Health Insurance for Your Employees: How can small to medium sized businesses offer health benefits to their employees without breaking the bank?

Health Insurance for Your Employees: How can small to medium sized businesses offer health benefits to their employees without breaking the bank?

by Stephanie Morrow, December 2009

With healthcare costs rising an average 18.1% each year nationally, employers in every industry across the country are taking a long, hard look at what they can do to keep costs down. The stiff increase in premiums, which has risen by double digits each year for the past three years, is a national trend that is affecting the entire economy.

Health plans that are fully-funded by the employer are ideal for employees, but the continual rise of health care costs make these plans too expensive for many small and medium sized business owners, forcing them to be faced with some difficult decisions - should these companies continue to pay these increasing premiums, only to subsidize them with pay cuts? Should they pass along more of the cost to their employees? Should they drop coverage all together?

There are procedures that small and medium sized businesses can follow to try to control rising health care costs. First, review and analyze the company's benefits program. Are there benefits currently being offered that employees don't use and can be reduced or eliminated? Should premium costs be split between employer and employee differently? Should the company increase deductibles and/or co-payments? Answering these questions, and considering the steps below, may help small and medium sized businesses offer health benefits to their employees without breaking the bank:

1. Incentives for Opt Outs - Some companies offer a monetary reward for employees who have coverage though a spouses' plan and therefore opt out of employer-paid benefits. Please note that employees must sign a waiver assuring the employer that they have medical coverage from another source. In addition, most insurance plans require a certain percentage of employees to participate with the group, making this option possibly difficult to manage.

2. Share the cost - Many companies are considering increasing employees' share of monthly premiums, raising deductibles or both. For example, if a deductible is $1,000, some employers will make employees responsible for the first $500 in expenses, and the company will cover the rest. Sharing the cost could help employees value their health care plans more, while lowering premiums because of the higher deductible amounts. Employees should be notified in advance of any cost increases, and if they have any alternative choices.

3. Health Savings Accounts - A Health Savings Account (HSA) is a tax-free savings account for medical expenses, allowing taxpayers, or their employers, with a high-deductible insurance plan to contribute up to $2,650 a year ($5,250 for families). Individuals and families are eligible to participate when their deductibles are at least $1,000 and $2,000 respectfully. Amounts in these accounts can accumulate over years and be used to reimburse tax free, qualified medical expenses. HSAs not only lowers costs for small and medium business owners who offer health insurance, but also help small and medium business owners who couldn't previously afford health insurance for themselves or their employees to purchase high-deductible insurance and pair it with an HSA.

4. Allow Employees to Use Pre-Tax Dollars through Flexible Spending Accounts -Plans with lower deductibles may want to consider Flexible Spending Accounts (FSAs). FSAs allow employees to deduct up to a specified amount of pretax dollars from their paychecks to be allocated for health care costs. Employees estimate their annual health care costs, and are reimbursed as they incur the costs throughout the year. If using FSAs, employers should notify employees to be careful when estimating the annual amount because, unlike HSAs, which can carry over year to year, money in an FSA is forfeited if not spent by year-end.

5. Reduce benefits - Some employers may have to decrease benefits, increase co-payments, or both. Some less-expensive plans may require different co-pays for different types of physicians. Employers can offer employees choices, based on their needs, as to what they want to pay out-of-pocket.

6. Provide incentives for healthy behaviors - One of the main reasons for increases in health care premiums is because of utilization. Obesity is widespread in the United States; diabetes rates among people ages 30 to 39 has risen by 70%; 46.5 million adults smoke cigarettes; more than 60% of Americans do not get enough physical activity, and more than 25% are not active at all. Small and medium sized businesses can save money on their health insurance costs by encouraging employees to live a healthy life. A recent study showed that, although small and medium sized businesses offer fewer health promotions than large corporations, their workers are more likely to use them.

Many companies are rewarding employees who successfully complete a smoking cessation, weight reduction or fitness program. Other companies subsidize smoking cessation, weight and/or stress management, fitness programs, or other wellness programs.

7. Show the actual numbers - Health care is an employee's most valued benefit, according to the Employee Benefits Research Institute. Employers can provide individual figures to each employee of their benefits package - not only health insurance, but also vacation, holiday, sick pay, retirement, life insurance, etc. Many employees are surprised to learn that, through their benefit packages, their employer is paying them thousands of dollars over and above their salaries.

Shop Around Periodically

Whether you are thinking of sharing premiums with employees, purchasing higher deductible plans, or offering HSAs to lower your health care costs, shopping around each year for an affordable plan is essential. Many business owners schedule an annual review of the company's health insurance plan. This is because usually, when a small or medium sized business signs up for health insurance, it will receive a guaranteed fixed price for one year. However, when the first year is up, many insurance carriers will increase rates anywhere from 15 to 50%. Receiving quotes from several insurance companies allows employers to research the most competitive prices possible, and offer quality insurance to employees.