By Christopher Freeburn
Escalating premiums are forcing many smaller businesses that offer group coverage to scramble for ways to cut costs. These usually involve tactics that may be necessary to keep your business's bottom line healthy, but will likely prove unpopular with your workers. Start by cutting back on specific benefits, by eliminating dental or vision care coverage, for example. Alternately, you can consider increasing the co-payments employees must pay when visiting physicians and purchasing prescription drugs. Both measures will lower your plan's overall premiums.
Of course, the single most effective way a small business can reduce costs is by shopping around for the lowest cost plan in the first place. "There are many health insurance providers out there," advises Todd McCracken, president of the National Small Business Association (NSBA). "Small business owners should consider a range of offers from as many companies as possible." Working with an insurance broker can bring you a much greater range of possible providers than trying to solicit offers on your own.
Small businesses are increasingly a market courted by the major insurance providers, which have designed group health plans-HMOs, PPOs and POS plans-specifically to address the financial concerns of small businesses.
Additionally, you can reduce the percentage of the insurance premium you pay per employee. While most states have no legal minimum for employer premium contributions, some-California, for instance-require the employer to make some level of health insurance premium contribution. However, no state demands that a business pay more than 50 percent of the premium for each employee. In general, small businesses pay about 30 percent of an employee's individual premium, but there is no hard and fast rule about it.
Choosing the right plan
The first step in selecting the health insurance plan that best fits your company is to sit down and discuss the matter with your employees, says Mindy Ross, an independent insurance agent in Nassau, New Hampshire. "Ask your employees what sort of coverage they need-and how much of the premiums they will be willing to pay." Let them see exactly how much the insurance will cost both them and your business, Ross advises. "That way they will understand why you are choosing a particular plan, even if it might not be the one they'd like," she says. Ross explains that letting your employees know the high cost involved in setting up and maintaining their insurance can help soften the blow if you need to cut back on the plan or lower employer premium contributions later. "Most of the time, employees have no idea just how much their insurance is costing the company."
Stepping Outside a plan
Even after trimming coverage and reducing premium contributions, some businesses find the available array of health plans too expensive. But even if you opt not to obtain a group plan for your employees, you can still provide some form of health coverage. According to Section 105 of the IRS tax code, employers can reimburse employees for health care expenses. Under this option, a company decides, on an annual basis, to set aside a certain amount of money, which the employees use to purchase individual health insurance policies-or pay actual medical costs-on their own. The money allocated for this purpose is tax-free for the employee and tax deductible for the employer.
HSAs and HRAs
The dramatic escalation of health insurance costs has caused much pontification as well as some real action in Washington. In 2003, Congress created Health Savings Accounts (HSAs)-which went into effect in 2004-as an alternative to traditional medical insurance. HSAs are offered only in conjunction with a High Deductible Health Plan (HDHP). Sometimes called "catastrophic health plans," HDHPs generally cost a great deal less than traditional health insurance plans, but feature minimum deductibles for 2008 of $1,100 for individuals and $2,200 for families, with maximum out-of-pocket expenses of $5,600 for individuals and $11,200 for families. Though HSAs and HDHPs can be set up by individual consumers, they can also be offered through employers. If you offer an HDHP plan, all full-time employees must be treated equally under the plan. Deposits into employee HSA accounts are made on a pre-tax basis, with the maximum annual deposit being $2,900 for individuals and $5,800 for families. Funds deposited into HSAs are the property of the employee making the contributions and any unused funds are carried over from year to year and continue to earn tax-free interest on behalf of the employee. Funds in an HSA can be withdrawn without advance approval to cover any qualified medical expense, including deductibles for HDHP coverage and expenses not covered under the insurance plan, such as dental, vision, chiropractic services, and over-the-counter medications. Some HSAs offer a debit card to pay for such expenses, others offer checks or reimbursements; most offer a variety of ways to access the funds in the HSA. HSAs are fully portable, meaning the funds remain the property of the employee even if he or she leaves the firm or changes health plans.
Similar to HSAs are Health Reimbursement Arrangements (HRAs), which can be used in conjunction with HDHPs or other traditional insurance plans. An HRA is an employer-funded account that reimburses employees for medical expenses as they are incurred. The advantage to the employer is that such funds are expended only if they are needed, meaning that the healthy employee, who requires little or no care beyond an annual physical, will save the company money, making the HRAs of employees in genuine need that much more affordable. Unused funds remain the property of the employer. Major insurance providers have incorporated HSAs and HRAs into their coverage offerings, making it easier for small businesses to add them to their coverage options.
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