Controlling Health Care Costs in a Small Business
Employer-sponsored health insurance is considered by business owners and employees alike to be one of the most important benefits available in the workplace today. Yet skyrocketing costs are making it more difficult for small businesses to attract and retain skilled workers with the promise of health insurance.
As a result, there is a growing sense of urgency among many small-business owners to find ways to reduce health care costs while meeting the mandates set forth in the Affordable Care Act. With that in mind, strategies you may want to consider to help reduce your business’s health care expenses include:
High-Deductible Plans and HSAs
High-deductible health plans (HDHPs) are designed to drive down health care costs by placing more of the responsibility and cost burden on consumers, in effect, forcing them to be more cost conscious when deciding on medical care. Like traditional health care plans, HDHPs usually cover a wide range of medical and prescription costs — but only after a steep annual deductible has been paid. Such deductibles generally run from as low as $1,300 for individual coverage, to upwards of $7,500 for family coverage, depending upon the plan.
HDHPs are often used with Health Savings Accounts (HSAs) — tax-preferred savings accounts that are used to fund qualified medical expenses. Workers or their employers make tax-free contributions to an HSA, then the employees use the funds to purchase medical care until they reach their deductibles.
HSAs and Employee Eligibility
Your employees are eligible for an HSA if they meet four qualifying criteria:
- They are enrolled in a qualified HDHP.
- They are not covered by another disqualifying health plan (whether insurance or an uninsured health plan).
- They are not eligible for Medicare benefits.
- They are not a dependent of another person for tax purposes.
The maximum contribution to an HSA for 2016 is $3,350 for employees with single coverage, or $6,750 for those with family coverage. Workers over age 55 can contribute an additional $1,000 in 2016 regardless of whether they have single or family coverage. Such contributions are made on a before-tax basis, meaning they reduce taxable income. Note that unlike IRAs and certain other tax-deferred investment vehicles, no income limits apply to HSAs.
A health reimbursement account (HRA), on the other hand, must be funded only by an employer — not by a contribution of employee income. Employees with HRAs then receive tax-free reimbursement for qualified medical expenses up to a maximum amount.
Shifting Costs and Cutting Benefits
Employers who want to continue providing health care benefits within the same general framework of their existing, traditional health insurance programs often face the prospect of reducing their costs by sharing expenses with employees and/or reducing available benefits. For example, employers may opt to raise employee premiums, raise deductibles, or place a limit on certain types of benefits, such as coverage for routine doctor’s appointments.
However, employee backlash could be significant, so it’s important to explain that the changes are necessary to maintain the overall fiscal well-being of the company. You may also want to consider offering other benefits designed to make up for the implementation of a less-generous health insurance policy. For example, if reducing your contribution to health insurance premiums, you may want to consider enhancing long-term care and disability benefits to compensate.
In some cases, small-business owners may even offer to help bridge the gap between the old health care benefits package and the new one. For example, an employer who raises the deductible for inpatient hospital care may offer to pay the difference in the event an employee is actually hospitalized.
Small businesses offer an average of five wellness programs according to a 2015 study by Optum, Inc., a unit of United Healthcare.1 These might include a smoking cessation program, health or fitness challenges, Web-based resources for healthy living, health risk assessments, health biometric screenings, disease management programs, on-site exercise facilities, on-site stress-reduction activities, or a health advocacy service.
While the goal of a wellness program is admirable — to reduce health care costs by fostering healthier lifestyles among employees — the programs aren’t without their potential drawbacks. For example, a wellness program that rewards (or penalizes) workers based on arbitrary health benchmarks may be deemed discriminatory. A program that emphasizes education is likely to be less controversial than one that seems to single out individual workers for praise or admonishment.
1Optum, Inc. 6th Annual Wellness in the Workplace Study, July 2015.
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