the National Association of Healthcare Consultants publish this information.

  • Offer to reimburse the candidates for legal fees to have their own attorneys or consultants review the agreement. This should cost only a few hundred dollars. Negotiating changes to the agreement can result in a better document regardless of whether that particular candidate accepts the job.

* Denotes member of FP Assist, the AAFP’s online clearinghouse for consultants and attorneys.


Copyright © 2003 by the American Academy of Family Physicians.
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