Rising health insurance costs can cripple business owners. Providing high-quality insurance to employees free of cost to them is a benefit of the past in most organizations. Premiums alone can cost an employer an average of $8,000 to $10,000 a year for every insured employee — an expense that deflates the bottom line.
That said, there are options that can help you trim your monthly insurance premium bills, allowing you to offer quality benefits without buckling under costs.
You don’t have to compromise quality health care benefits or eliminate plans entirely. There are two options that may save you from sinking your budget into rising insurance costs — Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs).
Both of these tax-favored vehicles support high-deductible health plans, which may significantly reduce premiums. High-deductible health plans (HDHPs) shift responsibility from business owners to employees, reducing the burden of premiums and encouraging consumers to make wise health care decisions. The HDHP concept isn’t new — it is the new vehicles, HSAs and HRAs, that can make HDHPs a viable option for your company and employees.
While HDHPs, HSAs and HRAs are not foolproof solutions to managing long-term health insurance costs, business owners owe it to themselves to consider the advantages and determine whether a consumer-driven arrangement is a fiscally-sound fit for their companies.
Health Savings Accounts
These are popular accounts for employers who believe in the consumer-driven health care philosophy of shifting responsibility to employees who are informed consumers of health care services. Informed employees will make smart medical decisions, such as considering generic medications over higher-cost brand-name drugs or visiting a general care practitioner when an emergency room is not necessary.
Similar to 401(k) accounts, both employees and employers can contribute to HSAs. When employers elect a qualified high-deductible health plan, the deductible is passed on to employees. Deductibles might range from $1,250 to $4,000 for individuals or $5,200 to $7,000 for families. An HSA will help employees mitigate their financial exposure for a high deductible on a tax-advantaged basis.
The employee and/or employer can contribute money to the HSA fund, which earns interest and is tax-free. Withdrawals to pay for health expenses are tax-free, as well. And if an individual does not use the money, the health savings account serves as a savings vehicle, earning interest and rolling over each year.
This option appeals to employers because the shared responsibility allows business owners to offer quality benefits, save on premiums and create a new “benefit” for employees. On the other hand, those who employ workers with lower salaries must look at whether their employees will be able to pay for medical expenses and prescriptions in full until their deductible is met.
Health Reimbursement Arrangements
This tax-preferred vehicle allows employers choosing a high-deductible health plan to identify the portion of the deductible that will be reimbursed to the employee from the company’s general assets.
For example, say an employee’s family deductible is $5,200. An employer might offer to pay the first $2,000 of that or any percentage up to 100 percent. In this case, workers approach their employers for this reimbursement the same way they would collect payment from an insurance company to cover medical costs.
Employers can save on premium expenses, and the money they take out of their general assets to reimburse substantiated expenses is tax-deductible.
HDHPs are likely to be an alternative that will reduce premium costs for your company. The new tax-advantaged vehicles, HRAs and HSAs, may enhance the advantages of HDHPs. Partner with a professional who can advise you of the employee benefits plan that fits your business model and growth goals.
Next month, we’ll address the most frequently asked questions about HDHPs, HSAs, and HRAs.
Jessica Galardini is the COO of the Chambers of Commerce Service Corp. and executive vice president of HRH Affinity Marketing Group. Reach her at (412) 456-7012.
