Small Businesses Fight Soaring Health Care Costs

 In Small Business

The New York Times recently reported that “health insurance costs are still rising, particularly for small businesses.”
What can business owners do about this threat to the bottom line? One tactic is to stop offering a health plan to employees; however, that may not be practical. Starting in 2014, businesses with 50 or more full-time employees will owe fines if they don’t offer health insurance plans.
Smaller companies won’t be required to offer health insurance; however, under current law, most people will be required to have health insurance by 2014, so employees of companies not offering coverage generally will have to buy their own. As a result, a company that does not provide an employee health plan will be at a disadvantage in attracting and retaining capable workers.
High deductibles, low premiums
Companies that want to provide health insurance but control costs can choose high-deductible plans. As is the case with any type of insurance policy, a higher deductible means that the insured individual will pay more before the insurance takes effect. Insurers have less exposure, so the consumer’s cost is lower.
What’s more, certain types of high-deductible health insurance plans can be paired with a health savings account (HSA). Individuals enjoy major tax advantages with HSAs, so employees might appreciate a high-deductible health plan that is compatible with HSAs.
Qualifying criteria
In order for a health plan to be matched with HSAs, the insurance policies must meet certain tests. Here are the rules for 2011:
Individual coverage. The deductible must be at least $1,200. Insured individuals must have a maximum out-of-pocket cost (for deductibles, copays, coinsurance, etc.) of no more than $5,950 before the insurance pays all ongoing costs. If those conditions are met, the maximum HSA contribution in 2011 is $3,050 ($4,050 for people 55 and older).
Family coverage. The deductible must be at least $2,400. The insured family must have a maximum out-of- pocket cost of no more than $11,900. If those conditions are met, the maximum HSA contribution in 2011 is $6,150 ($7,150 for people 55 and older).
Helping out
While business owners save money by providing high-deductible health insurance, employees have more financial exposure because of the increased deductible. Therefore, some companies make tax-deductible contributions to employees’ HSAs. Even after these contributions, a business owner might have a lower total cost because of savings from choosing a high-deductible plan.
Example: ABC Corp. offers a health plan with a $1,500 deductible for individual coverage. The company also contributes $1,500 to the HSA of Alice Brady, a covered employee. Alice, age 33, can contribute up to $1,550 of her own money, tax- deductible, in 2011. This would bring the total contribution to her HSA to $3,050 this year, the maximum amount.
Therefore, if Alice incurs substantial health care expenses this year, she can use pretax HSA dollars to pay the bill until the deductible is covered and the insurance takes effect. Money left in an HSA at year- end can be retained indefinitely and eventually used for health care not covered by insurance.