Health Care for Small Businesses

Can you keep costs down and give employees attractive benefits packages?

For small business owners, health insurance is both a curse and a blessing. An employer-subsidized insurance plan can help attract and retain good workers. But spiraling health insurance costs have forced many small businesses to reduce or suspend health care benefits, or face a reduction in their profitability.

“The monthly cost per employee can be hundreds of dollars, depending on the group’s health history, age and other factors,” says Janice Axelrod, owner of Janice Axelrod & Associates, an independent insurance brokerage. “In these difficult economic times, health care costs borne by business owners can be especially burdensome.”

Federal insurance exchanges, which begin in 2014, may provide some relief for small business owners who cannot afford to pay for employee health care plans. But until then, employers who want to offer health insurance – and reduce costs – have several options. First, they can increase their deductibles. It’s fairly typical for small businesses to exclude dental and vision insurance, for example, while offering insurance that covers hospital costs and tests, doctor visits and prescriptions.

Another way to reduce expenses is with a Health Maintenance Organization (HMO) plan, according to Genevieve Kruse, executive director of sales distribution for Blue Cross Blue Shield of Illinois. HMO plans contract with doctors, hospitals, clinics and other health care providers such as pharmacies, labs and x-ray centers, which make up the health plan’s “network.”

In some managed care plans, employees are required to receive all health care services from a network provider. In other plans, employees can receive care from providers not part of the network, but they will pay a larger share of the cost to receive those services. Compared to a Preferred Provider Organization (PPO) benefit, some HMO options can result in an average savings of 8 to 10 percent, Ms. Kruse states. But HMOs may not be the best choice for employers who have concerns about providing their employees with flexibility on what healthcare providers they can see.

Being part of an HMO requires the employer to select a single Medical Group/Independent Practice Association (IPA) Primary Care Physician, who coordinates and refers all subsequent care. Should employees want to seek care outside of that model, benefits are not covered under HMOs. Health Savings Accounts (HSAs) are an increasingly popular option.

These tax-exempt accounts, which are used to pay for certain medical expenses, can reduce a small group’s insurance costs while giving employees tax breaks. A proponent of HSAs, Myrna Ordower, vice president of The Rockwood Company, says they’re “an important reform that will help reduce the growth of health care costs and increase the efficiency of the health care system.”

She continues, “HSAs encourage saving for future health care expenses, allowing the patient to receive needed care without a gatekeeper to determine what benefits are allowed. In short, they make consumers more responsible for their own health care.”

Another way for small groups to control their health care costs is with a Health Reimbursement Account (HRA). Ms. Axelrod explains that an HRA is an employer-funded account to reimburse employees tax-free without hassle and all reimbursements are tax-deductible to the employer. The employer gets to make the rules for the benefit plan, from choosing the deductible and out-of-pocket levels to the health plan offered by their insurance company and all IRS approved expenses.

By offering an HRA, employers can boost employee morale and save substantially when it comes to health benefit costs and high deductible plans. One client with 22 employees saved about $6,000 a month in premiums by utilizing HRAs, Ms. Axelrod continues. “The new premium essentially stayed the same as the prior year.” In general, small businesses that pay at least half of their employees’ health insurance may be eligible for a tax break.

Through 2013, a business owner can receive a tax credit of up to 35 percent of what their business spends on health insurance. In 2014, the tax credit will increase to 50 percent. All three insurance providers advocate for employee wellness programs that strive to keep employees healthier so they use fewer medical services, and thus their medical costs are less. For example, a program to monitor diabetes patients can improve their health and reduce complications from the disease.

Once an insurance plan is selected, an employer should share the highlights with employees – the details will be important to them and their families. An insurance plan should also be shared with prospective employees: it just could be the benefits that sway a top prospect to join the company.

Tagged as: small business, finance, jobs and money, women business owners and health care