If you are a small-business owner, you are probably directly involved in purchasing health coverage for your employees. You also are probably spending more time than ever before trying to figure out how to offer competitive health benefits without doing significant damage to your bottom line. And, if you’re like some of your competitors or peers who own or manage a small firm, you’re faced with an even tougher decision: can I continue to offer health benefits at all next year? Costs are clearly out of control.
It’s no surprise that small-business owners surveyed by the National Federation for Independent Business put the cost of health insurance at the top of their list of most critical problems facing small business. In addition, the Kaiser Family Foundation reports that the number of small employers (companies with 3 to 199 employees) offering health coverage declined from 68 percent to 63 percent over the last three years.
That means an additional 5 million workers without health insurance.
Your company doesn’t have to be part of that growing number. By applying some simple strategies, you can not only continue offering health benefits to your employees, but can do so in a way that is less disruptive to the financial health of your company.
Here are some of the key components that can help you get the most from your health benefits budget:
Choice – When it comes to health coverage, one size does not fit all. Employees have different needs. Some want comprehensive coverage and are willing to pay for it. Others would rather pay less out of their paycheck each month, in exchange for a higher deductible before traditional PPO coverage kicks in. If you’re funding full coverage for these employees, it may be more coverage than they need or want.
Some insurers will let small employers offer two, three or more health plans side-by-side. That way, employees choose the level of coverage that’s right for them. You don’t pay for more than your workers need.
Consumer engagement – Consumers are emerging as the most promising players to contain health care costs. For most consumers, economic realities remain hidden. Many believe the total cost of a visit to the doctor’s office is their $20 co-pay. But when people are spending a meaningful share of their own money, and are given good information to do it wisely, they will be much better at controlling spending for themselves and for your company as a whole.
Consider plans that give consumers responsibility, like those with a front-end spending account. As consumers spend the account on health care services, they have good reason to investigate the true costs of care and an incentive to make cost-conscious decisions.
Tax advantages – Employers can use tax-advantaged spending accounts to help manage the cost of health benefits. Several kinds exist. Health savings accounts (HSAs) allow employees to save money for medical expenses and invest the account on a tax-deferred basis, with the employer, employee or both contributing to the account. HSAs are typically paired with a high-deductible health plan, offering premium savings, and HSAs are portable, so employees can take the account with them from job to job.
In a health reimbursement arrangement (HRA), the employer contributes to a health care account on a pre-tax basis, and employees use the money to pay for qualified medical expenses. Employers can realize premium savings by combining the HRA with a high-deductible health plan, and employers need not fund the entire account at once, which helps cash flow. One challenge can be the administrative work in setting up the account, so look for an insurer that offers the HRA and health plan in one easy-to-administer package.
Lastly, employees can save pre-tax money for health expenses in a flexible spending account (FSA). The downside of an FSA is that the account does not roll over from year-to-year, meaning employees must "use it or lose it."
Value-added extras – Does your health plan offer clinical programs to help employees with chronic conditions? How about information and tools, such as online calculators to forecast out-of-pocket costs for health care services? Does your health plan provide educational materials explaining to your employees the realities of today’s health care environment? Forward-thinking health plans build such features into a comprehensive package.
Something else your employees will appreciate is a debit card to access spending account dollars. Swipe the card at the pharmacy or doctor’s office to pay co-payments or other charges for health care services. No need to fill out lengthy forms to request reimbursement. Having such a card can encourage more employees to take advantage of spending accounts like HSAs, HRAs or FSAs. Some insurers elegantly combine the debit card with an insurance ID card.
Finally, purchasing health insurance can be complex, so it always helps to have a trusted advisor. Seek out an independent insurance agent or broker – someone who knows the local market and can help you compare plans and features.
No one should minimize the challenge facing small businesses when it comes to health benefits, but with some careful planning and sound strategies, manageable health benefits might be closer than you think.
Larry Rambo is the chief executive officer of Humana-Wisconsin.
May 13, 2005, Small Business Times, Milwaukee, WI
