Healthcare costs continue to rise, even skyrocketing for some businesses. Premiums for small businesses have grown by 113 percent in the last decade. Despite passage of the Patient Protection and Affordable Care Act (“Obamacare”) last year, there is no premium relief in sight. However, there are still actions you can take to provide the care you want for your staff to keep them healthy and protected without causing you financial hardship.
1. Check your plan options
Health insurance doesn’t mean that you must have the Cadillac of plans to cover every health need. Such plans are very expensive. There are other types of plans, such as HMOs, that provide less costly coverage.
Some states may offer state-sponsored plans for small businesses and sole proprietors. For example, New York’s HealthyNY.com provides an option for small businesses and sole proprietors that meet certain income limits. Massachusetts, with its health care mandate, has a HealthCareConnector for employers to find affordable coverage within the state; eligible small businesses can save 15 percent by joining a wellness health care track.
Discuss your needs with an insurance agent who can offer a variety of health care plans. Or do your own research using the small employer health care finder from HealthCare.gov. The finder lets you search your options by zip code.
2. Tweak your coverage
One way to keep premiums down is to increase the portion of costs borne by employees, including deductibles and co-payments. To maintain premiums, you probably need to hike these out-of-pocket costs. While it will cost more to visit a doctor or obtain a medication, at least you’ll be able to retain coverage for your staff. Again, you’ll want to discuss the impact that proposed changes will have on your premiums. Obviously, once you make decisions, share them with your staff.
3. Share costs
Many small business owners would love to pay for all of their employees’ coverage but just can’t do it financially. They’re forced to share the responsibility for paying for coverage. Some cost-sharing options to consider:
- You pay the cost of coverage for an employee. Anyone who wants to add family coverage pays the additional cost.
- You share the cost of coverage in some way (e.g., 50/50).
- You give employees a dollar allotment and they choose the type of coverage they want from options you provide, paying any additional costs.
Important: The cost-sharing option you choose may impact your eligibility for a federal tax credit, explained later.
4. Use consumer-driven plans
There is a growing trend toward consumer-driven plans because of the money that can be saved by the company. As of January 2011, there were 11.4 million people using health savings accounts (HSAs) (explained below). HSAs and health reimbursement arrangements (HRAs) are plans that combine a personal account with a high-deductible (low cost) health plan (HDHP) in which the first dollars of care are borne by the employees. Once the deductible is met, the insurance operates like regular insurance.
Out-of-pocket medical costs can be paid through a couple of different accounts.
- HSAs. These allow the employer, employee, or a combination of both to make tax-deductible contributions (within IRS-set limits). The funds grow on a tax-deferred basis and withdrawals for qualified medical costs are not taxable. There is no use-it-or-lose-it feature, so if employees don’t use up their account funds, they can use the funds in later years. If they leave the company, they take the accounts with them.
- HRAs. These are employer-funded plans that cover employee’s out-of-pocket costs up to a dollar limit set by the company. Unused amounts carry over to the following year, but accounts are not portable; employees lose this benefit when they leave the company.
5. Take advantage of the Federal tax credit
The small employer health insurance credit allows you to offset your federal income tax liability by 35 percent of the cost of the premiums you pay for your staff. When enacted last year, the government had expected 4 million small businesses to use the credit, but as of mid-October 2011, only 309,000 had done so, in part because many were unaware of its existence.
To qualify for the credit, you must meet all of the following conditions.
- You pay at least 50 percent of the cost of the premiums for employees.
- You have fewer than 25 full-time equivalent (FTE) employees. You may be able to meet this condition even if you have more than 25 employees because owners and their relatives who are employees are not counted.
- The average annual wages for your FTEs are less than $50,000 per FTE.
The maximum credit applies if you have fewer than 10 FTEs with average wages under $25,000; a partial credit applies for more FTEs with higher wages until you hit the limits above. There are other limitations, restrictions and requirements for the credit. Learn more in the instructions to IRS Form 8941.
Handling the issue of health care coverage for your business can seem monumental. However, there are plenty of resources that can help. Here are two.
- IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans (it has not been updated for 2011 and 2012, but still provides valuable, general information about plan types).
- MyVenturePad’s free webinar on Rising Costs, Unclear Mandates.
Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser’s Small Business Taxes and The Complete Idiot’s Guide to Starting a Home-Based Business, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day and monthly e-newsletter Big Ideas for Small Business at www.barbaraweltman.com and host of Build Your Business radio. Follow her on Twitter @BarbaraWeltman.